Are you interested in starting a distillery business from home? If YES, here is a complete guide to starting a distillery business with NO money and no experience.
Okay, so we have provided you an in-depth sample distillery business plan template. We also took it further by analyzing and drafting a sample record label marketing plan backed up by actionable guerrilla marketing ideas for record labels. In this article, we will be considering all the requirements for starting a distillery business. So put on your entrepreneurial hat and let’s proceed.
What is a Distillery?
This distillery industry consists of establishments engaged in distilling spirits (i.e. not beer or wine). The three main activities they are engaged in is distilling potable liquors (except brandies), blending liquors, and mixing liquors with other ingredients. These spirits are then bottled and sold primarily to liquor wholesalers, as well as to other retail stores.
What Does It Take to Start a Distillery Successfully?
Demand in this industry is driven primarily by trends in usage, consumption and personal income. The profitability of individual companies depends on efficient operations and strong distribution channels. Large companies have advantages in brand recognition and economies of scale. Small operations can compete effectively by specializing in high-end or unusual spirits. The US industry is highly concentrated: the top 20 companies account for over 90 percent of industry revenue.
One of the first steps that you take if you want to start a distillery business is to go out there to conduct your own feasibility studies; you need to get first hand information about the business you intend starting if you truly want to make success out of the business. When conducting feasibility studies, ensure that you gather information that will help you properly analyze your strength, your weakness, your opportunities and the threat you stand to face with such business.
If you are able to effectively conduct a feasibility study, it will make it easier for you to write a good business plan. This is so because most of the facts and statistics that you would need when writing your business plan would have been gathered. Your business plan should not just be a business document that you have in place when you want to start a business, but a blue print that must guide all your business actions and inaction. Your business plan should contain your goal, how you intend penetrating the market, your financial projections and your succession plan if indeed you want to build a business that will outlive you.
Starting a Distillery Business from Home – A Complete Guide
- Industry Overview
As the twenty-first century began, the Distillery industry was generating some $95 billion annually (according to DISCUS). With about 1.3 million people in America employed in the manufacture, distribution, or sales of distilled spirits, distilling remains a significant American industry.
- Interesting Statistics About the Distillery Industry
Within the United States, there are approximately 700 distilleries that provide a number of hard liquor products. This industry is a sub-segment of the greater alcohol production industry. In aggregate, breweries in the United States generate $19 billion of revenue while providing jobs to more than 40,000 people. Payrolls in each of the last five years have exceeded $1.8 billion.
The distillery segment of this industry accounts for approximately 20% of the aggregate revenues and payrolls generated each year. The growth of this industry has remained strong in recent years as the popularity of distilled liquors has increased among the general public.
Distilleries are located throughout the United States and the distribution of production centres are roughly in line with population. The largest concentration of distilleries is in the West with 24.2% of establishments. California and Colorado have the highest concentrations of spirit production facilities, each housing about 7.6% of establishments. This is largely due to the size of these states, as the producers there are relatively small.
More than two-thirds of establishments employ fewer than five people. Over the past five years, a number of craft distilleries have set up along the west coast in California, Oregon and Washington. Many craft distilleries have sprung up across Washington State which is home to about 7.3% of distilleries.
Major products include whiskey, which accounts for about one-third of liquor sales in the US, according to the Distilled Spirits Council of the US, and vodka (25 percent). Other products include cordials, rum, and tequila, each of which accounts for about 10 percent of sales, as well as brandy, cognac, gin, and pre-mixed cocktails. Some distillers generate additional revenue by selling dried grains for animal feed. Americans consume more than 590 million litres of vodka annually, making it the country’s most popular liquor in terms of volume sold.
The Distilleries industry managed to escape declines during and immediately after the economic downturn due to a consumer trend toward premiumization, or an increase in the consumption of high-grade liquor and spirits. Additionally, the increased popularity of cocktails over the five-year period resulted in more liquor consumption at on-premises drinking establishments. Overall, the Distilleries industry is expected to sustain its growth over the next five years, buoyed by continued improvements in consumer spending and greater demand for higher-margin craft spirits.
Starting a Distillery Business from Home – Market feasibility research
- Demographics and Psychographics
The demographics and Psychographics of people who require or patronize the Distillery industry are those who sell or buy liquors. The Distilled spirit or liquor restriction in most countries is 18 but in the United States, Distilled Spirits can only be sold, purchased or taken by individuals who are 21 or above.
The age restriction is very wise because drinking or taking spirits is more harmful for children and young people under 18 than for adults. This is because young people under 18 are physically and emotionally less able to cope with the effects of drinking alcohol. They’re also less mature, so are more likely to behave in a risky or unacceptable way after drinking alcohol.
Drinking at an early age can cause serious health problems. Evidence shows that drinking too much alcohol can increase the risk of organ damage in the developing body. Also due to youthful exuberance drinking too much alcohol is strongly linked to many other problems, for example, unprotected sex, teenage pregnancy, failing at school and taking illegal drugs.
- List of Niche ideas in the Distillery industry
There are several business opportunities available to any serious minded aspiring entrepreneur who truly wants to make good money to pay his or her bills, and live the kind of life that they have always dreamt of. One of the businesses that you can conveniently start in any part of the world that already has existing market is a distillery. The distillery industry is a big but straight industry where activities are all the same with little or no niches. There are various career jobs in this industry but this industry has no known business niche.
- The Level of Competition in the Distillery industry
A distillery is a depot or place where spirit (alcohol/liquor) is produced in commercial quantity. Although there are various brands of spirit in the market, but if you are creative with your branding and packaging, you will sure attract your own fair share of the existing market. Aside from the flavour and packaging, there is really no difference in the various brands of spirit that is available in the market
This industry has annual revenue of $12 billion and a 7.8% annual growth in the United States is a very competitive business industry.
List of Well Known Brands in the Distillery Business
Many companies have been ruling this industry for years. Liquors and whiskeys might all be the same but different brand and flavour. This industry keeps getting new entrants who are willing to put down their names on stones and diamonds. It takes a hardworking individual to be able to operate and stand out in this industry.
- Brown Forman – United States
- Diageo Kweichow Moutai – China
- Pernod Ricard
- Thai Beverage Public Company
- Jack Daniels
- Old Bushmill
- Nolet Distillery
- Distilleria Nardini
- Demrara Distillery
- Mount Gay Distilleries
- Buffalo Trace Distillery
- Glenturret Distillery
Currently, the economic market condition in the United States is moderate. Unemployment rates have declined while asset prices have risen substantially. However, the Distillery industry will operate with moderately high profit margins that will ensure that the business can remain profitable despite the current economic climate.
The beverage alcohol industry contributed over $32 billion directly to state and local revenues during 2015. Of that amount, distilled spirits accounted for over $13.2 billion or 41% of this direct revenue. Total revenues from distilled spirits (direct and indirect) were $22.5 billion in 2015, or 43% of total beverage alcohol revenue.
Is a Distillery Business Worth Starting from the Scratch or Buying a Franchise?
For the sake of this article and clarity, buying a franchise is far better than starting from the scratch in the Distillery industry. Start-up distilleries businesses typically suffer when it comes to brand recognition because unlike entrenched competitors, new brands lack visibility and history with their customers.
Your chances for becoming a successful entrepreneur zoom upwards if you go the franchising route and leverage their successful brand and track record. One of the techniques entrepreneurs use to build a formidable distillery Business is to buy a Distillery business to get an established brand. Even in ideal circumstances, it can take years to create an effective brand presence.
However, a distilleries business acquisition can put you at the helm of a brand that is already highly trusted by your target market.
Possible threats and challenges of Starting a Distillery Business
It can be challenging starting a distillery business if you don’t have prior experience in this line of business but if you are hard working and you are willing to learn, you will surely find it a bit easier. The profit that you stand to get from this type of business is largely dependent on your marketing and sales strategies.
Another challenge you will face is the application for a federal license. Applying for a federal license essentially means undergoing a full background check; hence, your record should be spotless. You need to prove that you’re an outstanding citizen with a clean family history.
Questions asked can be about your top investors, loans, and even personal questions. The authorities are also concerned with your security plan for any potential hazards like theft and fire, among others. Every new product should also be approved, and the process can take at least six months before you can start bottling up your spirits.
Most entrepreneurs willing to start-up a Distillery Business are faced with the challenges of writing a business plan. Though a business plan is half the work, creating a competitive advantage by being innovative is also a sure thing if you’re willing to hit the industry hard. If you want to produce products that are just like the big boys, you’re going to get beaten. You have to be different, interesting, or better in order to compete.”
Starting a Distillery Business from Home – Legal Aspect
- Best legal entity for a Distillery Business
Selecting the best entity for your distillery involves a number of considerations, including (1) taxation, (2) owner liability, (3) governance, (4) capital structure, and (5) potential exit strategies, to name a few.
The best legal entity for a Distillery Business is the LLC. A limited liability company (LLC) is an unincorporated entity in which one or more individuals called “members” have limited liability for the enterprise’s debts and claims even if they participate in management. Members of an LLC have great flexibility in structuring the management of their venture through the LLC’s governing document, known as an “operating agreement.”
The benefits of creating an LLC typically outweigh any perceived disadvantages and are typically unavailable to sole proprietorships and general partnerships. Using a LLC legal entity for your distillery Business in United States can give numerous advantages.
Catchy Business Name ideas for a Distillery Business
There are numerous names that can be adopted when looking to start a distillery business. It is your duty to seek out catchy names and use. Here are some names that can be used by you;
- Awkings distillers
- Dwurs distillation
- Tranello bourbon
- Jektas and sons
Best Insurance Policy Needed for a Distillery Business
Whether you brew seasonal ales, porters, and stouts, fill casks with cabernet or Riesling, or produce cider, whiskey, or brandy, owners of brewing companies, wineries, and beverage distilleries always make sure that their business is adequately insured.
Insurance in your business can save you lots of money and business mishap. Here are some Insurances that is needed for a Distillery Business may include
- General liability insurance
- Liquor liability insurance
- Property insurance
- Workers’ compensation insurance
- Commercial Auto insurance
- Umbrella liability insurance
Does a Distillery Business Need Intellectual Property Protection?
With new distilleries, wineries and breweries launching every day, the competition for product names is fierce. Intellectual property rights are needed in the Distillery industry for trademark and patent protection.
A trademark is any individual or combination of words, phrases, symbols or designs that identifies or distinguishes the source of goods of one party from those of another. A service mark does for services what a trademark does for goods. Trademarks protect the goodwill that you create to identify goods and services, not the goods and services themselves. Trademarks can also exist indefinitely (subject to ongoing use and renewal requirements).
The process of registering a trademark or patent begins by filing an application with the U.S. Patent and Trademark Office (USPTO). Careful trademark and patent management can lead to a successful brand development and greatly increase the value of your company or product. Another way for you to protect your patents and trademarks is by having your key employees sign employment.
A written employment agreement is imperative for those employees who know a distillery’s product formulas could do the most damage to the business working for the competition. Hence, an employment agreement for these key employees should include a covenant not to compete and provisions that clearly state that the product formulas are “trade secrets” and thus the property of the distillery.
Is Professional Certification Needed to Run a Distillery Business?
With the explosion of the craft distilling movement in the United States, one of the biggest challenges to the industry is the lack of good quality training at an affordable cost in the United States. Too many people purchase steel and set out to make whiskey when they lack the skills and expertise to properly distil. The resulting whiskies from amateur distillers are full of tails, off flavours and other flaws that could easily be rectified through quality instruction.
Certification programs are important as they indicate a level of knowledge and expertise shown by the person certified and they are a uniquely transportable baseline of industry knowledge. Professional certification needed for a Distillery Business may include
- Society of Wine Educators Certified Spirits Specialist program (SWECSS)
- Certified Specialist of Spirits program (CSS)
- Certified Craft Spirits (CCS)
- CERTIFIED CRAFT DISTILLED Spirit (CCDS)
- CERTIFIED CRAFT-BLENDED Spirit (CCBS)
List of Legal Documents Needed for a Distillery Business
Every incredible business in the business world has a list of legal documents needed to run it. Jumping into business without proper research would surely mean the end even before starting. The Distillery industry is a tight industry that requires adequate documents and hard work to flourish.
List of legal documents needed by a distillery Business are:
- Business license
- Certificate of incorporation
- Employment agreements
- Federal license
- State license
- Local license
- Proof of Insurance
- Intellectual property protection right
- Federal tax identification number
- Written Distillery Business plan
Cost Analysis for Starting a Distillery Business
Clearly and most importantly, there are many ways to go about making gin and many people have different routes to becoming distillers. There is no right or wrong way to go about it and one size does not fit all. Outlined below is a well detailed cost analysis for a small scale distillery Business.
- Lease – $2,500
- Equipments – $5,000
- Licenses – $2,500
- Insurances – $9,000
- Workers salary – $4,000
- Vehicle(s) for supplies and distribution – $6,000
- Miscellaneous – $1,000
From the well detailed cost analysis above, it will cost $30,000 to start a small scale Distillery Business. $170,000 to start a medium scale distillery Business. And $320,000 to start a large scale distillery business
- Financing a Distillery Business
A distillery is a facility or place where spirit is produced in very large quantity. Although there are many brands of spirit in the market, but if you have a substantial finance and creativity with your branding and packaging, you will sure attract your own fair share of the existing market.
Financing is a major determinant in the Distillery world because Depending on your financial capacity, you can successfully start a distillery with moderate start – up capital. Ways to finance a Distillery Business may include:
- Funds from Personal savings
- Getting loans from families and friends
- Taking small business loans
- Getting microloans
- Attract an angel investor
Choosing a Suitable Distillery Business location
In choosing a good distillery location; there are many considerations, both business and legal, that must be weighed in making this decision. From a business perspective, the issues include whether the premises has adequate space for both present and future operations; are the utility systems (electrical and plumbing) adequate to handle operations and waste disposal; and is there adequate office space and storage space? If you plan on having a bar, tasting room or conducting tours on the premises, factors such as dining space, kitchen space, parking and major highway access will also be significant in your decision.
In addition to the business considerations of where to locate your brewery, brew pub or distillery, there are many legal considerations that must taken into account, including land use and zoning requirements for parking; legality of the commercial venture on the premises; loading and unloading; and compatibility with local waste management systems.
There are also factors for acquiring the premises. If the space will be leased, the third party landlord must be amenable to the nature of the business operations. Additionally, the landlord may require a long term lease. Will a long term lease be compatible with your vision and growth? Do you have the ability to exit the lease if your business needs change before the expiration of the lease term? Do you have the ability to extend your lease under favourable terms?
These factors merely highlight the myriad of issues that breweries, brew pubs and distilleries face when selecting a premises to run its operations. Due to the importance of these issues, counsel should be consulted before major decisions are made.
Technical and Manpower Requirements Needed to Start a Distillery Business
The technical and manpower requirement of a company is always based on its business size and its production quantity. The equipment and individuals will be based in the business is a small scale business, medium scale or large scale.
In the Distillery industry, individuals are needed as production and administrative staff. Even competent sales team are needed to help break into the already saturated spirit (alcohol, gin, champagne) market. Major Equipment needed to start a distillery Business may include
- Stainless steel filter system
- Test cylinders
- Digital thermometer
- Stainless steel parrot
- PH meter
- Mile hi flute distiller etc
The Production Process Involved in a Distillery
Distillation on its own is a process of separating the component substances from a liquid mixture by selective evaporation and condensation. All spirits go through at least two procedures – fermentation and distillation.
Fermentation is where all alcohol is created, distillation is where the alcohol is separated and removed. In order for fermentation to occur, two things are needed: a raw material in liquid form that contains sugar, followed by the addition of yeast. Yeast is a living organism that feeds on sugar; the bi-product of this consumption is alcohol and carbon dioxide.
Distilling is essentially the process whereby a liquid made of two or more parts is separated into smaller parts of desired purity by the addition and subtraction of heat from the mixture. The vapours/liquids distilled will be richer in content than any of their ingredients that have lower boiling points. Distilled spirits are produced from agricultural raw materials such as grapes, other fruit, sugar-cane, molasses, potatoes, cereals, etc.
There are many subtleties involved in the creation of different spirits drinks but, by way of example, the process for a cereal-based spirits is as follows:
- Step 1: Milling. The raw material is ground into a coarse meal. The process breaks down the protective hull covering the raw material and frees starch.
- Step 2: Mashing. The starch is converted to sugar, which is mixed with pure water and cooked. This produces a mash.
- Step 3: Fermentation. The sugar is converted to alcohol and carbon dioxide by the addition of yeast. With the addition of yeast to the sugar, the yeast multiplies producing carbon dioxide which bubbles away and a mixture of alcohol, particles and congeners, or the elements which create flavour to each drink.
- Step 4: Distillation. The alcohol, grain particles, water and congeners are heated. The alcohol vaporises first, leaving the water, the grain particles and some of the congeners in the boiling vessel. The vaporised alcohol is then cooled or condensed, to form clear drops of distilled spirits.
- Step 5: Ageing. Certain distilled spirits (e.g. rum, brandy, whiskey) are matured in wooden casks where they gradually develop a distinctive taste, aroma and colour.
- Step 6: Blending. Some spirits go through a blending process whereby two or more spirits of the same category are combined. This process is distinctive from mixing since the blended spirit remains of the same specific category as its components
Starting a Distillery Business from Home – The Marketing Plan
- Marketing ideas and strategies for a Distillery Business
The only way you can make money from your business is to market your products or services to those who need them and are willing to pay for it. Your marketing strategy will go a long way to determine the income you will generate so ensure that you go all out to make noise about your product. There may be other spirits (gins, champagne) in the market but if you are smart, you can easily sell your own product and get people to truly crave for it. Just ensure that you have the right branding, packaging and flavour and you will struggle less to make sales.
Over and above, if you are determined and hardworking, you will sure make huge returns from your distillery business and your products can become the most preferred in and around your city or country. Simple ways of marketing your distillery may include
- Develop an online presence by developing a website and placing the Company’s name and contact information with online directories.
- Establish relationships with local and regional alcohol distributors within the targeted market.
- Regularly attend festivals and contests within the Company’s regional market.
Right Product Pricing in the Distillery Business
There are many factors to consider when developing your pricing strategy, both short- and long-term. For example, you’re pricing needs to reflect the value you provide versus your competitor, match what the market will truly pay for your offering, support your brand, enable you to reach your revenue and market share goals and maximize your profits
In other to create the right product pricing strategy for your distillery business, here are few tips
- Understand your customer’s willingness to pay
- Think of the 3 C’s in tandem: cost, customer, competition.
- Don’t set prices based purely on cost.
Competitive Strategies to Win competitors in the Distillery Business
Before thinking of how to win your competitors, you need to find out who your competitors are by doing your research on the local competition. Find out who your competitors are by searching online directories and searching in your local Yellow Pages.
If there are a number of competitors in the same industry (meaning that it is not feasible to describe each one) then showcase the number of businesses that compete with you, and why your business will provide customers with service/products that are of better quality or less expensive than your competition. Strategies for winning your competitors may include
- Cost leadership
- Low-cost focus
- Differentiation focus
Increasing Customer Retention in the Distillery Business
According to the U.S. Small Business Administration and U.S. Chamber of Commerce, customers can cost as much as five to seven times more than simply retaining existing customers. The fact that customer profitability tends to increase over the life of a retained customer is added incentive for businesses to allocate more resources to sharpening their customer retention strategies.
Ways to increase customer retention in your distillery business includes
- Set customer expectations
- Be the expert
- Building trust through relationship
- Implement anticipatory services
- Create an online presence
- Go beyond and above
Boosting Brand Awareness and Create a Corporate identity in the Distillery Industry
The Distillery Business is a business where only quality and Brand recognition is the major income boost. In other to increase your brand awareness and create a corporate identity in the Distillery industry, you have to Work hard to create relationships with key bars and restaurants to leverage the exposure of on-premise sales into increased off-premise sales.
It’s no secret that when a potential customer tastes a product in a delicious cocktail, they are more willing to purchase a bottle of product so they can reproduce that cocktail at home. As brand recognition grows, bars and restaurants start seeking out popular products. A good rule of thumb is to always follow up with them in person and work to create a personal relationship in order to ensure your drinks are placed on their menus.
Social media can also land inquiries from bars across the U.S. and distributors in various states, Canada and around the world. As you grow your company and refine your products, target you’re messaging, marketability and placement – develop better marketing strategies and collateral tied to the placement of products and their audiences. You have to understand your audience before you can sell to them.
Trying to sell a high-end craft gin to an on-premise “beer and a shot” bar doesn’t make sense. Likewise, trying to sell a flavoured moonshine to a high-end steakhouse likely won’t yield success either. It’s all about finding the right fit for your brand and giving your retailer the necessary attention that they need.
Lastly, the story you tell, and the story the product tells about you, helps to seal the deal.
The Distillery Business supplier/Distribution Network
The Supply chain of the Distillery Business is very straight and simple chain. The Distillery Business serves as the manufacturer in this chain, who supplies his manufactured liquor to the major distributor who in turn sells them to the final consumers.
In the Distillery Business, The faster the movement, the more money you make. While setting your supply chain is very important to understand your customer and what will make them buy your liquor. Whenever you are meeting with your distributors, always focus on programs and promotions which assist the distributor in selling liquors to retailers more than focusing on information about your business, who make the spirit, or how old the distillery is. The latter creates a great additional marketing for your brand, but ultimately it is the programs and promotions that will help sell the label at retail stores.
Tips for Running a Distillery Business Successfully
Running a successful distillery business often starts with the planning stage when you are deciding how you want to sell and where you will locate your company. It doesn’t stop there; however, as everything from your choice of employees to your accounting practices may influence your potential for success.
In other to run your distillery business successfully, you also need to advertise your business. You will not experience success if no one knows your business exists. Fliers, brochures, business cards and newspaper ads are good ways to advertise on a budget. You may also find affordable options in radio and cable television advertising. In addition, you may ask loyal customers to tell others about your business.
You also need to take advantage of opportunities to expand your business. This may mean looking for new products to add to your list or extra services to offer your clients. In some cases, it may even mean expanding your business to include additional physical locations.