How To Start Your Own Craft Distillery
Volume & Sales Data By Spirit TypeWe’ll start by looking at national data for the spirit industry to get a sense of trends in the US. Distilled Spirits Council of the US (DISCUS) provides data that will show you what’s selling and where. There are also several places where you can get a state-by-state breakdown of spirits consumed by volume and revenue, but generally you have to pay for those (which is worth the investment to ensure your able to turn a profit). Below is a chart that represents consumption nationally. High-End Premium and Super Premium is typically the craft market that DISCUS tracks.
Survey Your CommunityHaving a national overview of spirit consumption is great, but it’s simply meant to give you an initial idea of the ratios for your spirits. Now, you need to get out into your community and start surveying people to figure out what the locals are actually drinking. This looks different depending on your distillery model, but understanding what people in your community are actually drinking will be extremely important. If you’re going to be starting a distillery bar, you really need to get out and talk to local bartenders and bar managers. If you are only planning on making bourbon and American single malt (which is a pretty common choice), then it’s probably a safe bet to make 2.79 barrels of bourbon for every barrel of single malt—at least until you find out you make a killer single malt but only average bourbon, or you find out that people in your area mainly drink single malt and not bourbon. The next thing to look at is how spirits are produced. The easiest way to make spirits that taste great is to get the right equipment to make that type of spirit. If you’re like most distillers that are starting out, you can’t afford to have a separate still for your on-grain bourbon and your off-grain single malt, with a third (column) still for your vodka and a fourth for your gin. And there is very little chance you’ll have enough room for all of those production types. There are two common ways to solve that problem: one is to buy one of those “do everything” stills. However, they tend to be more expensive than a single-purpose still and don’t do any single task quite as well. The other option is to look for spirits that have similar production methods and only produce those. For example, if you want to produce whiskey, select on-grain or off-grain, design your products to all be made that way! Sure, your bourbon may not be made the traditional way, but that doesn’t mean it won’t still be excellent. Generally, we lump spirits into four categories; grain-based, sugar-based, vodka and flavored vodka.
GRAIN-BASED SPIRITSGrain-based spirits are all of your spirits that need to convert starch into sugar as the primary step (basically whiskey, thought a grain-based distillery can also make the inputs for a vodka or flavored vodka spirit using rice or potatoes).
SUGAR-BASED SPIRITSSugar-based spirits are those that already have sugar present in the fermentable material. These would primarily be brandy, fruit brandies, agave spirits, and rum. If you specialize in these, they can also be an input to a vodka or a flavored vodka distillery.
VODKAVodka is different despite coming from a grain or sugar-based feedstock because it needs to be distilled to such a high purity that it is difficult to use the same still for vodka to make anything else. In 2017, testing was done to all of the spirits submitted to the ADI spirit competition and 80% of the vodka submitted had chemicals in them that indicated that it had not been distilled above the 95% alcohol required to call them vodka. Therefore, if you want to make vodka, we strongly suggest buying a specialized still.
FLAVORED VODKAFlavored Vodka is a category we use to refer to spirits that add flavor to neutral bases. This includes things like gins and liqueurs as well as the outrageously-flavored things like bacon flavored vodka (yum). Adding flavor requires different equipment than a traditional still whose job is to simply remove flavor. At minimum, it requires a tank where hot or cold macerations can be done all the way up to stills that put botanicals into the spirit or the vapor path during distillation. While it certainly isn’t the wrong to produce spirits from all four of the groupings, it will likely require much more time, planning, and investment to get each spirit ready for market. Which means you may have to make other compromises later down the road. Now that we know what spirit(s) we’re going to be selling, it’s time to sit down with your business plan and determine how much you will need to manufacture. From here on out, understand that the details of your distillery—from production methods to the production floor—will be an iterative process: you will have to make some assumptions, test them out, learn from those tests, and go back to revise your assumptions. It can be extremely helpful at this point to talk with people who have done this before, who can save you a lot of time, money, and frustration by helping you avoid some common pitfalls. We’ve found that most local distillers will happily share their story and “lessons learned” with you. Another option is to talk with a distillery consultant like the folks here at Distilling Craft. We’ve helped countless soon-to-be distillery owners get on the right path to success.
A SIMPLE BREAK-EVEN ANALYSISThe first method is the easiest: how much do you need to make in order to stay in business? Another name for this calculation is your break even analysis. In this method, we’re going to assume a startup amount that we’ll need to start the distillery and then subtract the costs of actually starting the distillery—from construction costs and equipment to lease expense and marketing. What we’ll be left with is our operating funds. Then, we’ll take the sales price per bottle and subtract out the cost to manufacture our spirit(s)—like ingredients, taxes and salary—which will hopefully leave us with a positive number. From there, we can figure out how much we need to sell to cover the costs of staying in business and see how many months our operating capital will last. For instance, if it costs $3,000 a month to keep the lights on and you are retailing your only product (a white rum) for $20 a bottle with a $10 profit margin, you need to sell 300 bottles per month to stay in business. Therefore, you better make sure your equipment can produce 300 bottles per month (at minimum). Since it is costing you $10 a bottle to make that rum, you also need to look at how long it can take you to ramp up to the sales level you need to maintain (300 bottles per month). Using the same scenario, if your operating funds are only $2,000, you won’t be able to make enough product to stay in business for a month, which means you’ll have to go back to the drawing board. While it is critically important to know your minimum production level, it should only be used for setting the floor of your production model.
Average Production LevelsThe next way to determine your production volume is to look at what similar business are doing. If you are a distillery bar, look at the bars around your distillery and see how much they are selling in a night, in a week, a month and a year. If you are on the distribution end, talk to distributors and liquor stores to see what other distilleries have done. Here are some general rules of thumb for very early-stage distillery bars. Your tasting room should average 60% occupied over the hours you are open. So, for example, if you have a 49 seat tasting room that is open 40 hours per week, you will need to have about 1,176 people per week in your distillery. Now, the average person drinks 1.5 drinks per hour (men generally have 2 drinks an hour and women 1). That means that you should serve 1,764 drinks per week. If an average bottle serves 12 drinks per bottle (actually, there are 25.36 oz per bottle so perfect 1.5 oz pours would be 16.9 drinks), you should produce 147 bottles per week. (Keep in mind we are still using our scenario from earlier.) For distribution facilities, we’re going to take a different approach. Let’s look at what your sales force can accomplish. An account should average at least one 6-bottle case per week to be worth your time. A good salesperson in a good area (i.e. not much driving between accounts) should spend approximately 30 minutes per account. Let’s take a single month, say February. On average, a salesperson could visit 320 accounts in a single month (spending 30 minutes with each account). If you have one full time sales person, they should be able to sell 25.8 bottles per account, per month or 8,256 total bottles per month. As you can see, those two rules of thumb illustrate the vast difference between the two distillery models: a distillery bar will need to sell 13 times less booze than the distribution facility.
PLANNING FOR GROWTHThe last (arguably the most important) method in determining your production volume is to look at your projected growth path for the life of your facility. Planning for expansion from the start will enable you to size your equipment correctly from the very beginning. For example, if you project that you’ll double your sales volume every year, it won’t be ideal to buy a new still every year. It will also ensure that you don’t outgrow your facility too quickly. Some things to keep in mind when thinking about your growth: a distillery bar will peak fairly early and then settle down to a constant revenue stream. But without adding to the square footage of your drinking space, it will be difficult to grow sales volume (which is why planning for growth from the beginning is important). For a distribution facility, it is useful to look at a step-function of growth. Entering a new state/market or adding a new distributor will require having volume to meet this new demand, so your growth tends to jump first then ramp slowly after you pick up the initial “easy” stores.
Receive; 650 pounds of whole kernel #2 dent corn, 400 pounds of whole rye, and 250 pounds of 6-row malted barley in 50-pound sacks on one combined pallet. Weigh out and mill 638 pounds of corn through the hammer mill at 1,250 pounds per hour, then place corn flour in storage hopper. Weigh out and mill 363 pounds of rye and 250 pounds of malt at 1,250 pounds per hour and store in a separate storage hopper from the corn. The next morning, the lauter tun will be filled with 255 gallons of water from the hot liquor tank, then the corn flour will be added while being agitated to prevent dough balls and heated with direct injected steam to 200°F and held there for 30 minutes. 113 gallons of 70°F water will be added to the tun to drop the temperature to 160°F, then the Malt and Rye flour will be added after the pH is adjusted to 5.5. The mash temperature will be maintained for 45 minutes before the temperature is reduced to 135°F by adding 123 gallons of 70°F water and the pH dropped to 5.3, which will be held for another 45 minutes. The lauter tun will be drained through a wort chiller to drop the temperature to 70°F before pumping it to the fermenter. The first rinse water will also be pumped to the fermenter while the second and third rinse will be returned to the hot liquor tank, while the spend grain will be stored in 550-gallon totes until it can be shipped to a local farmer. The fermenter will contain about 500 gallons of wort. 0.75 kg of yeast will be rehydrated in 1.25 gallons of 104°F water in a ten-gallon stainless milk jug. The wort will be pulled from the fermenter and added to the rehydrated yeast three times to lower the temperature to pitch temperature, each time will be equal to the total volume of yeast (1, 2, & 4). After the temperatures are equalized, the rehydrated yeast will be pitched into the wort. Fermentation will take 6 days with the fermenter maintained at 75°F. After fermentation, the wort will be 10% ABV and it will be pumped to the 500-gallon stripping still. It will take 1 hour to heat up the still and then 6 hours to strip the wash with 150 gallons of 30% ABV low wines collected. 350 gallons of 1% ABV pot ale will be disposed of down the sewer. The low wines will be combines with the 50 gallons of tails (30% ABV) from the previous run and used to charge the 200-gallon finishing still. It will take 1 hour to heat up the finishing still and 6 hours to collect 1 gallons of heads (95% ABV), 60 gallons of Hearts (60% ABV) and 50 gallons of tails (30% ABV). 89 gallons of 10% ABV pot ale will be disposed of down the sewer. The heads will be used to clean the distillery while the hearts will be placed in a 200-liter new oak barrels with a #4 char. The barrel will need to be rehydrated with steam prior to the hearts being placed in the barrel. The bourbon will be matured for 4 years. A single barrel of bourbon will be pulled, once mature, at a time for bottling. The barrel will be emptied through a cheesecloth filter into a 75-gallon stainless steel tank. Over the next month, the proof will be dropped to 100 proof by the addition of one gallon of R/O water every other day. Once proofed down, the 63 gallons of bourbon will be filtered through a 1-micron filter prior to being sent to bottling. 317 bottles will be filled per batch.By detailing out the distillation process (like example above), it starts making it easy to walk though both your inputs and outputs. *If you noticed that there are 7 gallons of bourbons hearts unaccounted for in there, great job!* In this example, we’ll need to account for what we do with that remainder over time: either buy an extra tank to store it in until we have enough to barrel or, in this case, dilute it to 20% ABV and store it in a 20-gallon barrel to use to dilute the barrel to bottle strength. From the above process we can see everything we need: a way to move a 1,300 pound pallet with 26 sacks on it, storage for a pallet of grain, a hopper to dump the sacks into for the mill, a hammer mill capable of at least 1,250 pounds/hour, two storage hoppers (~150 gallons), an auger system to move the grain from the mill to the hoppers, a dump system from the hopper to the lauter tun, a 500-gallon lauter tun, a 500-gallon hot liquor tank, storage for chemicals to reduce pH, a wort chiller, a 550-gallon spent grain tote, at least one 500-gallon fermenter, 10-gallon stainless steel milk jug, dry yeast storage, wort pump, 500-gallon stripping still, 150-gallon low wines storage tank, high proof spirits pump, 200-gallon finishing still, 1-gallon heads receiver, 60-gallon hearts receiver, 50-gallon tails receiver, steam system for barrel, new barrel storage, maturation storage for 4 years of barrel production, 75-gallon proofing tank, R/O system, 1 micro filter system, bottler, labeler, and a heat gun. Now that we’ve written down the entire distillation process from start to finish for our spirit—from the moment your ingredients arrive to bottling your spirit to be sold—you can look at the required equipment and begin to see what can be used in multiple parts of the distillation process for other spirits. For instance, you probably only need one wort pump and one high proof pump for all of your spirits. One important note: Since each process is only written for a single batch of your spirit, it is important to look at how often you’ll need to make that spirit. If this process was used for our 50-seat distillery bar and bourbon was our only spirit, we would need to make a batch a little over once every two weeks. Of course, you’d need to make that booze 4 years in advance of your bar opening to allow for aging. For the distribution facility model, you need 26 batches per month, so plan on spending your weekends making bourbon too! This is a good point for iteration because there are 2 pitfalls that can happen here: if you’re running your still 24/7, you won’t have time to run the rest of your business, like finding and training qualified people, paying your taxes, building your brand, etc. But on the other hand, if you’re rarely running your still, you’ll have trouble meeting demand and will need to compensate by buying smaller, cheaper equipment. Looking at the number of batches you need to run is only one part of production planning, the other part is your total system utilization. The easiest way to do this is using a simple table in Excel. Write out five weeks (by day) across the top of your table and major pieces of equipment down the side. Here is a shortened example using our bourbon process from above.