Category: Archived Articles

Contract Packaging Agreements

Cyndi

Purpose in Brand Owner and Manufacturer Relationship and a Look at Some Key Provisions

2 people shaking hands

By: Brad Berkman and Louis J. Terminello, Greenspoon Marder

Brewers and brand owners both, do not underestimate the importance of a well drafted “contract bottling agreement.” First, for the uninitiated let’s briefly explore what in fact, a contract package arrangement is and brand development within the context of that arrangement.

  Breaking into the realm of manufacturing alcoholic beverages can be a very expensive endeavor. Startup costs for opening a brewery, distillery or a winery can be immense. Even startup costs at the “craft” level are significant. Land and facilities must be bought or leased, mechanical, electrical, and plumbing systems need designing and buildout, and of course, manufacturing equipment such as tanks, stills, bottling lines, and pumps must be purchased and installed, among many other things. The costs can be very high. Hundreds of thousands of dollars, likely even more, will come out of pocket before the first bag of grain is poured into a mash tank, distilled, and bottled, labeled, and a corked brand comes rolling down the bottling line. Of course, merely producing an alcoholic beverage brand is just the beginning. The idea is to sell bottles, boxes, pallets, and container loads of happiness in the bottle. This of course requires tremendous expenditures on brand marketing, sales, and promotional initiatives. Happiness in the bottle can quickly turn into weeping in one’s glass if poor planning is exercised.

  Enter the contract package arrangement. A business deal that benefits the independent brand owner and marketer and the skilled brewer, distiller, or wine maker. It is the foundation of a symbiotic relationship that cuts costs for both parties and goes a long way in increasing the likelihood for the economic success of each. In the simplest terms, in a contract package relationship, a brand owner will “contract” with an existing manufacturer to produce and bottle and alcoholic beverage for the owner. All production and labor are contributed by the producer, paid for by the brand owners, ultimately leading to a finished product owned and ready for sale in the market by the brand owner.

  For manufacturers, contract packaging, in addition to bottling their own labels, can be a significant and badly needed additional stream of revenue. For the brand owner, the significant cost savings from avoiding building out a plant are immense and allows for valuable financial resources to be directed to advertising and marketing activities. After all, a bottle is not going to come off the retailer’s shelf by itself.

  With the above in mind, this article will examine some of the key provisions that must be addressed in any well drafted contract packaging agreement that are likely concerns of both parties to any agreement of this sort. When crafted properly, the agreement will ensure that the rights, duties and obligations of both parties are clearly defined, ideally leading to an unambiguous business relationship. It is important to note that every deal is different, and the terms of a well drafted agreement will be deal specific. The below provides general but important guidance on some essential terms.

A few Key Provisions:

  Intellectual Property Rights and Licensing

The brand owner almost always has spent significant treasure in developing a brand name and identity. The first step in protecting brand ownership commences in fact prior to entering into a contract packaging agreement. The brand owner should make every effort to trademark the brand name and logo in the appropriate trademark categories prior to bottling and sale in the marketplace.

  Building brand equity or value is a labor intensive and costly exercise. Trademarking the brand name is an absolute requirement to ensure brand value remains with the owner. As for the contract packing agreement, the brand owner will grand a limited, non-exclusive license to the manufacture to produce and bottle the product for the duration of the agreement. At termination of the relationship, the limited license shall cease to exist, and the manufacturer will generally have no future rights to the brand name.

Formulation, Ownership

  Product formulation must be addressed in these agreements as well. Both the manufacturer and brand owner must agree prior to production, the formulation specifications and method of manufacture of the liquid in the bottle. A well-crafted agreement should address deviations from the agreed upon formula. If a dispute arises between the parties in regard to formulation and product quality or integrity, a means for determining fault should be incorporated into the agreement. It is highly recommended that third party laboratories are identified in the agreement where the finished product can be sent for testing and ultimately assignment of responsibility.

  Compensation to the injured party for out-of-spec liquid should be codified as well.  The contract should also address formula ownership and use of the liquid. Common place vodkas, as example, are drastically different from unique formulations with unique ingredients. Assignment of ownership of the formula should be addressed in any contract packaging agreement in a similar fashion as usage of the brand name as described above.

Raw Materials, Packaging

  Every beverage product produced requires raw materials and packaging materials. Grains, malt, yeast, and other ingredients are required as well as bottles, labels, stoppers, and cases. These items can be secured by the manufacturer as part of the contract arrangement, or they can be secured by the brand owner and delivered to the producer’s plant (producer is used interchangeably with manufacturer). The acquisition of these items is very important for many reasons including the quality of the materials used and the costs involved.

  Ultimately, the costs of these materials will determine the price of the finished product on the shelf. The parties to any agreement should establish roles and responsibilities for obtaining these items to ensure adequate supplies of the same at the right cost point. Storage of inventory of both raw materials and packing and how to deal with defective materials should be sorted through by the parties with the costs assigned accordingly.

Production Quantities

  Production amounts are an essential element of negotiations and memorializing them in an agreement is vital. Both the manufacturer and brand owner need to align their expectations on this issue. Either party will quickly cry breach of an agreement if the manufacturer cannot produce the quantities the brand owner requires and conversely, the manufacturer will do the same if the brand owner does not contract and purchase the quantities bargained for. 

  Realistic volume expectations need to be established for both parties to the agreement. As an offering of sage advice, if there is not a meeting of the minds on this issue by the parties, it is best to walk away from any arrangement. Further, it is advisable to incorporate reasonable and realistic annual volume growth expectations, year over year, in a multi-year agreement.

Payment Terms

  It goes without saying that payment terms may be the most important part of a contract packaging agreement. Clearly both parties need to know when they will make and receive payment and the timing of the same. In some instances, manufacturers may be willing to provide favorable credit terms, (most likely offered to a long-standing brand owner partner who has well established credit).

  In many instances manufacturers may require all monies to be paid prior to production. In other instances, they may require one-half of the production amount prior to commencing manufacturer, the remainder due at pick up of the finished product. Once again, this essential term must be negotiated and memorialized in a well drafted contract package agreement.

Quality Control and Product Recall

  This provision was briefly mentioned above but is worth restating here. Ideally, production moves along without a hitch and product quality and integrity remains excellent. Of course, that is not always the case. There are times when product formulation is off or foreign objects make their way into the bottle. The parties to a production agreement must memorialize issues such as the right to inspect finished product prior to leaving manufacturers warehouse, the procedures and allocation of costs if in fact product must be recalled.

  As a final thought, contract packing agreements must be beverage law compliant.  Additional terms in the agreement must comport with and be legal under alcohol beverage law and the parties to the agreement must be licensed accordingly.

  The above is very much a sketch of some important issues that must be addressed in a well-crafted contract package agreement. There are many other areas that must be negotiated between the parties and included. A word to the wise, it is always beneficial to both parties to consult with attorneys who are experts in this area. Ideally, the agreement should provide a business framework that makes for a productive relationship between manufacturer and brand owner and anticipate problems that may arise and incorporates mechanisms and procedures for addressing reasonably foreseeable issues.

Holladay Distillery

Cyndi

Missouri Bourbon With Real Historical Origins

facade of holladay facility

By: Gerald Dlubala

If the name Ben Holladay doesn’t sound familiar to you, you’re not alone. But Holladay is probably one of the least known yet most influential figures in not only Missouri history but in American history as well.

“He really was,” said Jordan Germano,  Communcations Manager for McCormick Distilling Company. McCormick packages their family of brands on the same historic Weston, Missouri site where Holladay Bourbon is distilled. “Ben Holladay was born and raised in Kentucky and moved to St. Louis, Missouri, at 17 years of age,” said Germano. “From there, he moved to Weston, Missouri, aptly named because, at the time, it was the westernmost city related to the trade centers. While living in Weston, Holladay was known as a serial entrepreneur and transportation tycoon.”

  Holladay’s string of successes led him to be known as the “Stagecoach King,” named for creating the Overland Express stagecoach line that he ultimately sold to Wells Fargo. Holladay also owned steamships, streetcars, a railroad, and even the Pony Express for a brief time. He also became the first postmaster and owned a saloon, silver mine and hotel. Holladay was the largest individual employer in the US in the late 1800s, building an empire that spanned the country. His lasting legacy, however, is that of quality bourbon distiller, beginning when he purchased a parcel of land in Weston, Missouri, that included a natural limestone water supply. Born and raised in Kentucky, Holladay and his brother, Major David, already knew the advantage of having a limestone water source on site. So, in 1856, the Holladay brothers began their whiskey journey by making their first batch and officially launching the Holladay Distillery. The following year, in 1857, that batch sold. Now, 167 years later, the distillery is still located on the original site and is recognized on the National Register Of Historic Places as the oldest distillery west of the Mississippi.

  “The distillery never really closed down during all of those years,” said Jordan Germano, “During prohibition, Holladay Distillery was one of the few distillers granted a license to package and distribute their whiskey for strictly medicinal purposes. When prohibition ended, Holladay again began producing bourbon until 1985. At that time, and I know it’s a little hard to believe in our current market, bourbon just wasn’t popular. It wasn’t a trendy drink or something people would seek out, so we stopped making bourbon and concentrated instead on making clear spirits, which were all the rage at that time. In 2015, we refocused and realized we were sitting on a historic property with everything we needed to make great-tasting, quality bourbon, including our own limestone water source and iron-clad historic rickhouses. These things are not common outside of Kentucky, so much so that we are the only Missouri distillery to have them, so we asked ourselves why we weren’t distilling bourbon when everything on the property told us we should.

Everything Necessary For Quality Bourbon Is On Site

  Germano told Beverage Master Magazine that the first structure on the property dates back to the early 1900s, the second one is from the 1930s, and the third and most prominent structure, enough to house up to 12,000 barrels, is from the 1950s. After ensuring the structures’ soundness and integrity, two of the three are currently being filled for aging.

  “When restarting bourbon production, we knew we had the location, resources, and the ability to wait at least six years to produce a truly authentic and quality product, so that became our goal,” said Germano. “In 2022, we released Ben Holladay Bourbon, using his original recipe with a traditional mash bill of corn, barley and rye. Then, about a year into the process, our president wanted to distill and age a bourbon with wheat, something similar to a Maker’s Mark or Willet, by swapping out our rye for wheat in the mashbill. It makes a huge difference. Our president’s reasoning for doing this was as simple as he liked it and wanted to make his own. No one knew or anticipated six years ago that this style would be popular now and in demand, so when we introduced our Holladay Soft Red Wheat this past March, it was a huge success. Our president has always been a creative thinker focusing on what is next for distilling and us.”

  Ben Holladay Bourbon and Holladay Red Wheat are Bottled-in-Bond, and even though these two premium bourbons are popular and widely distributed, the Holladay Distillery also has barrel-strength versions of both, called rickhouse-proof releases.

  “Yeah, we wanted to be a little different, so we call our barrel strength products rickhouse-proof,” said Germano. “Every month when we bottle, whether it’s our Ben Holladay Bourbon or our Holladay Soft Red Wheat, we’ll fill some cases at rickhouse proof to be sold here on site. We also do on-site barrel picks and try to keep at least one or two expressions of a Holladay One Barrel Bourbon, our version of a single barrel bourbon. At our welcome center, you’ll always find a one-barrel bourbon of both Ben Holladay Bourbon and Holladay Soft Red wheat to sample and hopefully purchase, but they sell out almost immediately. We released our first Soft Red Wheat one barrel this past weekend, and it was gone before the weekend was over. You can always taste an individual sample, and we have flight options to taste something you’re interested in.”

  Ben Holladay handcrafted bourbon is made using the distillery’s original methods and authentic recipe. Each batch is aged in level three, charred Missouri white oak barrels, and is non-chill filtered. Holladay’s master distiller blends the batches that are pulled monthly from different barrels spread out on different floors of their two, seven-story rickhouses on site. The Ben Holladay Bourbon label allows consumers to identify the blending process by displaying a blending chart that distinguishes the individual batches. Blending is done due to the temperature variances between the top and bottom floors that can produce differences in taste between the barrels. The first-floor barrels age in cooler temperatures and higher humidity versus the warmer, drier conditions of the higher floors. Although the differences diminish over time, Holladay’s distiller notes conclude that they are still present to a lesser degree at the six-year aging stage. The master distiller ensures that all blended batches match Holladay Distillery’s strict criteria for flavor profile.

Learn The Process Behind Real Missouri Bourbon And Taste The Quality Results

  “We’ve used all local ingredients since 2019”, said Germano. “Our bourbon is made in Missouri, using Missouri corn and Missouri-made barrels through Independent Stave Company in Lebanon, Missouri, earning us the classification of being a real Missouri Bourbon, a classification made legally available in 2019.”

  “We don’t like to tell our consumers what they should experience or taste when drinking our bourbon, simply because we’ve found that all people are different and pick out different notes,” said Germano. “But at minimum, I can tell you that Ben Holladay Bourbon is not overly oak forward and typically described as a solid bourbon, with traditional yet distinctive notes of rye, baking spice, vanilla and corn. Our Holladay Soft Red Wheat features vanilla and caramel and is softer, sweeter, and maybe a bit lighter on the mouthfeel.”

  Holladay Distillery offers tours Friday through Sunday, allowing visitors the opportunity to see first-hand Holladay’s water-to-table abilities and process, all done on-site. Enjoy a cocktail on the 90-minute tour while visiting the water house and learning how Holladay Distillery creates its bourbon, including information on how their still works, the fermenting process, and Holladay’s use of the on-site aging warehouses. The informative tour culminates with a proper tasting. Holladay Distillery’s welcome center is ideal for shopping and retail. Also, it houses a full-service craft cocktail bar for visitors to hang out and enjoy a craft cocktail or choose a tasting flight to satisfy their curiosity about any products.

  “We also have an on-site, state-of-the-art event space,” said Germano. “We transformed an old open-air pavilion area to now feature glass garage doors on two sides that open for a more outdoor feel when desired. It seats about 100 for corporate events, birthday parties, or other well-attended get-togethers. It’s a great place for fun, interactive, or specially ticketed public events, and it’s where we host bourbon masters panels that feature master distillers and other bourbon experts.”

Excitement And Anticipation Fill The Future

“We have another structure on site that we call the ancient cave,” said Germano. “It was actually the first structure on site and originally used by Holladay Distillery to age barrels. More recently, we’ve used it for entertaining, activities and as a cool venue to show our tour guests an introductory video about our distillery. But our master distiller started getting into using experimental barrels and needed a proper place to store and age his creations, and this ancient cave met all of his needs. So now, it’s used for the experimental barrels, which we will eventually release as our Ancient Cave Collection. We currently have 15 different types of barrels aging and waiting for their second finish, including French Oak Heavy Toast, Apple Hickory Smoked, and more. We have no specific timeline for releasing these collections other than saying they will be released when they are ready. But we can’t wait to share this unique collection with our on-site visitors and in the welcome center when they are ready.”

A Diverse Portfolio To Satisfy Your Taste

Germano tells Beverage Master Magazine that Holladay Distillery’s bourbon distribution is continuously increasing, with Iowa being the latest to get the products on shelves. Bourbon distribution tends to be a slower rollout, but orders are accepted online through Seelbach’s, an online retailer dedicated to craft distillers. The Holladay Distillery family includes 360 Vodka, Tequila Rose Strawberry Cream Liqueur, and Five Farms Irish Liqueur. Tequila Rose has been produced since the 1990s and was the first cream liqueur to hit the market other than Irish Cream, paving the way for the wide distribution of many other cream liqueurs like Rumchata. The popular Five Farms Irish Cream contains 17% alcohol, 10% of which is premium Irish Whiskey. Competitors in this market typically only include 1% Irish Whiskey, with the balance being neutral grain alcohol like vodka. Germano says that McCormick wanted to offer something a little different in the Irish Cream market, so Five Farms Irish Cream uses quality ingredients from only five known family farms, allowing McCormick Distilling to know precisely where the cream is coming from rather than relying on co-ops to provide the necessary ingredients through various sources.

The Northwest Whiskey Trail Pays Tribute to Pacific Coast Distilleries   

Cyndi
northwest whiskey trail cup

By: Becky Garrison

Launched in June 2023, the Northwest Whiskey Trail has the distinction of being the first distillery trail to cross an international border. The brainchild of Graeme Macaloney, Ph.D., CEO, and Whiskymaker at Macaloney’s Island Distillery & TWA Dogs Beer, this self-guided trail guides visitors in a quest to sample award-winning whiskies that speak to this region.

  Traditionally, whiskey is known for its consistency and heterogeneity with each bottle distilled so that each bottle of a given branded whiskey tastes identically. In comparison, Northwest whiskies are informed by the local climate and locally sourced raw materials that result in expressions of whiskey that are unique to that particular distillery. While the term terroir is typically used to describe the different types of soil for growing wine grapes, as Doug Frost notes in The Oxford Companion to Spirits and Cocktails, simply put, “terroir” is the terrain. “The factors that can vary with a spirit’s place of origin include climate, weather, season, topography, geography, proximity to specific flora, soil, subsoils, and the place and conditions under which these beverages are stored, and even the local traditions and regulations that can affect decisions made by the people who are producing the spirit. (Page 722-723)

  While Scottish-born Macaloney first fell in love with Uisge Beatha (“water of life”) during a summer job bottling whiskey, upon arriving in British Columbia, he became enamored of the BC craft beer industry. Upon deciding he wanted to make his own beer and whiskey, he assembled a team of experts: Dr Jim Swan, the foremost whisky maturation expert in Scotland, and Master Distiller Mike Nicolson, who worked in over 18 renowned Scottish whisky distilleries. Together they sought to create a brewery and distillery that encapsulated the spirit of Vancouver Island where their facility is based. As a nod to their success, their Kildara, an island whisky made from their triple distilled single potstill range was awarded the World’s Best Pot Still Whisky at the  World Whiskies Awards.

  Macaloney was joined in his effort to create this whiskey trail by Copperworks Distilling Company, who stated on their website that their goal for working with this tour is to generate more awareness of single malt whiskey in the Pacific Northwest and provide whiskey lovers (either local or from far and wide) a fun, educational experience across a range of places and producers.

  Kelly Woodcock, Partner & Vice President, Guests Experience & Whiskey Club, Westward Whiskey spoke to how this trail is in line with their mission, which she describes at its core is about the place and people from which it comes. “We rely on the inspiration and ingredients found in the American Northwest, so when we heard about the Whiskey Trail we knew we had to be a part of it — it’s a natural fit for us. Our Distillery Tasting Room was designed to be a home for both whiskey enthusiasts and those who are looking for a fun way to spend their afternoon, and this Whiskey Trail helps spread that message to both the casual traveler and those who are seeking out whiskey experiences like the ones we offer.”

  Also, Tyler Pederson, Westland Distillery Manager, pointed out how this trail allows them to showcase the flavors of the Pacific Northwest through their American Single Malts. “We fully support the Northwest Whiskey Trail’s mission to guide whiskey lovers through the geological tapestry of whiskey-making, and introduce guests to the caliber of whiskeys coming out of Seattle.”

  This tour begins in Oregon before traveling to Washington State and then concluding in British Columbia. The initial tour comprised of seven distilleries: Westward Whiskey in Portland, OR, Copperworks Distilling and Westland Distillery in Seattle, WA, Macaloney’s Island Distillery in Victoria, B.C., Goldstream Distillery in Cowichan Valley B.C., Shelter Point Distillery in Campbell River, B.C., and Deep Cove Brewers & Distillers in Vancouver, B.C. Since then, Goldstream Distillery shuttered its doors due to a real estate issue. Also, Deep Cove Brewers & Distillers’ tasting room is temporarily closed as of this writing. These changes point to the ongoing challenges of arranging any self-guided tour of distilleries given the volatile nature of this industry.

  Macaloney chose to focus on distilleries situated along the Pacific Coast because their spirits are all informed by a similar coastal ethos. For example, Shelter Point Distillery is surrounded by 380 acres of farmland and located right alongside the ocean where the salty sea air adds a distinctive flavor to the estate of barley used in their spirits. Also, the sea salt and winds inform both the production of whiskey, as well as the aging process.

  Any distillery situated along the Northwest Pacific Coast is eligible for inclusion in this tour provided they produce at least one single-grain whiskey albeit barley, wheat, rye, corn, or a non-traditional whiskey grain. Also, they need to have a tasting room open to the public with opportunities for visitors to interact with their products.

  Those wishing to participate in this tour need to grab a Northwest Whiskey Trail passport at any participating distillery and collect a stamp at each destination. As the passports do not expire, travelers can see these distilleries on their own schedule. Once the passport is full, it can be redeemed at the final distillery for an exclusive, limited-edition Northwest Whiskey Trail Glencairn glass.  A list of current participating distilleries and additional information about each distillery can be found at the Northwest Whiskey Trail’s website: https://northwestwhiskeytrail.com.

Challenges in Launching a Whiskey Trail

  In Macaloney’s estimation, the biggest challenge in launching the Northwest Whiskey Trail was lack of funds, as many craft guys, himself included, don’t have much of a budget. They discovered it requires over $35,000 US dollars annually to design a website, print out brochures, conduct PR, and other marketing measures. He recommends that distilleries interested in starting a whiskey trail for their unique region pool their resources together. Also be sure to connect with local tourism organizations such as tourist boards and Convention & Visitor Bureaus, as well as explore what funding opportunities might be available from local and regional governmental sources. While he sees this tour as initially appealing to whiskey aficionados, over time, he predicts others interested in experiential tourism will be drawn to the interactive experiences available at a distillery.

The Rise of American Single Malt As a Spirits Category

  The announcement of the Northwest Whiskey Trails comes amidst the American Single Malt Commission’s advocacy efforts for a formal establishment of a “Single Malt whiskey” category.   In 2020, the American Distilling Institute established the “American Single Malt Whiskey” category for those whiskeys. This category was made according to the ASMWC’s proposed statement of identity, which is as follows:

•   Made from 100% malted barley.

•   Distilled entirely at one distillery.

•   Mashed, distilled, and matured in the U.S.

•   Matured in oak casks of a capacity not exceeding 700 liters.

•   Distilled to no more than 160 (U.S.) proof, or 80% ABV

•   Bottled at 80 (U.S.) proof or more, or 40% ABV.

  On July 29, 2022, the TTB published in the Federal Register “Notice No. 213, Proposed Addition of American Single Malt Whisky to the Standards of Identity for Distilled Spirits. In this notice, they propose to amend the regulations in 27 CFR part 5 that set forth the standards of identity for distilled spirits to include “American single malt whisky” as a type of whisky that is a distinctive product of the United States. After closing comments on September  20, 2022, the TTB has not made any further announcement regarding Notice No. 213. 

  While this new spirit’s category only impacts U.S.-based distilleries directly, Macaloney points to how the rise of American Single Malt benefits Canadian whiskeys as well. “Scotch dominates the whiskey market, and of course, Scottish Single Malts is the flagship spirit known internationally. So, whiskey snobs gravitate towards these single malts thinking they’re the best whiskeys in the world. This new American standard for single malt whiskeys is helping to spearhead a sea change with consumers starting to realize the quality of single malt whiskeys coming from outside of Scotland such as the United States, Ireland, Canada, and Japan.

Innovative Strategies to Secure Funding for Beverage Companies

Cyndi
chess pieces with dollar signs

By: Jay Avigdor, President & CEO — Velocity Capital Group

Securing funding is crucial in the modern hypercompetitive beverage industry. Without the necessary capital, beverage companies can struggle to fuel growth, invest in research and development, and expand into new markets. Yet, in my experience, many beverage companies frequently tend to overlook some of the most advantageous financing options available to them. Here, I will explain several key innovative strategies to help your beverage company meet (or even exceed) its funding goals.

The Problem with Bank Loans 

  Securing conventional bank loans is notoriously difficult for beverage companies because loan officers at banks often consider beverage companies a risky investment, and they aren’t entirely wrong. Like most fresh ventures, the vast majority of new beverage companies do fail.

  According to CEO and senior Consumer Packaged Goods (CPG) advisor Manoli Kulutbanis, only about 20% of food and beverage brands manage to achieve $1 million in sales. For Coke’s Venturing & Emerging Brands Team, a threshold of $10 million in revenue is necessary to prove a beverage concept, and only 3% of beverage businesses reach it.

  Bank loans also require an intense vetting process, which involves a hefty amount of paperwork. Beverage companies are asked to supply a long financial track record, and the review process itself can take months — a timeline that is often all too slow to help businesses when they need it most.

Given these difficulties, beverage companies are often encouraged to seek other sources of funding. The good news is that there is a wealth of options.

Small Business Administration (SBA) Loans

  The US Small Business Administration (SBA) offers loans to companies of all kinds, including those in the beverage industry. Since the US government helps protect lenders from some of the risks associated with providing businesses with financing, these loans can be easier to secure than conventional bank loans.

  The SBA offers many different types of loans, starting with “microloans” of $50,000 or less that help fledgling enterprises get off the ground. These funds can be used for anything from buying machinery and other equipment to purchasing supplies and furniture, and can also be used as working capital.

  Additionally, if you need to purchase a major asset, the SBA 504 loan program provides long-term loans that provide fixed interest rates on amounts up to $5 million. Another program is the 7(a) loan, which gives up to $5 million for a variety of other purposes, including buying real estate, purchasing equipment or supplies, refinancing debt, and facilitating changes in ownership.

  While these loans can be a good way to raise funds, it’s important to keep in mind that they do not establish a long-term relationship. Rather, SBA loans are considered one-off financial agreements.

Angel Investors & Venture Capitalists

  A few lucky beverage companies have benefited from the largesse of angel investors: people who give capital upfront, usually in exchange for a minority stake in the company or as a loan. A notable example is Liquid Death, the punk-rock-themed Virginia water company with a dark sense of humor, which received nearly $2 million this way.

  Venture capital (VC) works slightly differently. While VC firms will grant capital upfront, just like angel investors, they use other people’s money or an organization’s funds rather than their own.     Angel investors are wealthy individuals in their own right, whereas venture capitalists are professional financial analysts who identify promising companies to invest in.

  It’s difficult to overstate how challenging it can be to secure capital through these means. As Harvard Business Review puts it: “Venture capital financing is the exception, not the norm, among start-ups. Historically, only a tiny percentage (fewer than 1%) of U.S. companies have raised capital from VCs.”

  Given these long odds, conducting research is vital before approaching angel investors and venture capitalists. These individuals expect a personal touch, so consider partnering with an experienced advisor who not only knows the relevant investors in your sector, but can also coach you on how to pitch to them best.

  Each pitch needs to be carefully crafted with the specific recipients in mind. Make sure not only to cover all the relevant elements of your business plan, but also to frame your venture in the form of a compelling narrative. You should also address any potential concerns upfront, and be prepared to answer tough questions.

  Given the high stakes involved, you also don’t want to walk into a meeting with potential investors, only to end up tripping over your words. An advisor can help you practice your pitch and ensure an effective delivery before you take your shot. That way, you can go into pitch sessions with confidence, knowing you’re prepared.

  Many websites have compiled lists of angel investors and venture capitalists, including those who support the beverage industry, such as Signal and CrowdCreate. Due to the extensive work involved in every pitch, it’s best to start with those investors whose preferences match your business most perfectly.

The Power of the People

  If your beverage already enjoys a following, con sider tapping into the power of crowdfunding. Cannabrew, for example — the CBD craft brewery — shattered its approximately $250,000 goal in less than a single day. The company has announced it will use the funds for outreach to liquor stores and supermarkets to expand access to its products.

  Similarly, when soft drink company Square Root wanted to expand from glass bottles to cans, it smashed its crowdfunding target by more than 200%, raising the equivalent of $715,000.

  When the crowd believes in your product, this funding method can bring in a welcome infusion of cash, but be aware that these campaigns require a significant amount of work. According to crowdfunding platform Indiegogo, preparing to launch one effectively requires sending out at least 10,000 emails, and that’s just one of their recommended tasks.

  Crowdfunding campaigns also need to be used strategically to be successful. Projects should be visually appealing and delineate concrete, easily understandable goals and measurable outcomes. That’s because crowdfunding campaigns often fail if the initiator asks for too much or their content fails to inspire people.

Merchant Cash Advances

  The best funding is reliable funding when you need it. Securing this type of capital requires good relationships with the right strategic partners, such as companies that give merchant cash advances.

  In my experience, many people misunderstand how merchant cash advances work. When you get an infusion of capital from a merchant cash advance, it isn’t a loan. Instead, the company buys a portion of your future sales, and you don’t part with any of your equity.

  Since these companies rely on your future sales for their own revenue, they also tend to be highly invested in your future success. For this reason, businesses like mine aren’t interested in giving startups an advance if doing so would dig them into a hole, like when they routinely struggle to make payroll.

  On the other hand, when a beverage company gets an unexpectedly big or time-sensitive order and needs to temporarily surge operations to fulfill it, that’s a good reason for a merchant cash advance. These advances are also good for buying new equipment, renovating or repairing facilities, adding a tasting room, or getting over a temporary cash-flow issue.

  Another great thing about merchant cash advances is that they are usually easy to secure. All a beverage company would need to provide, for instance, would be their last three months of bank statements demonstrating a minimum of $20,000 in revenue each month, as well as a FICO Score equal to or greater than 500. This means even new startups can hope to acquire infusions of capital this way.

  Merchant cash advances are also fast, so if you’d like to receive money on the same day you apply, a merchant cash advance is the way to go. This means beverage companies — which often have to wait long periods before receiving payment from customers — can use a merchant cash advance to fulfill their accounts receivable in good time.

Take a Long-term Approach

  By far, the best approach to successfully funding your company is to cultivate long-term, dependable relationships with partners who will help you when you need it. However, in my experience, building these connections entails a paradox. Lenders, investors, and other sources of funding are usually eager to fund businesses when they are healthy and profitable (i.e. when they don’t need the funding), but businesses often apply for funding when they are feeling some kind of financial strain.

  That’s why it’s important to develop your business’s funding strategies over the long term. Applying for capital when your business is strong and they want to partner with you gets your foot in the proverbial door. That way, if you encounter unforeseen difficulties later, you’ll be able to fall back on your established connection with those important investors and financial institutions. Funders often consider your previous track record with them when considering a new request for funding.

Sweet Success

  Whether you are a craft brewer, vineyard, distiller, or other beverage company, attracting investment will enable you to leverage opportunities and fuel your growth in this competitive industry. If you approach this process wisely, take a long-term perspective, and cultivate relationships with the right strategic partners, then the widest possible audience will enjoy your drinks, and both you and them will be able to relish the sweet taste of your success.

  Jay Avigdor is the President & CEO of Velocity Capital Group, a direct funding platform located in Greater New York that funds small businesses nationwide, servicing over 15,000 clients since its founding in 2018. A noted funding expert with a 13-year career, Avigdor has developed an extensive network of over 40,000 relationships with clients and brokers, contributing to an impressive $850 million in sales. His innovative technological approach is setting new trends in the industry by merging finance with technology through automation, thus allowing a quicker and smoother process for merchants and brokers serviced. Avigdor is a graduate of Touro University and currently lives in Cedarhurst, New York.

AI Crafts Terrible Beer Ads

Cyndi

But Used Properly is a Valuable Customer Growth Tool

man drinking beer

By: David Wach, CEO of Handwrytten

Earlier this year, a U.K. beer advertisement created by AI went viral, but not necessarily in a good way. While the 30-second clip titled Synthetic Summer was viewed millions of times on Twitter, TikTok, Reddit and other platforms, viewers were tuning in out of horror, not because they really wanted to buy some beer. In the video, the humans enjoying a backyard barbeque appear distorted, sport extra fingers, and appear to be violently chugging beer that is not actually touching their lips. Let alone the columns of fire that are shooting out of the grills and the beer canisters that seem to morph from cans to bottles to a hybrid of both from scene to scene. This viral video is a perfect example of what AI is not yet ready to do for the beverage industry – namely create full-scale visual advertising content from scratch. But there are ways that craft beer and cocktail producers can be using to engage customers and boost sales.

  The most effective and unique way that beverage companies can use AI is through a traditional advertising method with a high-tech, modern robotic twist. A survey, conducted by Full Spectrum Insights on behalf of Handwyrtten, found that emails and text messages are, unsurprisingly, the most common way for businesses to communicate with customers but that 45% of customers would feel more valued and be more likely to make repeat purchases if they received a handwritten note. 30% of customers said handwritten notes are the most meaningful way a company could communicate with them and the least annoying, compared with the annoyance of receiving a phone call, email, or text.

  Nothing says “pay attention” like a personalized handwritten note. No one flips past or does not see a handwritten envelope in their mailbox. These stand out from everything else that was delivered. Recipients wonder what could be inside and while envelopes that look like bills or advertisements are set to the side, handwritten envelopes are usually opened immediately. The attention-grabbing nature of a handwritten envelope provides an instant advantage that even the biggest and most prevalent direct mail marketers cannot compete with. Handwritten envelopes have been found to have a 300% greater open rate than standard envelopes. And handwritten marketing has response rates 7-21x greater than printed mail, with a return on investment 3-7x greater than print. Some companies have even found that retention rates are 50% higher for customers who receive a handwritten thank you note.

  Rather than tasking an employee to sit at a desk with a stack of cards and envelopes and bucket of ice to alleviate hand cramps, the task of penning handwritten notes to customers can be outsourced to robots that are capable of using real pens to craft notes that are nearly indistinguishable from ones written by an actual human hand. There are also a variety of AI services available own that can help everyone from a marketing novice to a pro discover the right words to include in the message. From there, it’s about ensuring beverage companies are using the right direct mailing strategy to maximize ROI.

Spend Time On Your Call to Action

  Your call to action (CTA) may be the most important part of your direct mail campaign. This statement tells your recipients how you want them to respond and encourages them to do it. A strong CTA can boost your response rate substantially while a weak one can jeopardize your entire campaign. Every communication piece you send your customers should have a purpose. Identify it and your CTA will come naturally.

  Compelling CTAs are clear and concise. They contain actionable verbs which are impossible to misinterpret. When people read your direct mail letter, they should know what you want them to do. You can ask people outside your marketing department to read your letter and determine whether they understand what’s expected of them.

  Procrastination prevents action. Limit procrastination by adding a sense of urgency to your CTA. Asking your recipients to call today or claim a free sample by a specific deadline is more powerful than making similar statements without referencing time. The way you present your CTA can make it more compelling. White space draws the eye. Separating your CTA from the body of your letter prevents someone from overlooking it. Using a different color or font size can also help your call to action stand out. When using a generative AI program to draft a message be sure to direct it to include a CTA or to make the message time sensitive.

Use Personalized Text

  Savvy consumers will see through a handwritten form letter. Make sure you include personal details to strengthen your bond with your recipients. Using names rather than “To whom it may concern” is an important start. But you should look for other opportunities for personalization, too. Mentioning customers’ locations, past purchases, and pop culture references that people of their ages will probably appreciate are other ways you can show your recipients you’re speaking to them. This is where the human element will need to blend with the content created by the generative AI. You will need to determine a way to integrate customer information into the message created by the AI. For example, a few weeks after a customer has purchased a case of beer or cocktails, use AI to craft a thank you note for the purchase that asks the customer to share their experience and feedback on the vintage. And, linking back to the previous point about CTA, include a limited time deal if they buy the same case again soon.

Get the Timing Right

  As with all marketing campaigns, the timing of your direct mail campaigns plays a key part in their success or failure. Your direct mail will ideally reach your recipients when they’re receptive to the messages inside them.

  Getting the timing right isn’t a precise science, but you’ll do best if you put yourself in your customers’ shoes. The members of your mailing list will probably be receptive to a card promoting a great sale sent in the lead-up to Christmas when they’re searching for gift ideas and planning to spend money. Sales announcements can also be received favorably in April when your customers may have extra money from refunds on their tax returns. Your sales efforts are likely to be less effective in January when customers may suffer from a Christmas credit card hangover.

  Sending direct mail cards through your customers’ journey with your organization is also a great way to engage them and make them feel special. However, timing matters here, too. Send a card saying you have missed a customer’s business too soon and you’ll seem too insincere. However, with the right timing, this type of card can re-engage a lapsed customer and encourage a purchase. On the flip side, a letter thanking a customer for the individual’s business or referring a customer should be sent promptly. If you let too much time elapse, the thank you will seem unnatural.

Think Outside the Box

  Since households don’t receive many letters, your direct mail is already likely to be more memorable than a marketing email. However, you can increase the chances your recipients will recall your direct mail with a novelty. Think outside the box to create a direct mail campaign that makes a real impression.

  Knorr used leuco dye on a direct mail campaign for a new line of frozen food. The cheeky mailing read “Unlike any F****N dinner you’ve ever tried.” Recipients were encouraged to put the mail in the freezer. The extreme cold triggered a new message reading “FROZEN meals can be this delicious.” The quirky campaign, which had a 10.2 percent response rate, prompted 17,000 purchases. This campaign was so successful that half of the mail was delayed to help supermarkets manage the increased demand for the company’s products.

  The great part about all of these direct mail ideas is that they stay in the minds of recipients long after they open the mail. Even if your recipients don’t take action now, they’re more likely to think about your business when they need your products or services in the future. Brainstorm relevant ways you can also enhance your direct mail materials and make them distinctive, and don’t forget about finding ways to save time by implementing AI and robotics.

Can You Reinvent the Beverage Marketing Wheel?

Cyndi
2 people holding 2 small wheels

By: Hanifa Anne Sekandi

A lot of people believe that marketing a brand is an arduous task. Yes, it requires work. But if you hate this part of building a business, you may find yourself in the marketing denial loop. What is this?

  It is when brands do extraordinarily little marketing and expect big results. It is when brands put in less than what they desire to receive. This mindset leads to a sense of disillusionment and disappointment. We are sure you have encountered individuals who say running a brand is hard. The truth is, creating and growing a brand requires work. But the work should not be regarded as hard. It is important to eliminate this mindset. Embrace a simple, thought-out marketing plan and strategy whether you are a new brand, a mid-range brand or one of the big guys. Understanding how to market your brand should never be approached begrudgingly or negatively. Last Beverage Master issue, we focused on the “why,” as in why is your brand so unique? Why should consumers purchase your beverage rather than Bob’s beverage? Why is your brand making this beverage? Is there a story? The “why” is your first building block, and this will lead you to the most important phase of your simple marketing strategy — who is this for? 

  Nowadays, you do not have to look too far to see the dos and don’ts of marketing. You are in a time where the triumphs and tribulations of top-tier brands are well documented. As of late, major marketing blunders have been put to the forefront. The common mistake among all these brands, not just those in the alcoholic beverage industry, is that they forget the most important marketing building block: the “who,” and I’m not referring to the classic and iconic English rock band. In this case, the “who” refers to your audience, the consumer. Understanding their buying decisions and why they select your brand or your competitor’s brand when purchasing beer and liquor should be at the forefront of your marketing strategy. 

Who is Your Consumer?

  All your marketing initiatives are built from understanding who your consumer is. A concept that seems obvious and basic, yet both new and old brands make it complicated. Since you and your beverage experts are creating the beverage, tasting it and perfecting it, start here. What would appealto you? What would make you run out and purchase your alcoholic beverage over a top-shelf or legacy beverage? Also, what do you wish some of your favorite beverage brands did? How does your brand fill this missing element? A large list is not needed. You are not going to be loved by everyone. Focus on three key features your “who” (consumer) would look for. Look at their lifestyle and how you can highlight that your beverage compliments their personal ethos. Remember, people attach feeling to their purchases. This is why the “why” story is such an essential first step in brand development. It lets you clearly map out how to appeal to and reach the “who.” 

  There are many ways to find your audience. The above is a simple and effective method. If you cannot sell this magical beverage to yourself or your team, then you will not sell it to anyone else. For those who have an existing brand and are struggling with your brand in a marketing landscape, which has become quite cutthroat with the advent of social media platforms, taking a trip back to where you started and your initial goals will help you zero in on your consumer base. Do not be greedy. Do not strive to be all things to everyone. If your brand has been performing relatively well and you are looking for more brand visibility to boost sales.

  Simple changes, more times than not, are needed. Creatively amplifying your existing message can increase your reach and growth. You do not need to burn the building down and start again, so you target a new demographic to buy your beverage. What about the people who have kept you afloat? Your loyal consumer bases? Some brands conduct surveys. Ask the people who have already purchased your drink what you can do better. Or what is on their wish list? Conduct a poll. This will give you some great ideas or help you re-strategize and expand your existing marketing methods.   

Should You Reinvent the Wheel?

  If you are a new brand, the alcoholic beverage world is truly your oyster. You can be outlandish and try something new. You have leeway to reinvent the wheel. Why? Aside from making a quality beverage, there is no sense in trying to copy the marketing strategy of a legacy top-tier brand. Their consumer is loyal. This does not mean that they will not become a fan of your brand. It is like football; people love the team they love, but when it is the Superbowl and their team has not made the cut, they will root for the team they like second best. Some people drink the beer their granddad drank and pass the love of this beverage on to their kids. It is a staple beer at all family events and their go-to beverage when dining out. Whatever the hook was that appealed to their granddad was passed on to them, and so on. Consider this a legacy brand. Legacy brands must strive to expand the wheel, but they should not reinvent it or break it unless they want to lose a loyal consumer base. Ignoring your “who” so you can reach a new consumer is sloppy marketing and a hasty marketing method often spurred on by newer brands going viral on social media. 

  You might be wondering how you would know who your consumer is. What other methods can you use to understand them better to build a formidable marketing strategy? This may sound contradictory to what was stated above. Start by identifying three brands that you are comparable to, your competitors. Study them, but do not copy them.

  Moreover, analyze them and look for what you do not like first. What would you do better, and what is missing? Make this list small. Next, look at the elements you like and what you would do better from a consumer’s perspective. For example, some beverage brands have made different-size offerings for their beverages. This is a simple yet effective difference that sets you apart and boosts sales. Who does not love those single-serve wines or a small-can imperial stout? Your consumer’s needs are not hard to understand if you start with yourself, assuming you are making a product you believe in, and then look for like-minded individuals with the same sensibility. Stay faithful to your plan, even when no one is looking, because someone looking for what you are offering will eventually turn into a large, loyal consumer base that will tell their like-minded friends to purchase your beverages too.

Glycosidic Nitrile, You Really Should Care Now 

Cyndi
person holding grains

By: Becky Garrison

At the American Craft Spirits Association’s 2022 conference held February 10-12, 2023, in Portland, Oregon, Dr. Campbell Morrissy, a graduate research assistant in the Barley Project at Oregon State University, led a talk about why distillers should be concerned about Glycosidic Nitrile (GN).

  First, he defined GN as “naturally occurring plant metabolites that are used as defenses against predators.” They’re actually pretty sweet, and they are present in almost all plants.” Epiheterodendrin (EPH) is a type of GN found naturally in barley. 

During fermentation, yeast contributes beta-glucosidase, which acts on EPH, resulting in a precursor to hydrogen cyanide. Add heat and copper, and then suddenly,  EC (ethyl carbamate) is present in the final spirit.

    In the United States, there’s a voluntary limit of 125 parts per billion of EC permitted in alcohol products available for sale, which is quite low. As this is a voluntary limit, it’s become a regulatory gray area. As far back as 1993, high enough levels of EC were found in bourbon produced in the United States that would have exceeded regulatory limits established by the EU, UK, Canada and some other countries. Additionally, whiskey sold in Europe needs to meet that low EC concentration. So, those selling to the EU market may face regulation and monitoring of EC levels.

  About 30 years ago, those working with barley in the UK began to realize that GN resulted from barley variety. Now, more than 50 percent of all malting barley purchases in the UK are GN zero and essentially all for the distilling market. Morrissy added that those making whiskey in the UK use GN zero malt with no exceptions.

Defining Barley Varieties and EC Levels

  Generally, there are three categories for defining barley varieties and their propensity to create EC. The non-producer is GN zero, defined as anything less than half a gram per ton of EC. Low producers have 0.5 to 1.5 per ton, and high producers are 1.5 or greater per ton.

  A barley’s ability to produce EC can be measured in two ways. A PCR assay can ascertain whether a given barley variety will have the gene to produce EPH. Also, the quantitative method enables one to measure photometrically if a particular barley reacts to hydrogen cyanide.

  Low GN producers will still produce GN, and its production can be modulated during malting. Anything that’s going to promote malt modification is going to result in more GN. Here, one needs to look at the length of germination. Typically, the germination time for brewing malt is about four days, though with a distiller’s malt, germination can go up to five days, depending on the type. As germination increases, one can see a pretty clear relationship with the level of glycosidic nitrile. While barley variety is important, what matters more is how it malts. Hence, Morrissy recommends connecting with the malthouse to work together to see if pushing modification will impact the EC levels of the resulting spirit.

What Look for When Breeding Barley

  First and foremost, Morrissy stresses looking for strong agronomics. “The farmers are going to need to grow something that they can rely on. Thankfully through very traditional plant breeding techniques, we produce high yielders with low disease resistance, which means fewer inputs. We breed for intolerance for drought and look into low-temperature tolerance for winter lines,” he states.

  Also, Morrissy suggests looking at AMBA-recommended specifications for malt guidelines to select grains known to produce high-quality malt. Along those lines, look for multi-environment adaptation that can be grown all over the place and weather new climatic experiences.

  Here, one needs to differentiate between growing spring or winter barley. Spring barley is planted in the spring and harvested in the summer. Conversely, winter barley is planted in the fall and harvested in the summer. Unlike spring barley, winter barley goes through vernalization and overwinters.

  Winter barley yields more often and has a low-temperature tolerance and less water requirement. When it requires water, it tends to be when water is abundant in most regions due to runoff from winter and late spring rains. While one of the best things for winter barley is snow, some historically very cold places do not see the same snowpack they used to see. Also, winter barley is an excellent erosion control for winter.

  Morrissy observes, “In those places that are windy, putting something that has a root structure in the ground can preserve a lot more topsoil. You also kind of have a de facto cover crop in a time that it might be fallow, so you’re going to out-compete weeds. You may have some pest resistance associated with that.”

  Morrissy notes that different regulatory mechanisms within that GN gene pack can turn on or off depending on climatic changes. Right now, they are not sure how environmental stress response impacts GM production. Currently, more research is needed to understand how the environment impacts GM production in the field.

Producing GN Zero Barley Varieties

  Currently, there’s one GN0 variety approved by the American Malted Barley Association (AMBA). However, Morrissy predicts that with the advent of AMBA’s new recommendations that all varieties of malt for distilling be GN zero, we will start seeing more of these come on the market for brewing and distilling as they go through the AMBA pipeline. Also, some foreign varieties are coming from the private breeding program, and U.S. land grant institutions are breeding some domestic varieties.

  An interesting alternative is naked or hull-less barley. Inherently naked barley is GN zero, though, as Morrissy noted, there isn’t a great supply chain for naked barley right now. Still, there’s a lot of potential for sowing grain without the husk, as that can take up five to seven percent of the total weight of the grain. “If you’re not lautering, you’re doing grain fermentations, or maybe you have a mash filter, you don’t need the husk,” he states.

  At this writing, 10 public breeding programs in the US are working on barley. They’re covering many different areas, producing barley that’s well suited for those larger growing regions and collaborating to make sure that the genetic stocks for sustainability are being shared industry-wide.

Managing EC in the Distillery

  EC is a lowly volatile, heavyweight compound,   whereas its precursor hydrogen cyanide is a very highly volatile, low molecular weight compound. So, according to Morrissy, the more EC that can be formed in the stills and recovered in the silage, the less it will make it into the barrel. Depending on the distilling technique, Morrissy thinks the cyanide fraction is volatile, and the conversation into EC happens very quickly, though it might not get picked up until the spirit is in the barrel.

  Early investigations into the distilling technique find that reflux is highly important in controlling EC. Also, still design and still feed are so important. Trace amounts of EC will form during fermentation, but primarily, the copper catalyst in distillation produces EC. While this work is in the emerging stages, research with copper contact and reflux and controlling EC looks promising.

  For further research into this topic, Morrissy recommends The Hartwick College Center for Craft Food & Beverage, a testing and education resource that supports small and mid-sized breweries, malthouses, farms and other craft food and beverage producers. Also, he suggests joining the American Malted Barley Association.

Enforcing Your Trademarks: How Far Should You Go?

Cyndi
corporate man punching the letter R

By: Brian D. Kaider, Esq.

You’ve secured federal registration for your trademarks and you’ve been building your brand recognition.  Per your trademark attorney’s recommendation, you’ve had quarterly searches conducted to find similar marks.  Lo and behold, a new entry to the market is using your trademark.  Now what?  Stop and take a breath; let the initial surprise or anger settle. There is a lot to consider before taking any action.

Take Stock of the Situation

  First, take a look at your own trademark.  Is it the name of your company or of one of your products?  Is it a national brand or one that is distributed in a small geographic area?  In what classes of goods and services is it registered (e.g., class 033 for vodka, class 040 for “rectification of distilled spirits for others,” etc.)?

  Then look at the competitor’s mark.  Is the mark identical to yours or similar?  How similar?  Is it broadly distributed?  Is it used for the same goods and services as your mark?  If not, how similar are the goods and services?  Are your products marketed through the same trade channels?  Are consumers likely to encounter both your products and theirs?  Have they attempted to register their trademark and, if so, where are they in that process?

  No one question will be determinative in any given case, but on balance, they will help develop a sense of how much effort should be expended to enforce your rights.  As discussed below, there are numerous paths, each with its own set of risks and potential rewards.  An international brand that is known throughout the industry, like Jack Daniel’s®, must be far more protective of its marks than a small brewery in Oregon that has a registered trademark for an IPA product only distributed in the Pacific Northwest.

First Contact

  As the owner of a registered trademark, it is your duty to “police” your mark; that is, to monitor unauthorized use of your mark by others and to enforce your right to exclusivity of that mark.  When large corporations learn of potential infringement, their immediate response is generally to have their attorneys send a cease and desist (C&D) letter.  For smaller companies, a personal attempt to contact the owner of the infringing business is often effective.  Sometimes the other party simply did not know about your mark.  If you found their use of the mark before they spent considerable time and money developing it as a brand, they may be willing to simply let it go.

  When making these calls, it is important to maintain a demeanor that is both friendly and firm.  There is no need to accuse the other side of wrong-doing or of violating your trademark knowingly.  However, you should simply let them know that you do have a registration for the mark and that their use is likely to cause confusion in the market as to the source of your respective goods.  If you give them a reasonable amount of time to work through any inventory bearing the infringing mark and to rebrand, this can often be the end of the matter.

Cease and Desist Letter

  If the friendly approach doesn’t work, the next step is generally a cease and desist letter.  This is most effective if drafted and sent by an attorney.  The tone of these letters tends to be more matter-of-fact.  They identify your trademark(s); explain that you have spent a considerable amount of time, effort, and money to build your brand around the mark; identify the other party’s infringing use; state that the use is unauthorized and likely to cause economic harm and loss of goodwill in your brand; and demand that they stop using the mark within a given time frame.

  While these letters can sometimes be effective, especially against smaller companies, they have become so commonplace that often they are simply ignored by more savvy companies who may wait to see if further steps are taken before deciding whether to rebrand.  Accordingly, you should carefully weigh all of your options and decide in advance whether you will escalate the matter if your C&D letter is ignored.

Letter of Protest / Trademark Opposition

  If the other side has attempted to register their mark, there are two ways to try to prevent the registration.  First, you can file a “letter of protest” with the U.S. Patent and Trademark Office (USPTO).  The letter simply informs the trademark examiner of the existence of your trademark and the reasons why you feel that registration of the other party’s mark would damage your mark.  The benefit of this approach is that it is quick, easy, and relatively inexpensive as it generally only takes a few hours for an attorney to prepare and file the letter.  Often filing the letter will prompt the USPTO to issue an office action refusing the registration in light of your trademark, forcing the other side to argue why registration should be allowed.  The downside to the letter of protest is that once it is filed, you have no further opportunity to engage in the process.  If the other side responds to an office action with arguments as to why registration should be permitted, you cannot respond to those arguments. 

  Whether you have filed a letter of protest or not, if the USPTO’s trademark examiner determines that the mark is registerable, it will publish the mark in the Official Gazette.  This publication opens a 30-day window for anyone who believes they will be harmed by registration of the mark to file an opposition to the application.  

  This process should not be entered into lightly.  In some cases, simply filing the opposition will be enough to get the other side to give up its mark.  But, if they choose to fight the opposition, you will find yourself in a litigious process that takes time, effort, and money to complete.  As in civil litigation, the parties to an opposition file motions and briefs, request documents from the other side, take depositions, serve interrogatories that must be answered, and present their evidence to the Trademark Trials and Appeals Board for its consideration. 

  If the opposition goes all the way to the trial stage, it will generally take at least 18 months from when the notice is filed to when the last brief is due and will cost each side in the tens of thousands of dollars.  As with civil litigation, most oppositions do not reach the trial stage, because the parties are able to come to terms and settle the dispute on their own.  But, this often does not occur until sometime in the discovery phase, after both sides have spent a considerable amount on legal fees.

  It is important to note that the object of an opposition proceeding is to prevent registration of the other side’s trademark and, if you are successful, that is your sole remedy.  There are no monetary damages awarded, nor can you recover your legal fees from the other side.  Moreover, while they will lose their ability to register their trademark, it does not necessarily mean the other side will stop using the mark on their goods or services.  In that case, you would have to file a trademark infringement litigation (see below) to get them to stop using the mark, entirely.  In practical terms, succeeding in an opposition will often be enough to get the other side to abandon their mark, because if you were to follow through with a civil litigation, they could be on the hook for treble damages for willful infringement.

Trademark Cancellation

  If you discover the other side’s trademark application after the 30-day opposition window has expired, your only option to challenge the mark at the USPTO is to wait until the trademark actually registers and then to file a trademark cancellation proceeding.  Though there are some differences between cancellation and opposition proceedings, particularly if the challenged mark has been registered for more than five years, they are similar in most procedural respects. 

Trademark Infringement Litigation

  As one might expect, filing a trademark infringement case in federal court is the nuclear option.  Depending upon the jurisdiction, the time frame for completing a litigation may be faster or slower than an opposition or cancellation proceeding at the USPTO.  But, whereas those procedures will likely cost the parties tens of thousands of dollars, a civil litigation will likely reach six figures, or more. 

  The reason for this higher cost is that there are more issues to consider in these cases.  If you are successful in a civil litigation, you may not only obtain injunctive relief, foreclosing the defendant from all future use of the mark, but also may obtain monetary damages associated with the defendant’s past use of the mark, as well as attorney’s fees expended in the proceeding.  Moreover, if the defendant is found to have willfully infringed your trademark, they may be required to pay treble damages. 

  These issues, which are not even addressed in an opposition/cancellation, add breadth to the scope of discovery taken, which increases the cost.  Further, whereas most opposition/cancellation proceedings are decided without an oral hearing, a civil litigation generally requires live testimony and argument in front of a judge or jury.  These proceedings require a great deal of attorney preparation, dramatically increasing legal fees.

Conclusion

  As the owner of a valid trademark registration, you are obligated to police your mark and failure to do so can result in a dramatic diminishment of your rights or even outright abandonment of your registration.  But, that does not mean you have to file a civil litigation against every minor infringement.  Determining the appropriate path in any given situation requires a careful evaluation of all the circumstances and balancing the risks of action versus inaction.  It is critical to engage a knowledgeable trademark attorney, who will properly assess these risks, your likelihood of success, and the most effective course of action in your case.  

  Brian Kaider is a principal of KaiderLaw, an intellectual property law firm with extensive experience in the craft beverage industry.  He has represented clients from the smallest of start-up breweries to Fortune 500 corporations in the navigation of regulatory requirements, drafting and negotiating contracts, prosecuting trademark and patent applications, and complex commercial litigation. 

Minglewood Distilling Company

Cyndi

Rising From The Ashes

facade of a distilling company building

By: Gerald Dlubala

In the 1880s, in Northern Lawrence County, Ohio, James Mullins noticed an abundance of coal mines popping up. The area was rich in coal, and Mullins decided he wanted to cash in on the surging coal mining business, so he purchased a plot of land between the already-operating Beechwood and Oakwood mines to open his own coal mine. However, before opening, he was reminded by his new hires, many of whom were local and in need of work, that it would surely be bad luck to open and operate a coal mine without properly naming the mine, similar to the naming of ships before launch. Mullins’ wife mentioned that their coal mine settled nicely between the neighboring mines, mingling between them. That single comment launched the beginning of the Minglewood Coal & Ice Company that has now, well over 100 years later, become home to the Minglewood Distilling Company, a small-batch micro-distillery located in Wooster, Ohio.

  Mullins sold coal from his mine and ice procured from the nearby lake when frozen until 1921, when he added a second building on the property. It was heavily insulated with natural cork and used specifically as an ice factory, providing sanitary or electric ice made from distilled water.

  As the years passed, electric refrigerators and natural gas availability sharply reduced the vast need for purchased ice and coal. That demand reduction led to Minglewood Coal & Ice Company closing its doors in the 1950s. An auto repair business took over the smaller building, and the larger, cork-insulated building that once housed an ice factory was transformed into a beer and wine carryout store. The carryout liquor store sustained heavy fire damage in the 1970s and sat in ruin from that day forward, including a massive amount of burnt cork waste. The damage was so bad that the city had plans to demolish the building until current co-owner Mark Morrison purchased the land with the remains of the two buildings included. The city also halted demolition plans on what remained of the damaged buildings providing Morrison would start working on and improving the property immediately. This land purchase began the beginnings of the Minglewood Distilling Company. Morrison opted to keep the Minglewood name out of respect for the area’s history, a trait that continues throughout the distillery, its story and its products.

Carrying on the Minglewood Name

  “We still have two buildings on the property,” said Andrew Morrison, son of Mark and now co-owner and distiller. “The larger building is the original 1880s icehouse heavily damaged in the fire. The smaller building had at least a partial roof and some electricity availability, making it the more practical place to start the restorations and renovations. We started distilling in 2016 and opened to the public beginning in 2017.”

  “The larger building, the former ice plant, has been under renovation for the last four years. It took a lot longer, not only because of the extent of the fire damage but the cleanup included so much burnt cork insulation waste. It must’ve been at least five feet deep, and we actually began by digging it out by hand,” said Morrison. “Additionally, the pandemic slowed everything dramatically. But in May 2023, we were able to host our first event in the space, and it is now open as an event venue for weddings, get-togethers, parties, corporate events and anything else that would benefit from being held in a private space. The back half of the building now houses our production area, and the smaller building we originally used for production is now a permanent bottling facility. We had been rolling out temporary tables to use as our bottling solution, but now, with updated production facilities and available bottling solutions, we hope to increase production and extend our reach substantially.”

  Morrison tells Beverage Master Magazine that patrons will enjoy a rustic, classy space when visiting. The tasting room vibe is reminiscent of the 1940s and 1950s eras, featuring industrial décor with brick walls, concrete floors and exposed ceiling beams.

  “I wouldn’t call it trendy or hip,” said Morrison, “But rather, it’s a place with a throwback feel that reflects and showcases our pride in doing things in the older, traditional ways. Our customers can immediately sense they’re in for a quality experience with owners who care about their products and the visitor experience.

  The Morrisons currently use a stainless steel, hybrid reflux column pot still with a 500-gallon capacity that feeds into a 12-plate reflux column. Their current production schedule is distilling two to three batches a week from November through April, when the city water temperature is perfect for their needs.

  “We use a lot of city water for cooling processes, and in those winter months, the water temperature hovers around 40 degrees, which is perfect for our operation,” said Morrison. “Additionally, our equipment is big enough that, for now, we can make what we need for the year during those months. We generally produce a barrel out of each distillation, which comes to about 50 barrels a year, mostly bourbon and rye, and we distill corn whisky for our flavored whisky products. So, we do have the option to ramp up production rather quickly if and when needed.”

Reigniting the Area’s Historical

Passion with Rye

  After the Revolutionary War and in the 1800s, Germans immigrated to Ohio, including Wayne County. They brought rye from Europe with the intent of farming. Rye is a winter crop that fits extraordinarily well with Ohio’s temperature fluctuations and extremes, including the high freeze and thaw rates in the winter months. When a successful harvest came in spring, farmers found themselves with an excess of rye grains and looked for additional uses, leading to small pot stills on the farms to distill the grains and raise extra money. However, during the Civil War in the 1860s, excise taxes became a reality. As you can expect, farmers didn’t want to deal with the taxes, so many became moonshiners while local granaries became distilleries. Morrison also speculated that with the proximity of Route 30, a major thoroughfare running from the East Coast to Chicago, it’s not a far stretch to think that moonshining and moonshine distribution were also lucrative businesses.

  “Most people don’t remember that the Cedar Valley Distilling Company operated in Wooster between 1862 through the 1940s,” said Morrison. “We like their story and try to keep it alive in our tours with historically accurate retellings. The owner started with a grist mill, purchasing grain from local farmers and hiring additional local farmers and construction workers when other work was unavailable. The distillery was successful enough that they eventually moved to a larger facility, and from all accounts, they could produce 25 barrels a day during their peak production in the late 1800s.”

  “That’s simply unfathomable to me,” said Morrison. “If we ran 24/7 here, we could produce two barrels daily. Cedar Valley Distillery only made rye whisky, and they suddenly found themselves with a very large backstock when prohibition hit. They were able to get a license to distribute medicinal prescriptions, so their backstock ended up being distributed through prescription only. By the time prohibition ended, their backstock was dwindling away to almost nothing due to their prescription distribution and likely a bit of bootlegging. So, they started selling a 65 percent Cuban Rum liquor cut with six-month-old rye whisky aged with wood chips. We actually found some of the bottles over the years, and as you would expect, the concoction was horrible and definitely not a money-maker, causing the distillery to close its doors. Cedar Valley’s buildings and memories are now gone, and it’s rare to find someone in Wooster who remembers them, but we want to keep that history alive. Like them, we make our rye whisky using all local ingredients. We enjoy highly communicative and exceptional relationships with our farmers, who have become more like partners than suppliers. Our corn is grown about five minutes away, just outside of Wooster. Our rye comes from about 15 minutes away, in Dalton, which is eastern Wayne County, and our wheat comes from a co-op just north of us in Seville.”

Community and Partner-Suppliers

Are Critical

  Mark Morrison originally opened Minglewood Distillery with help from a friend that owned and operated wineries in the region. His son Andrew would work with them when he was available. In 2019, Andrew finished his studies, and when Morrison’s partner wanted to return to his true passion, meaning his wineries, the Morrisons bought him out. From that day forward, the father and son team became 50/50 partners, co-owners and distillers.

  “We’ve been using the same farmers for six years since beginning our distillery,” said Morrison. “We are fortunate to have no worries about the consistency and quality of our ingredients or products, and our communication couldn’t be better. Even when our suppliers had a bad year, causing lower overall yields, they told us they had a crop dedicated to us, so we shouldn’t worry. That type of communication and partnership is invaluable.”

  The future looks bright and tasty for Minglewood Distilling Company. Morrison tells Beverage Master that they are looking forward to increasing production and bottling capacity thanks to the updated availability of both buildings. They plan to bump up their bourbon production, eventually offering bottled-in-bond bourbon and rye selections and expanding the overall lineup with more variety and premium offerings.

  For those following the path to owning a distillery in a state that controls licensing, Morrison says that those future distillers should apply to get their license early. He waited, and because the process was a lengthy one, Minglewood initially was only allowed to distill and provide small samples (one ounce per person, per day, cut into quarter-ounce samples) to their patrons, which wasn’t enough for proper tastings to be held or sell their liquors by the bottle. Morrison said that selling cocktails is critical to the bottom line, so obtaining that serving license is important for customers to get to know your products and want to purchase them regularly. Minglewood Distilling Company’s best sellers have been their flavored offerings, with peach leading the way. It really took off in 2020 and hasn’t slowed. Their upcoming pickle whisky is set to be a hit, and a much-anticipated root beer whisky will be available this fall.

  In addition to being able to taste their product lineup at their distillery and tasting room, Minglewood Distillery offers a kitchen and full bar for service and menu offerings featuring meat and cheese boards.

To learn more about Minglewood Distilling Company and its products, visit:

Minglewood Distilling Company

437 East South Street

Wooster, Ohio, 44691

(330) 601-1600

info@minglewooddistilling.com

Five Essential Key Performance Indicators for Taproom Managers

Cyndi
taproom at pike place signage

 By: Kary Shumway and Andrew Coplon from TaproomSuccess.com

Taproom managers wear many hats that correspond to a countless number of responsibilities. From hiring to firing, to training and retaining, it is the goal of taproom managers to equally maximize the experience of their guests as it is their staff. One of their most valuable tools to create a successful taproom is data. By understanding data, taproom managers can monitor, maximize, and maintain world-class experiences that customers crave and their team is proud to be a part of, leading to more memorable and profitable taprooms.

5 Essential KPIs for Taproom Managers that can Help You See Greater Guccess

  KPIs, or Key Performance Indicators, are the most important numbers to measure in your business. Think of KPIs like the gauges on the dashboard of your car. The speedometer measures how fast you’re driving, the fuel gauge shows how much is in the tank, and the check engine light tells you if you’re overdue for maintenance.

  Those are important things to know to keep your car running smoothly and legally. Likewise, KPIs for your taproom business need to track the same critically important measurements.

#1: Tip Percentage

  What it is: Tip percentage is the tip amount divided by the total tab (i.e. a $10 tip on a $40 tab equals 25%).

  Why it’s important: Tip percentage corresponds directly to staff member engagement with guests. From Secret Hopper data, we see that when staff offer a low level of engagement, the average tip percentage is 23%. When staff offer a high level of engagement, the average tip percentage is 27%. If Andrew’s average tip percentage is 17% and Kary’s is 27%, it can be deduced that Kary is going above and beyond to build relationships with his guests.

  Where to find this data: Your POS system. If your employees have their own login, it’ll be easy to see their individual tip percentages. If your setup has your team sharing a login, monitor trends over time. For example, if you typically have 3 taproom servers in the taproom and when Andrew’s behind the bar you see a lower average tip percentage, you’ll be able to discover that he’s the weak link.

  How you can use it: Reward and recognize team members who consistently receive a high tip percentage. Make them feel appreciated. When you discover a team member who receives a lower than average tip percentage, use this as a training opportunity. Speak to this employee and discuss what can be done to offer greater support. Even for employees that may treat their position as “just a job,” money can be a motivator. The more employees take the time to build relationships with taproom guests, the higher their tip will be, making them a little bit more money and a little bit happier. As a manager, having happier and better compensated staff will make your life easier.

#2: To-Go Sales

  What it is: To-go sales represent additional purchases on a tab for consumption outside the brewery. Think crowlers, growlers, bottles, and cans.

  Why it’s important: Encouraging beer to-go is an actionable strategy you can train your team to authentically implement that generates immediate returns. On taproom visits when staff do not suggest beer to-go, the guest only makes the purchase 9% of the time on their own. When taproom staff encourage the guest to take beer to-go, the guest makes the added purchase 49% of the time, resulting in tabs nearly $15 higher.

  This metric is not only important as a tool to motivate taproom staff to increase their tabs, but also a valuable KPI for managers/owners to monitor and reward your team.

  Where to find this data: Your POS! Ask your provider the easiest way to filter transactions that include to-go purchases. Consult this data regularly and see who on your team is demonstrating upsell skills.

  How you can use it: Engagement is a common thread in these top 2 KPIs, and you are likely to see those with the highest tip percentages also selling the most to-go beer. Makes sense, right? Your most engaged team members are developing deep relationships with your guests, and are more likely to also suggest taking beer home. Hold frequent to-go beer competitions to see who can sell the most over X period of time, whether a Saturday afternoon, an entire month, or based on hours worked. Moreover, don’t just consistently reward the same top sellers. Consider using this to-go data to recognize your most improved staff on suggesting beer to-go. Whether we’re talking about brand new employees or 10-year taproom veterans, regularly monitor this KPI to make sure they’re using it to their advantage. After all, what server doesn’t want to get tipped a little more when their tab also includes beer to-go? As a taproom manager, monitoring this KPI will help you better maximize the amount of to-go beer sales and increase overall in-house revenue.

#3: Number of Customers

  What it is: The number of customers represents what you might expect – the foot traffic into your taproom. This is how many people come in during a given day, week, month, or year.

  Why it’s important: Clearly, the more people who come in, the more sales you can generate. We often create taproom sales projections using just two numbers to start: 1) Customers x 2) Average Spend Per Customer (which we’ll cover next).

  These two data points are the key drivers of revenue through your taproom. The more you can increase one or both of these KPIs the more you can boost your taproom sales.

  Where to find this data: Here again, your point of sale system will track this data. It may be useful to create your own trackers (hello, spreadsheets!) so that you can easily access historical information and make use of week over week and month over month comparisons.

  How you can use it: Set up a simple spreadsheet to track the total number of customer visits by week and by month. Pull information from the prior year (or years) so that you can see what the trends look like.

•   Are the number of customers increasing or decreasing month over month?

•   Are there patterns that emerge when you look at the historical data?

•   Are there weeks or months that have unusually high volumes of customers?

•   Why did that happen?

•   Can you duplicate this, or do more of the things that brought people in?

  The goal of tracking the number of customers is simple: bring more customers in to spend more money so that you can increase sales. However, tracking the numbers isn’t enough. Review the trends and use the data to brainstorm ways to increase traffic.

#4: Average Spend per Customer

  What it is: The average spend per customer is a measurement of (you guessed it) how much folks spend when they come into your taproom.  You may see this KPI also shown as average spend per check. Whichever measurement you use, this is an important one to track so that you can understand spending patterns, habits and identify ways to improve on each.

  Why it’s important: When customers come into your taproom they want to buy from you. Unlike some retail stores, where people go in to browse and just look around, folks are coming into your taproom to buy. They want a beer, some food, and maybe some merchandise. The more you have to offer, and the easier it is to buy it, the more your customers will spend. And the more they spend, the more financially viable and successful your business will be.

  Where to find this data: We’re starting to sound like a broken record here, but your point of sale system is the place where you’ll find average spend per customer (or check) data.

  How you can use it: The old saying goes that your best customer is the customer you already have. These are the people that have already purchased from you and love what you have to offer. Why not work to offer them more when they come to your taproom?

  As with most KPIs, it is useful to take the measurements over time, analyze the trends, and make comparisons. A key best practice is to benchmark against your past performance and work to improve the number. 

#5: Revenue per Barrel (BBL)

  What it is: Revenue per barrel, or sales per barrel, is a measurement of how effectively you are monetizing a barrel of beer.

  To do the calculation, take the total number of dollars sold through the taproom in a given time period and divide by the total number of barrels transferred to the taproom.

  For example, in the month of January taproom sales were $100,000, and there were 100 barrels of beer transferred and depleted during January. $100,000 divided by 100 barrels = $1,000 per barrel.

  Why it’s important: The revenue per barrel KPI shows how many dollars each barrel of beer is making us, and will provide clues as to how we can make more.

  Furthermore, one of the key tenets of business and financial management is the safeguarding of assets. The revenue per barrel KPI can help with this.

  What this means is that we need to have checks and balances to make sure that our assets are well taken care of and that we are getting a proper return on our investments. The revenue per barrel KPI can help identify beer loss when the number dips below expectations.

  To continue the example above, let’s say you’ve been measuring revenue per barrel for years and it tends to be around $1,000 per barrel. Fairly common. Then one month it dips to $800 per barrel and stays at this level for several months. What happened? The KPI won’t answer this question, but it will force you to go and figure it out.

  Where to find this data: Again, for this KPI you’ll need to know total taproom sales in a given period and total barrels transferred to the taproom. The POS will have the sales data and your production software (or accounting software) will have the total barrels transferred.

  How you can use it: As with the KPIs discussed above, set up a tracking system to show month over month revenue per barrel numbers. Look back for 12-24 months and see what the trends look like. Is the KPI increasing? Decreasing? Staying about the same?  You can use this data to inform pricing decisions, product mix, and pour sizes.

  Understanding KPIs provides you the ability to find out where your taproom stands, spot areas of opportunity, and the tools to monitor consistency and quality. Moreover, don’t just treat the data as numbers, use it to reward and recognize your team for a job well done. As a taproom manager, these KPIs are vital assets in your toolkit to see greater taproom success.