Does Success Mean Selling Out?
One of the major ways the craft world differs from other businesses is in how it considers the idea of ‘selling out.’ Most start-ups, especially those in the tech industry, include an exit strategy in their business plan. Those that reach that point, that are able to scale, achieve a high valuation, and make a successful, and profitable, exit are typically celebrated and idolized.
Not so in craft. This is an industry whose supporters loathe growth. When Breckenridge Brewery sold to AB InBev last December, the public reaction was overwhelmingly negative. The comments on news articles, such as this piece from The Denver Post, sunk to a level of negativity I haven’t seen since the mid-nineties when swarms of punk rock fans became outraged as bands like The Offspring, Green Day, and Bad Religion signed to major record labels.
What happens when Bacardi and Beam Suntory start buying up small, local distillers? It began in Colorado back in 2010 when Stranahan’s was bought by Proximo. But is it really that bad? If a craft distiller has the idea of eventually being bought out floating around the back of his head from the day he starts up, is he ruining that concept of ‘craft?’
From a business school standpoint, absolutely not. Any smart business owner has an exit strategy, even if it is to pass the company on to his children. But with a scouring public viewing things through their own lens, craft distillers could be looking at a considerable amount of criticism when and if they decide to sell.
I decided to get an opinion from inside the industry. “That’s a personal decision that you make,” says Ted Palmer, head distiller at Boulder’s Vapor Distillery. “That’s business. There are plenty of other people behind you that are family owned, that are making every drop by hand, that are putting their soul into it. There is always going to be that. If you grow to a size where it is unmanageable for you, it’s probably a good idea to sell out.”
Isn’t that success, in so many words?
Vapor Distillery is best known for Ted’s New Western Style Rhok Gin and a barrel-aged gin aptly dubbed Ginskey (best cask-aged gin at the 2015 World Gin Awards in London). Their products are now found in twelve states as well as Denmark, Italy, and Hong Kong. The company, while achieving success, is at this time still thriving on being independent.
Ted’s passion for distilling was born of somewhat rebellious family roots. He first distilled with his grandpa at age 10. “He was making a batch of cornmeal whiskey in the garage,” Ted says. “He didn’t like to pay taxes, so he made his own beer, his own wine, and his own whiskey.” Staying with his grandpa on summer vacation, Ted was stuck in the garage watching his grandpa work his still. “I was blown away that he could take cornmeal and turn it into a clear liquid. It blew me away.” A passion for chemistry was born and a degree in chemical engineering and microbiology with a minor in botany.
After getting out of the Navy, Ted pursued a brewing degree in Chicago and took a job at Pyramid Breweries in Seattle. He worked a few other breweries in the nineties, owning one himself, until 2003 when a new law came into effect that altered the course of his career.
“The states got smart,” Ted says. “They looked at how much revenue they were getting from breweries and they said ‘Why can’t we do this with distilleries too?’” One by one, states began to drastically reduce the fee to obtain a state distilling license- from around $50,000 annually to closer to $1000. (In Montana, the initial fee is $600 before any processing or fingerprint fees. Check out this document.)
Enter distilling into Ted’s life. He started a distillery in Santa Monica, California that made vodka. He eventually moved back to Colorado. Here, he came into contact with what was then called Roundhouse Distilling in 2009. Ted bought the company from a lawyer living in the Longmont area who distilled (illegally, of course) as a hobby.
The operation was run on a 3 gallon copper pot still — the twisty, uterus-like contraption you might see on display in a museum exhibit. Production capacity was twelve bottles of gin at a time. “The consistency was all over the place because the batches were so small,” he said. Longmont, Colorado was the location. “It was selling maybe 100 bottles per year.”
The first thing Ted did after he took over the company was buy a new still. Now at 130 gallon per batch capacity for gin production, the concept was about ready to become legit. (Today they also have a 1500 gallon copper pot still for whiskey production on site these days, which Ted proudly boasts is the biggest in Colorado.)
Ted’s current partner, Alastair Brogan, came to the United States from Scotland with a strong desire to be a part of the booming craft market. “I always wanted to make single-malt whiskey,” Alastair said. So much so that before he left Scotland he ordered what is now the company’s pot still from Forsyths, well-known as perhaps the top Scottish still manufacturer, “Without knowing where I was going to end up, who I was going to end up partnering with, anything like that.”
Alastair and his wife decided to relocate to Colorado following the sale of his family’s fuel distribution business. He visited most of the twenty distilleries operating in Colorado at the time. Vapor, then known as Roundhouse Spirits, impressed him the most.
Vapor’s current Boulder location has grown along with business, increasing from 5,000 square feet to 11,000 square feet over a five year period as production has increased. “Back in the old days, everything was done by hand, including the bottling,” Ted said. “We had a five gallon bucket with a spigot on it, we filled bottles one at a time. Now we’ve got a rudimentary line. It’s not completed yet. We need a new filler with a conveyor on it so we can put bottles in on one side and take them off on the other.” He hopes they can have that in place by the end of 2016. The current bottling capacity is 600 per day- with the filler and conveyor in place it will double.
“You go to the government and you say ‘I want to start a distillery in town,’ and they’ll say things like ‘Is that legal?’” Ted says. “They’ve never seen a business like this before so they have no idea how to regulate you. You have to teach them everything. Then they start putting their thumb on you and trying to change the rules. Coming to Boulder wasn’t so bad, because there are so many breweries that the fire department and the city have an idea of what to do with you.
Taxes on distilling are also notably high. But the benefit today’s distillers have is that their movement is riding on the tail of the craft beer explosion. “More people are drinking craft beer, they’re going to look at craft spirits and go, ‘I gotta try this too.’”
Not a bad train of thought, because if the beer industry’s story rings true for craft distillers, the giants are soon going to be swooping in and buying up the top players. Alongside Breckenridge Brewery, AB InBev also acquired Seattle wunderkind Elysian in a continuing string of buyouts. “If you take the growth curve on a graph of the beer industry, and do the same for distilleries and put them on top of each other, the graphs look identical,” Ted says. “The sky is the limit for us. I could see (the industry) growing as fast as the beer industry did over the last 20, 30 years.”
For their part, Alastair and Ted have no intentions of getting out anytime soon. “I’m here for a long, long time,” Alastair says. “I’m doing this into my seventies and eighties. I have no intention of going anywhere.”
find them at www.vapordistillery.com
Tim Wenger is a Denver-based microshiner, journalist, musician, and avid snowboarder. Check in with him at @timwenger1 and catch more of his work at Colorado Music Buzz, Snowboard Colorado, and his weekly talk show on worldviral.tv