There has never been a better time to start a craft distillery. As previously discussed, new distillers can benefit from the experience of established craft distillers who have paved the way over the past five years. There are plenty of resources available, including online forums, distillers’ conferences, craft-focused trade shows, local distiller guilds, experienced consultants, and a Tax and Trade Bureau that is more accessible than ever before.
However, this is by no means an easy and straightforward path. It can be a costly and frustrating endeavor. What can we learn from those who have successfully navigated the challenges of starting a new craft distillery? Hopefully, we can avoid repeating the mistakes made by others. Here are some of the most common pitfalls when starting a new distillery:
1. No Business Model or Minimal Operations Cash Reserve
This is the most common issue I have observed. Distillers should ask themselves fundamental questions such as: What are your revenue goals? How many cases do you need to sell to achieve those goals? What are your Costs of Goods Sold (COGS) for the raw materials required to produce those cases? What are your fixed expenses like rent, labor costs, and loan interest? How much capital investment do you need to start up? How much cash do you need in reserve to sustain the business until the distillery begins shipping orders? A clear and understandable business model is invaluable for setting sales and production goals, obtaining a loan, or attracting investors.
2. No Chilling System
Distillers often spend significant time and money on adding heat, steam, and energy to cook their mash and operate their still, but they overlook the equipment necessary to remove that same heat from the system. Rapidly cooling a hot grain mash with chilled water can help minimize bacterial growth. Having an ample supply of cold water ensures efficient operation of the chiller. Cold water can also be used to cool fermenters and prevent overheating and stalling of fermentation.
3. No Consideration for Waste Water
I have seen many craft distilleries rely on cheap and abundant municipal water to cool their condensers but simply discard that water. Many distillers waste thousands of gallons of water each day. Even if waste water can be disposed of at low cost, it could be reused and recycled. Consider using the hot, clean water from the condenser for grain mashing. Investing in an inexpensive poly tank as part of a recycling system can save thousands of gallons of water daily.
4. Difficult Layout, Insufficient Space
Distillery equipment is large. Vodka columns can be over 20 feet tall, and a 600-gallon pot still kettle can be 8 feet wide. Fermenters, glass pallets, racks, grain sacks, bottling equipment, finished goods, mash cookers, storage totes – they all require space. Can you access and move everything with a forklift? Are your doorways large enough to accommodate equipment and materials? Do you have a dock door for truck loading? Do not underestimate the space needed to operate an efficient distillery.
5. The DJ Dilemma
While sitting in a dark studio, it is easy for a radio disc jockey to play the music he wants to hear, even if his audience may not enjoy it. Just because a distiller wants to produce something doesn’t mean it will sell. I know a distiller who insists on making brandy, even though there is almost no market for brandy in his area. It is important to be passionate about what you produce, but don’t let that blind you to making sound business decisions. Find a balance between running a profitable business and pursuing a hobby.
6. Making Whiskey with No Available Barrels
Whiskey is currently popular. Brown spirits like bourbon are experiencing double-digit growth, with record-high prices and consumer demand. However, there is a significant problem for new craft distillers looking to enter the whiskey market – there is a shortage of new oak barrels. To produce bourbon, you need a reliable supply of new, charred, white oak barrels. Although cooperage capacity is slowly increasing, there is a waiting list for barrels ranging from six months to over a year. If you want to open a craft distillery today, your only options for a while might be white spirits like gin, vodka, rum, non-grape brandies, corn whiskey, or flavored liqueurs.
In summary, we are in an exciting period of growth in the craft distilling industry as more and more consumers seek something new and unique. The first distillers stumbled through the dark and emerged successfully on the other side. While we may encounter challenges when starting a new distillery, learning from these cautionary tales will help illuminate our path.