I wasted years resenting how hard it was to
get attention from distributors. I finally
realized something fundamental: it was up to
me to provide a product and a way to sell it
such that a distributor could do his job
without going to extra trouble. Most people I
know in the distribution system are good,
hardworking, intelligent folks doing things
the way they know how & doing them well. If
you don't have a product - no matter how
lovingly made - that is going to make
standard profit for a distributor doing
business in ways he believes work for him,
you are not going to have his attention for
very long, if at all. To what extent is it a
distributor's responsibility to figure out
how to sell a new product in a new category,
especially if selling that product will
require a lot of extra work?
Folks piss & moan about the three-tier
system, but if there were no distributors, we
would all be discouraged about how tough it
would be to choose between (1) warehousing
our products in many locations and shipping
it from them to a large number of individual
accounts on a regular basis, plus figuring
out how to obtain & support sales
representation, or (2) having a brand (and
the means to support it) that would do well
in the even more highly competitive
supermarket chains, restaurant & hotel
chains, etc. Distribution has consolidated,
but so has everything else, including the
distributors' customers: the world changes
rapidly these days. If the broad market had
not become so greatly commoditized, there
would be far less potential demand for new
specialty products. The most interesting
question for a craft distiller in today's
market is something the trade - and the
economy itself - is visibly grappling with:
how to effectively market specialty
(low-volume & high-margin) products though
large organizations while taking care of the
huge-volume brands that account for almost
all of the sales? No one in the spirits
marketing/distribution trade has figured this
out yet, which probably means that there's no
easy answer.
I find it helpful to conceive the market
in terms of what a distributor Salesperson
deals with when he/she's standing in front of
the owner/manager of a store or restaurant.
The Salesperson (SP) represents some huge
number of SKUs, and his competitors represent
many many more SKUs, all of which are
competing for a very finite amount of shelf
space & attention inside the account. Both
the SP and the buyer are on tight schedules.
That week/month, the SP has a large number of
special deals to offer, many of which concern
brands which over time consistently make good
money for him/her & the distributor. If the
SP wants to feed his/her children, most of
the sales call must be devoted to enumerating
the special deals so that the account will
take advantage of them. Most if not all of
the rest of the call will be devoted to
pitching product for which the SP/distributor
is being spiffed, often generously. A
distiller on a low budget producing a small
amount of a specialty product may resent the
fact that his product doesn't readily fit
into this situation, but - sour grapes aside
- the only way he can make his brand
successful is to make it work for the
distributor and the SP. Here's something I
regard as a genuine nugget: the real
marketing target is not the consumer, it's
the trade - the distributor, the SP, the
account. The consumer may be more
sophisticated about specialty spirits than
some distributors, SPs, and even many
accounts, but unless you have quadrillions to
spend on advertising, you have no meaningful
way to reach large numbers of consumers
directly. Unless you can figure out a way for
distributors, SPs, and accounts to work
effectively on your product, you are not
going to reach the consumer.
So what's a craft distiller to do? One
obvious way to approach the market is to do
lots of the work yourself: work the market
long and hard. This can teach you a lot about
what is or isn't effective. Distillers have
such passion for their own products that they
tend to sell effectively (but keep a light
touch). Number 2: keep it local/regional.
Very few craft distillers are going to end up
with a national brand. People like to
buy/deal in local products, and you'll
obviously find it cheaper and less
time-consuming to work markets close to home.
If (over a longer period that one likes to
imagine) you can develop profitable levels of
sales locally, you will have learned a lot
about how to sell your product and will have
a track record to use to persuade
distributors in other markets to give your
brand a try. Third, if local regulations
permit, develop as many direct sales to
consumers as possible. In my experience,
people who buy direct tend to remain loyal
customers, and of course the margins are
wonderful.
I believe that, unless you are extremely
lucky, effective sales and marketing will
demand more than half of your time &
resources - no matter how good your product
is. My experience is that great marketing is
as creatively demanding as great production,
and much harder, because you are dealing with
influencing the behavior of human beings and
have far more direct competition. Unless you
budget huge amounts of time & resources for
sales & marketing, you likely have an
unrealistic business plan.
We would all be better off, in some
respects, if Grey Goose and Patron had not
zoomed to such enormous numbers: now everyone
has pipe dreams about what's possible. Grey
Goose was an asteroid impact, not a business
model. Plus, Sidney Frank had the cash-flow
from a million-case Jaegermeister brand and a
good 100-member sales force. Whenever I get a
glimpse of what the numbers are for products
which rank say 10th or 15th in their
category, the numbers are intimidatingly low.
For example, in 2005, El Tesoro tequila, a
well-reputed product in a hot category, on
the market for almost 15 years, supported by
the Jim Beam sales organization, sold some
17,000 cases in the USA, and was thus the
7th-ranked super-premium tequila brand. Don
Eduardo, then Brown-Forman's premium tequila,
was 9th, at 11,000 cases. Can a craft
distiller think realistically about getting
his brand to, say, 1500 cases, on his own
resources?
Some questions.
Viewed as an aggregate result of some 20
years of hard, expensive, and extensive
marketing, is single-malt scotch a successful
category?
How many genuinely craft-produced beers -
will there be on the national market in say
2015?
What is a reasonable life-expectancy for any
start-up craft-distilled spirit brand?
What's a fair and effective price for a
hand-crafted spirit? Is it the same number?
Is there anything unfair or unreasonable
about the consuming public deciding - for
whatever reason - that it's not interested in
certain high-quality products?
Is there any "ought to be" in consumer demand
for or in trade interest in a specific
product or product category?
What's written above plus a dollar bill will
buy you a good-sized pack of
gum/warm.
Regards
Ansley
Coale
Germain-Robin
======================
GARDINER, N.Y. - Ralph Erenzo and Brian Lee
keep a still in the barn to make whiskey. No,
the two are not backwoods bootleggers filling
jugs with "XXX" on the side. Their shiny
copper kettle cooks up whiskey that can run
$40 for a half-sized bottle and vodka
distilled from local Hudson Valley apples,
all under the high-end Tuthilltown Spirits
label.
Erenzo claims they make the first (legal)
whiskey in New York since Prohibition. But
they already face competition from dozens of
"craft" distilleries around the country
catering to consumers' appetite for artisan
and local products.
People who pay more for hand-crafted cheese,
bread, beer and wine are showing a
willingness to do likewise for the hard
stuff. Tiny Tuthilltown - which makes
bourbon, rye, corn whiskey and vodka - is
selling faster than it can bottle.
"Whiskey is what people are screaming about,"
Erenzo said midway through distilling a batch
of rye. A clear stream of spirits flowed from
the still on the barn's spacious second floor
as he talked.
Erenzo and Lee seem to be unlikely spirit
makers. Erenzo ran a climbing gym in
Manhattan. Lee was a broadcast engineer.
Neither business partner drinks except to
taste their products. Lee jokes that his
previous experience with fermenting was
confined to making cinnamon buns with his
kids.
But the pair display entrepreneurship typical
of the new breed.
Erenzo and his wife bought the land on the
Wallkill River, about 70 miles north of New
York City, with plans to open a ranch for
climbers visiting the famous Shawangunk Ridge
nearby. After opposition foiled the ranch
plan, he met Lee, who initially came to
Gardiner to look at Erenzo's 18th century
grist mill (since sold). With Lee as a
partner, Erenzo decided instead to satisfy
his "innate curiosity about spirits."
They saw their chance in 2002, when New York
introduced a new class of distilling license
for small producers that carries a fee of
$1,450, as opposed to $50,800 for the old
license.
They created a wholesale liquor business from
scratch. Until they landed a distributor this
year, Erenzo loaded up his trunk and made the
rounds to retailers from New York City to
Albany.
Lee, meanwhile, learned the nuances of
fermenting - things like how to retain notes
of vanilla in the final product. And he
relied heavily on his mechanical aptitude to
install the 125-gallon still in the barn's
second floor. The unit - with its bell-shaped
kettle, gauges, vapor columns, valves and
pipes - looks like a science experiment,
which it was.
"It took us about 2 1/2 years from a dead
stop knowing nothing about it until 'We can
turn this thing on and make alcohol,'" Erenzo
said.
Lee said they mostly break even, with profits
going back into the business. Each man has a
wife with a steady job.
While vodka is essentially ready to go right
out of the still, whiskey is aged in charred
oak barrels stored in the barn. After
bottling, Erenzo applies labels, dips the
bottle tops in wax (heated in a crock pot)
and boxes them up.
Small-scale distilleries like this were
common in America before Prohibition wiped
the slate clean. New York, for instance, now
has only 16 licensed distillers, including
some larger operations in New York City and
wineries that specialize in fruit-based
spirits like brandy and grappa.
Problems can be legion for startup
distillers, ranging from Byzantine state laws
to high state licensing fees. And as Erenzo
and Lee can attest, there are no rule books.
"It's hard as heck to open a distillery,"
said Guy Rehorst, owner of Great Lakes
Distillery in Milwaukee. "Frankly, it's kind
of a headache."
Still, Rehorst has had enough success selling
craft vodka in Wisconsin that he's branching
out to gin. From Virginia, Rick Wasmund
crafts and sends out his Wasmund's Single
Malt Whiskey to nine states. They are among
some 90 craft distillers active nationwide,
according to Bill Owens of the American
Distilling Institute.
Craft spirits remain a tiny niche in the U.S.
spirits industry, which rings up $58 billion
a year in sales. Owens estimates that an
average craft distiller might produce 6,000
cases a year.
But the little distillers have the wind at
their backs. Not only are artisan products
popular, but the spirit industry is growing
with the help of high-end products. Sales of
so-called super-premium products, like Grey
Goose vodka and Johnnie Walker Blue, grew 72
percent from 2002 to 2006, according to the
Distilled Spirits Council of the United
States.
Drinkers used to spending $30 for a bottle of
Absolut Vodka or Jack Daniel's Old No. 7 are
less likely to be fazed by craft prices.
Rehorst's vodka and gin runs about $30 a
bottle, Wasmund's Single Malt Whiskey ranges
from $35-$40. A wine and spirit store nearby
advertises Tuthilltown Manhattan Rye Whiskey
for $39.99 for a 375 milliliter bottle and
same-sized bottle of Tuthilltown's Heart of
the Hudson vodka for $31.99.
Erenzo said Tuthilltown has sold 6,000
bottles since going on sale in April 2006.
They are awaiting delivery of a second,
250-gallon still that will allow them to
speed up production. And they've already
distilled some rum, which is aging in
barrels, made with molasses from Louisiana.
Tuthilltown also rides the wave of the "buy
local" movement. Their vodkas are made from
local apples - Erenzo stresses not
apple-flavored vodka, but rather vodka made
from apples. Heart of the Hudson vodka
retains a ghost of apple flavor going down.
That's less true for Spirit of the Hudson
vodka, which is distilled three times.
It's harder to buy local ingredients for
grain-based whiskeys (the Hudson Valley is
not big on wheat production). Though Lee said
they have a line on local heirloom corn.
"That's my Holy Grail," Lee said, "to get a
whiskey that is wonderful and unique based
entirely on New York products."
On the Net:
Tuthilltown Spirits:
http://www.tuthilltown.com/
American Distilling Institute:
http://www.distilling.com/
==================
I'm off to MI
today.
bill
====================
