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Craft whiskies: does creativity equal profit?

Does creative production equal profit for the retailer? The answer is yes, but with a couple of premises and some serious caveats

Ryan Maloney Julio's Liquors

The problem for retailers is that there is no monetary profit in craft whiskey.

When I agreed to talk on this subject at the reent World Whiskies Conference in New York this month, I started doing a little research to see what I assume to be great and wondrous bags of money I am making on craft whiskies.  I know my guys hand-sell much of the craft products and, therefore, we have a significant amount of selling time invested in these products. 

With Our gross sales in excess of US$10 million a year and about 13% or over US$1.3 million of those sales are in the whiskey category, we should be a good barometer of how well craft whiskey can do in regards to profit.

But here’s the rub – the ease of sales of mainstream ‘big boys’ versus time invested in craft equals a losing proposition 

I’m looking through the numbers and although I’m making money, I’m not making any more than the profit margin of mainstream ‘non craft’ whiskies.  As a matter of fact, in many cases I’m making less!  And the stark reality is that with all the programs, merchandisers, advertising and sell though, plus the quality of some of the mainstream whiskies, craft in comparison, with its higher retail price, lower profit and more time invested in selling the whisky, looks like a losing proposition. This is even the case for those far and few between truly innovative whiskies. 

Here is the problem: they are usually very limited in quantity and very hard to get.  As a retailer I cannot make a long term profit on a product I can’t get or it comes in such small quantities that I can’t build a repeat following.  Or I get cherry picked just for that particular whiskey. The press and critics help fuel these whiskies and my ONLY hope as a retailer is that they are sustainable and remain in vogue long enough for distribution and supply to catch up.

I believed I was wrong, there was no way that the passion and creativity could be a losing proposition.

So does creative production equal profit? Then answer is YES, but with a couple of premises and some serious caveats.

 Let's start with the first basic premises: I don't sell crap! All of the whiskies I sell are good. Some are better than others but as long as it is of good quality there is usually a customer palate for every product! The distiller has a good product (maybe not super innovative, but will hold its own in a category).

Second is there is no substitute for hard work. A craft distillery cannot compete on the ‘Big Boy’ model of wide distribution, traditional marketing and above all pricing.

The truly innovative of these craft whiskey Companies are the ones that recognise the importance of not only having a great unique whiskey, but a great work ethic.  The guys who think that once they get the product on the shelf their work is DONE ARE DOOMED

You have to remember that just about every category a craft distiller enters is already a saturated market. 

To overcome this stacked deck It has to have something, such as a good story – a family recipe, local grown malt or, even better, the face of someone with a friendly or amenable personality. Just anything that sets them apart from the mainstream rabble on the shelf.

If the distillery reps or owners are very gung-ho about their whiskey everyone buys in or, as I like to say, “drinks the newmake kool-ade!”

This is the ability to team build.  And leads to ‘Selective Partnerships’. What I mean by Selective Partnerships is that they are not looking to sell their product in every liquor store in town, but only to strategic stores that are geographically separated. 

If we know that my customers are not going to find this product in a 10 or 15 mile radius, my staff are more likely to suggest it if there are two or more that fit the bill for a customer’s need. This should also be done with an on-premise establishment. Now, everyone involved (distiller, retail, bar) has a sense of ownership.

If this is done right, the customer buys in too. Now, you have a bunch of ‘fans’ or unpaid ambassadors running around recommending that craft whiskey! I have personally been on the retail floor and watched one customer sell another customer a craft whiskey that the distiller had given a seminar on just the week before!

Conclusion: the profit of craft whiskey is measured by people. The virus-like effect from distillery working with retail/bar to customer fan base is key to the true profitability of creative production. 

The next step from local to regional to national will depend, not only on the product itself, but the ability of the distillery to maintain the original enthusiasm of each ‘touch’ as it spreads out from its geographical or ‘fan’ base. For example, can a Minnesota whiskey gain traction in a MA market?  

For retail, craft can create a geographical draw. Now, fortunately, most stores concentrate on mainstream brands and are lazy in both promotion and product knowledge. If I only sold mainstream brands I would be fighting for business in a small area and dictated only by price. By working with and carrying craft whisky or craft spirits of any kind it gives me, as a retailer, a chance to educate and introduce customers to products they will not have easy access to anywhere else. 

Craft products of any kind can help achieve this benefit. So, even the more common or everyday spirit line is helpful in this respect. 

As my customers become aware that there is more out there than the mainstream brands, I have given myself the opportunity to become their source for, not only a wider selection of spirits, but for information and expertise.

As “fans” spread the word I draw from an increasing geographical area.

Mainstream pays the bills – Craft is the gravy!
About eight years ago, I had a business partner that wanted to buy me out. He told me flat out that I didn’t know retail. Well, I ended up buying him out and over the next eight years I doubled the sales of the store.  And you know, he was right! I didn’t know retail.  I didn’t know HIS retail – I was on a different path.  My retail was about creating fans not customers, my retail was about creating excitement and a sense of belonging or ownership.

22 April 2013