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Industry Report: Craft Spirits Bust Out

by Gregory Daurer on May 21, 2019, 07:37 am MDT

As liquor brands from Colorado grow into other states and countries, the road to expanded distribution is no primrose path for distillers.

From coast to coast, spirits from Colorado distilleries are being sold in liquor stores, served at select bars. Denver's Leopold Bros. can be found in 23 states including California, New York, and Kentucky. Bourbon from Old Elk in Fort Collins is distributed in 28 markets -- from California to Maine. Forty-five: That's how many other states in which State 38 Distilling of Golden has extended its presence.

Some Colorado-based companies are exporting their products. Two of the most skilled at the endeavor are Golden's Golden Moon Distillery and Crested Butte's Montanya Distillers. Golden Moon has product in the United Kingdom, Denmark, Italy, and Germany. Montanya has had a wide rollout of its rum in Spain and France.

But there are a host of business challenges attendant with simply getting products across the state line (let alone overseas) in the pursuit of building a successful national brand. And there are persistent challenges in how brands from Colorado distinguish themselves nationwide in a growing craft spirits market.

Colorado's place in the distilling world

Back in March, representative from 23 different Colorado distilleries assembled together within the same hotel event space, sharing samples of their spirits with visiting distillers from across the country. It was the opening night reception of the American Distilling Institute's (ADI) annual conference, held this year in Denver

Bill Owens, the ADI's president, calls Colorado "the center of the universe" when it comes to American distilling. "It was for beer and now it is for distilling," says Owens, a former brewpub operator himself back in the '80s in California, before founding the ADI in 2003. Owens cites the state's "young population" and "entrepreneurial-type people" as contributing factors for Colorado's ascension.

Seen at the ADI event, a promotional sticker from Deerhammer Distilling Company of Buena Vista: "No One Cares That You're From Kentucky." It's a humorous sentiment, but built, perhaps, more on Colorado-centric bravado, rather than the actual perceived reality outside the state.

"Here in Colorado, being from Colorado has some weight," observes Julius Grisette, assistant distiller at Marble Distilling Co. in Carbondale. "When you're in Texas, no one cares you're from Colorado. In the whiskey world, being from Kentucky has some leverage outside of the state of Kentucky. But Colorado doesn't have that same weight in other states that we have here [in Colorado]."

On the other hand, Ryan Negley, a "whiskey fellow" at Boulder's Vapor Distillery, says that Colorado has indeed earned a craft reputation outside the state, thanks partially to the early successes of another local industry: "You can't not talk about what craft brewing did for our state."

Vapor sells its wares in seven states, including California, Illinois, Florida, and South Carolina. However, there are places with their very own local-centric vibes where Vapor doesn't consider it wise to extend its presence (at least not yet). "We're not going to do the Pacific Northwest -- Washington, Oregon -- because, they've got so much of that their own industries that they're supporting," says Negley. "So, we find markets -- the Arkansases, the Tennessees, the Floridas -- that don't have that."

The challenges of moving beyond the Centennial State

In order to sell, for instance, a Colorado-made whiskey outside the state, a brand needs to establish a relationship with a distributor. More than likely that's distributors, if the brand is sold in more than one state, due to different distribution models in effect across the country (see the diagram here, which outlines the difference between open states, control states, and franchise states). "In 14 states, we're spread across 10 different distributors," says Proprietor and Distiller Stephen Gould of Golden Moon.

And again, to use the example of whiskey, there's the logistics of having enough on hand for markets that might open up. "We only have a finite amount of whiskey that is aging," says James Trabucco, the territory sales manager for Denver's Bear Creek Distillery. "So, in the event that we open up distribution, we're going to have to allocate all that whiskey to certain [geographical] areas. That's the thing that we're scared of." Presently, Bear Creek has product available in Wyoming, and is considering branching out to Montana and Illinois.

It's a concern shared by Lenny Eckstein, the founder and head distiller at Deerhammer. "We don't want to chase the whiskey," he says. "We want to know it's where it needs to be [in terms of not maturation], not forecast it should be ready by this date so we can say we'll sell this much." Deerhammer is considering expanding to Texas and California -- once it's increased its stock of whiskey on hand, that is.

The ADI's Owens urges distilleries to exercise caution before opening that out-of-state pipeline. "You better not disappoint that wholesaler," notes Owens, "because he ain't going to invite you back."

Sean Smiley, the founder and head distiller at State 38 Distilling, lists off the different expenses that distilleries face as the cost of doing business outside the state, which include: paying for the shipping of their products to their distributors -- whether that's out of state or out of the country; paying for the distribution -- which often accounts for a third of State 38's sales; and paying for marketing. "At the end of the day, the [profit] margin's 5 percent -- if that," says Smiley.

Getting noticed

Okay, it's indisputable: Colorado brands make great spirits.

At the ADI conference this year in Denver, Golden Moon Distillery was named "Distillery of the Year."

In 2018, Whisky Magazine recognized Distillery 291 of Colorado Springs for creating the "World's Best Rye." In 2017, Denver's Laws Whiskey House earned that same title, making back-to-back wins in that category by Colorado distilleries.

Among the numerous awards it's received, Montanya Distillers had its Platino light rum named the "Best White Rum" in 2015 at the World Rum Awards.

Certainly, examples like that build brand awareness among out-of-state, in-the-know connoisseurs. Social marketing and spirits review sites on the Internet can also help to create interest in a product.

And an organization like the Colorado Distillers Guild -- which is the "largest, dues-paying spirits guild in the country," according to State 38's Smiley, who's also the guild president -- tries to raise the boats of all its members.

The Colorado Distillers Guild does that through an initiative like its Colorado Spirits Trail -- a recently-updated map and directory of distilleries, available for both in-state and out-of-state tourists at locations like Denver International Airport, as well as online. "We're expecting thousands of people to be hitting the streets with this map and exploring different distilleries in Colorado," says Smiley. Tourists who find a newfound favorite Colorado distillery might very well ask their local liquor store in other states to carry the product, according to Smiley, leading to expanded distribution outside the state.

Ask some of those Colorado distillers how they distinguish themselves in a crowded national market, and they'll often point out what's unique about their specific brands. For Deerhammer's Eckstein it's "making all our whiskey on direct fire copper pot stills, extra long fermentation . . . distinctive grain bills." For Kate Douglas, head distiller at Old Elk, it's the aging of the whiskey, and the company's trademarked Slow Cut proofing process: "We really feel our bourbon speaks for itself and is a quality product."

But just about every single distillery representative that CompanyWeek spoke with cited the same primary method of reaching new consumers, liquor stores, and bartenders in other markets: "boots on the ground."

Boots on the ground

Distilleries can't simply expect distributors to do the job of making potential customers aware of their products. They need to add their own "boots on the ground" or "feet on the street" within those markets. That means paying for brand ambassadors in those locales who will promote the distillery -- or for the distillery to take the expense upon itself to travel to other states to visit accounts, attend events.

"A lot of distributors ask or demand a brand-ambassador presence in that territory," says Smiley. "So, if you're not willing to put the investment in to pay for brand ambassadors in all the states like Jack Daniels and Jim Beam and Jose Cuervo [do], you're going to have a really hard time, because the distributors will probably give you less attention."

Karen Hoskin -- the CEO and co-founder of Montanya Distillers -- says, "I travel to our different markets all the time, and I train sales reps, and I do events and interact with everybody from the distributor in the marketplace [to] accounts -- bars, restaurants, liquor stores -- while I'm there."

Hoskin did that just recently, as well, in Spain and France.

If expanding distribution into other states isn't for the faint of heart, then expanding distribution overseas definitely isn't recommended for cardiac health. "There's no road map," notes the ADI's Owens about the venturing onto foreign shores.

However, it helps if you've got the business experience of someone like Golden Moon's Gould -- who spent years working overseas, prior to beginning distilling. Gould says, "I've done literally billions of dollars of international trade in my professional life, so it gives me a leg up on other people in pushing into these offshore markets." Often that involves knowing the "right kinds of questions to ask -- and right places to turn to get answers."

For Hoskin, it's teaming up with players in unfamiliar markets who understand the terrain. As opposed to the relative ease of directly approaching potential accounts in, say, Germany, she cites an example in Asia like Singapore where the landscape isn't as easy to negotiate, and a broker or importer is needed. Hoskin says, "I don't have any industry understanding or industry knowledge of those markets, and so it's crazy for me to [what we can do, for instance, in Germany]."

Another factor Hoskin has had to reckon with is the differences between business operations in the U.S. and those overseas.

For example, Hoskin ships her rum in containers to Spain, where it's then bottled and distributed. Why not bottle it first here? As part of Montanya's B Corp ethos -- one of the few distilleries in the world to hold that certification -- there's the carbon footprint of shipping bottles from Europe to Colorado and then back again that she wants to avoid. But not only that, the European market requires different size bottles than the kind Montanya uses in America. In Europe the 700-ml bottle is the accepted standard, as opposed to 750-ml in the US. "I can't sell those in Europe," she says, while noting the US's "infinite desire to do everything bizarrely different from Europe."

Then there were the threats of tariffs in early 2018 raised by the Trump administration, which nearly sank Hoskin's European partnerships: "My EU partners said, 'Well that's the end of us, the end of our relationship.'" Hoskin believes effective lobbying by affected industries ultimately altered the course of that decision on the part of the administration.

Still, President Trump's unpopularity overseas has prompted sales in seven Asian countries for a novelty spirit from State 38: Impeach Vodka, imbued with peach puree and featuring a caricature of the president on the label. "As a whole, the Asian community is not a fan of Donald Trump," says Smiley. Impeach Vodka is doing so well Smiley doesn't even need brand ambassadors to promote it. "Would our whiskey do the same thing?" he asks. "Probably not."

But Golden Moon's whiskey is doing well in Europe, says Gould. He believes that's because Europeans increasingly want to drink classic American cocktails -- which means using classic spirits from the United States.

"America's contribution to world cuisine is cocktails," says Gould. "Cocktails are, no matter how you slice it, an American creation. That is America's contribution to the world food and beverage scene."

Beyond the Colorado brand

But in order for Gould to deliver those flavors to Europeans who are thirsty for classic American cocktails, it's meant deciding from the very beginning to approach business differently than many of his counterparts in the state.

When asked why he's set his sights on global sales, Gould responds, "Because we're not going to be a small brand anymore. If we wanted to be a small local brand, we could live off of what we sell in Colorado. . . . That fits for some people. That is not and never was Golden Moon's plan. We want to do something very different from what other people have done in the way we're building and growing and managing an ultra-premium spirits company. And that's just the way we're looking at the world."

Hoskin of Montanya Distillers has taken a similar path.

She says, "It's a decision I think every craft spirits company makes at some point in their life span: The question of 'Do I want to be local and regional and well-loved among my geographic community or do I want to be a global or national force?' I made the decision early on, 11 years ago, that I didn't just want to be a Colorado brand, I didn't just want to be a Rocky Mountain brand; I wanted Montanya rum to be the most well-loved American rum in the world. That was my vision. We are well on that path, 11 years later."

Disclosure: Gregory Daurer once contributed to Bill Owens' publication, American Brewer, and is presently writing an article on a Colorado distillery for the ADI's Distiller Magazine.

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