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Most people in this business sell the liquor created from their distillery through various vendors. Additionally, some people sell their liquor directly to customers via an attached store or restaurant. Certain distilleries also offer features such as tours or tastings in order to build community engagement and brand awareness.
Who is this business right for?
Obviously, this business is great for those who love alcohol. It is also good for those who are patient, as the process of making liquor can be lengthy. It is also good for those who like to work alone or in small groups, as most small distilleries start with the owner as one of the handful of workers.
What happens during a typical day at a distillery?
There are many daily activities at a distillery. Some time may be spent planning, designing, and testing new spirits that will be sold. A fair amount of time is spent actually distilling spirits (from malting and fermentation all the way to bottling). Time will also be spent researching the liquor industry, researching liquor history, and researching what your competition is doing. Finally, a good amount of time may be spent promoting your products, and in most states, having conversations with the retailers who will sell your liquor.
What is the target market?
Because of the three-tier system (which will be explained later), your most direct customers are actually the liquor distributors who will then distribute to retailers. Your best distributor is usually a small- or mid-range distributor because they are likely to specialize in (or simply take a chance on) liquor created by a smaller distillery.
How does a distillery make money?
On the most basic level, a distillery makes money from the sale of liquors the distiller has created. This process is a little abstract in most states, though, as they follow a three-tier system. In this system, the distiller is the producer who sells their products to distributors who then sell to retailers.
What is the growth potential for a distillery?
The growth potential for this business is very steady. The Bureau of Labor Statistics shows employment among breweries, wineries, and distilleries increasing from a little over 132,000 in May of 2016 to nearly 146,000 in May of 2017.
What are some skills and experiences that will help you build a successful distillery?
If you have the time and money, there are online and offline educational programs that offers degrees or certifications in distilling and brewing, which can be a big help. Any previous experience working at a distillery is also beneficial. Ultimately, the best skill is research: it is important to simultaneously learn about the distilling industry and its methods as well as the history of alcohol promotion and sales.
What are the costs involved in opening a distillery?
The exact cost of opening a distillery depends on the size of the distillery and where it will be located. It is possible to start a small distillery for around $30,000. This includes spending about $5,000 on the initial lease and relevant licensing and $5,000 on equipment such as stills and fermenters and mash tuns. Larger expenditures include $9,000 or so for insurance and about $6,000 to obtain a vehicle large enough to help with transporting supplies and helping with distribution (if possible in your state). Finally, you should budget $4,000 o $5,000 to help pay a small team of employees.
What are the steps to start a distillery?
Once you're ready to start your distillery, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your distillery is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your distillery keeps your finances organized and makes your business appear more professional to your customers.
- Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
- Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I find a business mentor?
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
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What are some insider tips for jump starting a distillery?
Be sure to do your homework on other brands so that you can truly create unique flavors that will be a big hit with your customers. Be sure that your promotional material plays up the idea of this as a local alcohol brand, as this can engage community interest. Finally, start by focusing on white spirits that do not have to be aged while you let your other spirits age (a process that may take years).
How to promote & market a distillery
As mentioned above, it's good to emphasize this product as locally owned and brewed in your marketing. Some smaller distillers have created unconventional marketing tricks such as signing every bottle they sell or creating spirits using locally-harvested ingredients, making such drinks feel like hometown labors of love. Considering your biggest audience for specialty craft spirits will be Millennials, you should consider a lot of online marketing via Youtube, social media, and a custom website. This lets you put videos online explaining your company's history and your creative vision (both of which are important to making this feel like an experience for consumers rather than just a business transaction) as well as building community engagement via online interaction. You may consider newspaper marketing as well based on your region and the exact demographic in the area.
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How to keep customers coming back
In addition to the marketing above (and in accordance with relevant state laws), try offering experiences like distillery tours and product tastings to your local area. Try to develop an ongoing relationship with local bars and liquor stores and participate in promotional events with them. A quality product at a competitive price will naturally lead to customer retention, and making sure that you offer different spirits over the years will keep them coming back for more.
How and when to build a team
Even for a small distillery, you will likely need a team right away, as there are many moving parts to the process of distilling spirits, storing spirits, transporting spirits, and so on. Plus, the process may involve a fair share of late nights, and it's good to have others to share that burden with.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate an alcohol distillery. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, check out our informative guide, Sales Tax for Small Businesses.
For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
An alcohol distillery is generally run out of a large indoor space. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to an alcohol distillery.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your alcohol distillery will be in compliance and able to obtain a CO.
Businesses involved in the sale of alcoholic beverages are required to obtain a liquor license from the appropriate state or local agency. A comprehensive list of laws by state (including necessary licenses, zoning laws, etc), curated by the Alcohol and Tobacco Tax and Trade Bureau, is included here.
Distilleries and breweries are subject to additional regulations. For more advice on permits, labeling, proofing, importing/exporting, etc., look here.
How much can you charge customers?
As mentioned before, you are most likely selling to distributors who, in turn, will sell to retailers. Prices can vary based on what spirits you are selling and what the size of the bottle is. A general rule of thumb is that you will receive 40-50% of the eventual retail price of something, so if your spirit is eventually sold for $40, you are likely to get $18-$20.
What are the ongoing expenses for a distillery?
Your ongoing expenses will vary due to factors like area, number of employees, amount of monthly production, and so on. Using the figures from earlier, you may be paying $2,500 a month for your lease, $4,000 a month for your worker's salaries. You will also be paying for more supplies each month and gasoline for transporting those supplies, but these amounts may vary from month to month.
How much profit can a distillery make?
There is great potential for profit. As an industry, small (“craft”) distilleries have now become a $450 million market, and the amount of craft distilleries has increased by 300% from 2011 to 2014. It is a growing industry with a good profit margin built into every bottle, though your overall amount of profit obviously depends on how many bottles you sell.
How can you make your business more profitable?
Never stop promoting your business, as the retailers and distributors will not do much (if any) marketing for you. Make sure you have SEO-enhanced online marketing of your spirits, and try to fill your social media with genuinely funny, engaging, and/or moving content. Don't forget to pound the pavement and try to physically talk to various distributors and retailers as well in order to build a relationship and advertise your product. Finally, never forget that this is a long game: it may take a while to build a reputation and grow your profits in a crowded market, but a truly unique product and marketing campaign can set you apart and firmly establish your brand.