WHAT I LEARNED TRAVELING FROM BIG WHISKEY TO CRAFT BOURBON

WHAT I LEARNED TRAVELING FROM BIG BIG WHISKEY WHISKEY

TO CRAFT CRAFT BOURBON BOURBON

For more than 35 years I created products, brands, and marketing for some of the most prestigious whiskies in the world — The Macallan, Highland Park, Johnnie Walker. When I co-founded a craft distillery I thought it was going to be easy. What I’ve learned is that I was wrong. It’s hard. It’s really hard. This two-part series outlines my 10 biggest lessons traveling from big whiskey to a craft distillery. 6 6Create Profitability LESSON SIX

Through a Diversity of Profit Streams

When I really understood the math of the three-tier system, it was clear that it wasn’t going to deliver the kind of profitability that I felt my team deserved given how hard we work.

To grow our profitability I borrowed from the playbook of big whiskey. In Scotland they make big profits from single malts; however 80 percent of their volume comes from blended whisky that they mostly purchase, blend, and package. In the U.S., Sazerac makes some of the most expensive bourbons in the world. At the same time, over 80 percent of their volume is in low-priced Canadian and U.S. whiskey. In both cases the profit per bottle is low on the 80 percent; however, it covers overheads and makes the big profits on the 20 percent possible.

In our case we had a high-volume Noble Oak collaboration and a small three-tier business. What was missing was a high margin/high profit business.

The idea was a simple one — custom bourbon. It was not a new idea. In fact it was the way bourbon was sold when it was born in the 1800s. You would take your clay jug to a barrel blender or whiskey merchant to get it filled to your personal tastes.

To make custom bourbon work we identified what we called “Death Threats” — TTB, State of Ohio, three tier, customization system, bottling speed, and costs. Then, step by step we problem solved and created reliable systems for quickly and profitably delivering custom bourbon a bottle at a time.

Custom bourbon has changed our math model. Today, 70 percent of our profits are from custom bourbon bottles for on-trade and consumers and our revenue per person for those visiting our distillery has doubled. Again, just like with big whiskey, our other profit streams pay the overhead and custom bourbon delivers profits.

My advice is to diversify your income streams. For us it’s custom bourbon. For you it might be focusing on very old whiskey, prestige contract brands, making a deep commitment to high-value experiences, or even VIP curated brands.

7 7Confront Reality — LESSON SEVEN The Three-Tier System Doesn’t Care about You

When sales managers work on big whiskey brands, your sales are important to your distributors, on-premise, off-premise, control states, etc. As a craft distillery, you just don’t matter to their business. Don’t take it personally. The percentage of new products from big whiskey brands that ever reach 20,000 physical cases in a year is in the very low single digits. Add in low capitalization and lack of resources for craft and the number is even lower. It’s no wonder your phone calls and emails go unanswered and support for your brand is minimal to non-existent. Whining about the situation will not change it. Frankly, it’s likely you are getting your “fair share” of their time based on your sales volume.

To address this we do three things: 1) Give three tier meaningfully unique offerings; 2) Don’t whine; and 3) Be the easiest to sell.

Again, as detailed in Part 1 of this series, having a meaningfully unique product is the first key to success. When you offer something that no one else offers, at a fair price, you win. When you offer the same old same old bourbon in another fancy, expensive bottle, you lose.

Whining to managers about your lack of support does not help. The next time they have some resources to focus on craft brands, it’s human nature that whiners’ brands will get less support.

Our team focuses on developing events, promotions, and limited editions that are “no brainers” for buyers to buy. When you give a distributor sales person something that is an obvious “wow,” they are more likely to support it as it will be an easier sell to their customers. For example, we recently created a simple demo for our Dexter Three Wood Bourbon using pieces of wood to show the difference in the grain of new oak versus 200-year-old oak along with the layers of flavor from adding maple and cherry wood. It brings to life our “wow” difference and is meaningful and fun to share.

8 8 LESSON EIGHT Use Cocktails to Grow New Bourbon Customers

Only 12 percent of consumers in the U.S. drink bourbon. As a craft distiller, you realize this when doing a festival or bar event and see how few people drink bourbon when you go table to table. Fortunately, big bourbon doesn’t “love” cocktails as they feel they will lose their “branding” advantage when in cocktails versus neat or on ice. This gives craft distilleries an opportunity to use cocktails to grow new bourbon customers. One of the many ways we do this is to offer cocktail flights. Each cocktail is crafted to work best with one of our bourbons from easy-drinking to full-flavored to smoked. We serve them in shot glasses on barrel stave pieces. In marketing materials we feature a big green START button beside those that are best for those new to bourbon cocktails.

The purpose of our cocktail program is to create new bourbon drinkers who buy bottles. To do this, our bottle shop features a “teaching bar” to educate consumers how to make our cocktails at home. When we get it right, it’s not uncommon for our cocktail program to grow our average bottle sales per person by 30 percent.

Building a cocktail program that grows bottle sales takes as much commitment as creating a new bourbon. You need to create recipes, test with customers, recreate, test again, and repeat till you get them great.

9 9Creating a Culture to Win LESSON NINE

Early on it became clear that to win against big whiskey — or to even make a dent in the industry — we needed to have a culture that was faster, smarter, and more creative.

To build this we did three things: 1) Make great bourbon to build pride in our work; 2) Build systems to enable success; and 3) Confront reality on problems and mistakes.

You can’t create a culture to win if you don’t make a great product. When family, friends, and consumers love your bourbon, employee pride grows and you create a culture to win.

As W. Edwards Deming, the father of manufacturing quality, taught that 94 percent of problems are due to the system; six percent are due to the workers. When the leaders of a craft distillery focus on system improvement versus “beating the workers,” a culture of teamwork is ignited. We do this by committing to our Standard Operating Procedures. We document, we teach, we learn, we revise. That is how we survive and thrive.

It takes work to define your operational systems on paper so that they are clear and easy to understand. However, when you do, it enables employees to become part of the system, to improve the system, and to win at their jobs.

With a craft distillery you can’t waste time, energy, and money on things that don’t work. Early on my co-founder Joe Girgash and I set a culture of brutally honest truth-telling. When something doesn’t feel right we say so. This ignites debates — sometimes loud debates. However, it always makes a positive impact on our business. Take a hard stance with your team on industry rules. When you do you create a culture of integrity, with employees, on premise, off premise, and with distributors.

10 10Two Non-Negotiable Rules LESSON TEN

As an innovator I love to break traditions and rules. However, when it comes to the distillery there are two non-negotiable rules: Rule #1 — Don’t put Doug and Joe in Jail. Rule #2 — Have Fun.

The first rule recognizes the reality that the spirits industry is highly regulated. There is a complex maze of local, state and national rules. And many of these rules are antiquated and simply stupid. How crazy a rule is doesn’t matter. The rules are the rules.

My advice to distillers is to take a hard stance with your team on industry rules. When you do you create a culture of integrity, with employees, on premise, off premise, and with distributors.

Creating a distillery will be one of the hardest things you’ve ever done. As you do it be sure to have fun in the process. You are part of a great industry offering products that, when consumed in moderation, bring joy to the world. Bourbon celebrates life’s special moments. Bourbon is a uniquely American institution. So you and your team deserve to stop, celebrate and enjoy the adventure.

Doug Hall is the co-founder and CEO of Brain Brew Custom WHISKeY, WoodCraft Bourbon Blender Franchising and founder / chairman of the Eureka! Ranch. He has spent 40+ years creating and commercializing innovations for companies such as Nike, Walt Disney, Diagio and over the past 22 years The Macallan of Scotland.