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Good information on costs of running a distillery?

The price of neutral grain spirit is around $1 per liter. For gin making, botanical can get expensive but they are generally very potent aromatics and I can't see them contribution to more than $3 per bottle. This suggests that a micro distillery would have pretty significant margins. Anyone have insider knowledge on the other costs to factor in when considering bootstrapping such a business?

5 Replies

Michael Brill
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Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
Gross margins on spirits are ridiculously high (60%-70%) at scale... but when you are running a small distillery everything is much more expensive. Your equipment will be less efficient, you'll distill more, filter more, age in more expensive vessels (e.g., oak barrels) than lower-quality, industrial-produced neutral spirits. OTOH, craft spirits are priced at 2X+ large brands, so there's still margin to work with.

If you're planning to distribute outside of CA, then you've got the three tier system to deal with. You need to find a distributor in each state (often difficult as they already have a stable of brands) who in turn sells to retail. You should plan that you'll get roughly 50% of retail price (as it is marked up by distributor and retailer).

So now if you create a $40 retail gin, your revenue will look more like $20+ (depending how much is sold direct to retail in CA or direct to consumer). Let's say you can get margins up to 40%... that's around $100 margin/case.

Now comes the hard part... brand building and selling. You'll need to hire a sales team to battle it out with retailers and distributors. ("Ugh, not another $40 gin that I haven't heard of.") Of course if you can figure out some great product positioning and/or some great branding and execute marketing well then that'll make selling easier.

If it's your passion then it's certainly a viable business - like everything else, it's a matter of execution. But the next 20 years of technology is going to have such a fundamental impact on humanity - don't you want to be part of that?




Andrew Mosedale
0
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Andrew Mosedale Entrepreneur
Chief Technology Officer/Creative Leader at Mosedale Integrated Soutions
Yannick-

I am in the Northeaset US- nano beer, cider and other specialties beverage manufacturing is cropping up. Some issues with market saturation here, but diversification and value add seem to be keeping momentum alive.

distilleries site:
http://www.duncsmill.com/about-duncs-mill-rum/the-company/?age-verified=d27a680621

consultancy: Duncan Holaday
Yannick Gingras
0
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Yannick Gingras Entrepreneur • Advisor
Startup Row Chair at PyCon
Michael,
this sounds like the kind of business that one can run slowly on the side with rather inexpensive staff. Tech will be what I do for quite some time but diversification is always a good idea.

There is a bit of upfront costs to acquire the equipment but otherwise, you only produce enough to meet the demand and there is something beautiful about any business that can scale on demand. Raw ingredients being an extremely shelf stable commodity also makes the business very attractive.

If I read the above correctly, in California, a distiller can sell directly to restaurants and bars? Certainly, this would help immensely during the brand positioning phase.
Michael Brill
0
0
Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
You'll need to spend $2K-ish to get a law firm to do your federal (TTB) and state (California ABC) permits. You can do them yourself to save $1500, but you'll spend so much time and make so many mistakes that it's really not worth it.

If you're going to do it in the city, you'll need to find a place with proper zoning (I think anything for light industrial works). One possibility is you track down an existing winery (there are several in Dogpatch and a bit further out) and see if they're keen on renting you space for DSP operation. Will save you a ton of money.

Another alternative is to use a contract distiller... will almost certainly be cheaper but don't know what the choices are there.

A distillery should be able sell direct to trade customers in CA.

I think the best route is to just find a local distiller you respect and contact them. I'm sure he/she will be happy to chat with you.






Jonathan Poston
0
0
Jonathan Poston Entrepreneur
Yiveo.com | Medical Marketing Agency
Can anyone point to a spreadsheet / resource that outlines start-up costs for a beer brewery?
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