Artisan Spirit: Fall 2021

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BRAND BUZZ

A STORY OF TWO PART 2

WRITTEN BY

T

his is the second article in a series that covers the road to market. In Part Two we will cover what it takes to follow the more traditional road to market of developing your READ A STORY OF TWO ROADS PART 1 own distillery. This is by far the most expensive and time-intensive route, but it’s one that allows for the flexibility of creative expression and provides the artistic outlet and lifestyle of physically crafting your own product, which appeals to many distillers and consumers.

THE STARTUP COSTS The answer to the question of what it costs to setup a distillery is: It depends. The costs vary depending on your goals. Start by asking yourself these questions: Do you want to build your distillery brand for generational enjoyment? Build it to sell? Or is your goal a lifestyle-driven, break-even/ small-profit equation where you create small production products as much for the fun and experience as the business? For the purpose of these articles, we are going to concentrate on Distilled Spirits Plants (DSPs) that are producing well above a 50-gallon batch size and are interested in developing a successful brand that will support their families for generations or set the stage for an exit strategy sale. W W W . ARTISANSPIRITMAG . C O M

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DAVID SCHUEMANN

WHAT THINGS SHOULD YOU BUDGET FOR WHEN SETTING UP A DISTILLERY?

Time – Planning a budget around the assumption everything will go according to plan on the first try, or will stay on schedule, is a recipe for failure. The realities of setting up your business; licensing; acquiring property; zoning approval; fire and water approvals; and licensing on a federal, state, and local basis will take lots of patience, money, and time. Always anticipate delays and determine whether you are able to financially weather a delay. Money – Develop a strong and well-thoughtout business and marketing plan that is fully realized with the costs associated with both short-term startup and longer-term projections, factoring in shifting marketplace realities and expansion to support future demand. Whether the capital is coming from your own pocket, a bank, or investors, strong and considered business and marketing plans will be critical components to both your short- and long-term success. Consider initial expenses such as facility costs, licensing, legal advice, financial plans, brand development (including name development, logo, and packaging design), and market testing, as well as continuous costs such as sales support and ongoing advertising and promotion for your brand. Develop a well-thought-out strategy for chan-

nel sales — will you be able to sell bottles and/or cocktails onsite? Can you sell directly to consumers and self-distribute or will three-tier distribution be a necessity? Also, consider your product mix. Do your offerings require aging (such as bourbon)? Are they quick-turn, unaged products (such as vodka and gin) or canned cocktails? Or a mixture? Planning & Initial Costs – These costs can include brand development and testing, legal fees, financial plans, and business plans. Depending on how much of this you can bootstrap, you should plan on anywhere from $50,000-$150,000. Distillery Setup – It’s nearly impossible to generalize the cost to purchase or lease a property, as costs vary greatly depending on location. Distillation equipment, infrastructure, and supplies typically run around $1 million. If you want your distillery to have a tasting room or a cocktail bar, the costs could increase by another $200K or more. Dry Goods – Assume about $500K in the first year. In following years, this should increase in correlation with your (hopefully) increasing production. People – Salaries drastically vary depending on location and other factors, but assume about $500K per year.

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WHAT IS THE GENERAL STARTUP RANGE IN DOLLARS TO START A DISTILLERY INCLUDING BRANDING AND MARKETING, PERMITS, PLANNING, ARCHITECTS, STILL, EQUIPMENT, ETC. From our experience and research, to build a proper distillery and successful brand with all the components — including licensing, facility, locations — it can range upwards from $2-$5 million. Not all of this is needed upfront, but crafting a carefully considered budget with lots of input from industry resources will go a long way toward avoiding the surprises others have endured. 25


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