Despite their popularity, the craft alcoholic beverage sectors are struggling with an identity crisis that threatens their continued robust growth rate. Like the faddish buzzwords “natural” and “healthy,” the definition of “craft” can have little to do with the image it evokes. The sector has grown far beyond its original reference to small, hands-on, independent producers making goods on a nonindustrial scale. How about “artisan”? Is this a better word? Neither descriptor has a legally enforceable definition. Any beer, spirits, or cider maker can use either term, and as the popularity of these sectors grows, the rampant misuse increases.
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The best “craft” marketing is educating consumers so they can discern when they are paying a premium for superior quality with distinctive individuality. There may be no controlling the use of the term “craft,” but transparency is a distinction that illustrates the difference.
Confusion creates opportunities to appear to be one thing when you are really something else. Invariably, such choices are made to enhance sales. It is easy to make the wrong choice.
“There is a lot of argument about defining craft. You can’t put a size on it, or you punish someone for being successful. Continuous, automated distilling is pretty industrial,” says Cris Steller, head of the California Artisan Distillery Guild and cofounder of Dry Diggings Distillery. “If you buy that industrial alcohol then treat it by just cutting it with water, filtering it, that’s not much craft.” But there are plenty of “craft” distilleries that do little more.
The language that carries meaning in craft sectors is the language of story, the story of how the product is made and who made it. The more detailed and verifiable the story, the more likely it is truthful. When consumers are presented with solid information, they trust it. Increasingly, craft guilds are calling for members to distinguish themselves with transparency and encourage site tours that put their processes on display.
“I’m sure you are aware of what has been happening for the last six months,” says David Perkins, founder and owner of High West Distillery in Park City, Utah. Anyone interested in spirits would understand the reference. It started with the publication of The Kings County Distillery Guide to Urban Moonshining: How to Make and Drink Whiskey, by Colin Spoelman and David Haskell at the end of 2013, a superb book that anyone who enjoys spirits should read. The authors took the time and effort to explain how whiskey is made in the U.S. It was a bombshell of revelations and a public relations disaster for the craft spirits sector.
The controversial story was about a particular stash of rye whiskey produced at a Lawrenceburg, Indiana, industrial distillery once owned by Seagram’s and now a division of Midwest Grain Products (MGP). The rye whiskey in this story is 95 percent rye, compared to the typical 70 percent rye whiskeys. It was developed by Seagram’s to be blended into Seagram’s 7. When the company sold off its spirits business in the 1990s to finance a disastrous foray into Hollywood, this high rye whiskey was sold on the wholesale market. “This rye was considered rot gut,” says Arthur Shapiro, former head of marketing for Seagrams. “It was inexpensive and easy to produce with caramel coloring added to make it appear more appealing.” The high rye content made it particularly spicy, which worked in the Seagram’s 7 blend but was never expected to stand on its own.
That rye, with the extra barrel aging afforded by abandonment, eventually became the juice peddled by many “craft” spirits brands as their own distillate—Templeton Rye, Redemption Rye, Bulleit Rye, Willet, Smooth Ambler, and George Dickel Rye, among others. Spoelman and Haskell’s diagram of the “American Whiskey Family Tree” showing the origins of various whiskeys has been reproduced and hangs on the wall of craft distilleries eager to show they are not on the chart. High West (www.highwest.com), however, is on the chart.
The New York Times and Atlantic magazine wrote stories and even CBS Evening News took a shot at the idea that there is less “craft” in the craft spirits sector than most consumers think. Perkins and his team at High West, however, emerged with their reputation intact. While the High West labels may have lacked transparency, the company didn’t make false claims about their product.
Perkins moved to Park City in 2004, after a career in biopharmaceuticals in the San Francisco Bay area, hoping to start a hobby career as a distiller. He eventually built what seemed like a good-size copper still that could produce 10,000-proof gallons of spirits a year inside a ski-in/ski-out distillery/restaurant near the town’s chairlift. The prime real estate set him back $6 million, but it was a good investment. “Half our revenue comes from our restaurant in that building, which we didn’t see coming when we opened,” Perkins says.
“Distilling is a capital-intensive business,” he says. “It’s expensive. You have to be clever.” In 2007, High West became Utah’s first licensed distillery since Prohibition, with the restaurant opening a year later. He had aged whiskey ready to sell when High West opened its doors.
The trick was the Seagram’s rye. A friend at Kentucky’s Four Roses Distillery (http://kybourbontrail.com) shared the secret to starting a new brand of whiskey: Buy someone else’s until your own is ready to sell. “I went to the Indiana plant and tried this rye that no one had ever bottled on its own,” says Perkins. He bought everything he could afford, $300,000 worth of aged rye, “which was a whole lot of money for us then.” Perkins was the first in a long line of craft distillers to buy that Indiana rye. “It exploded after we bought it,” says Perkins, sparking a rye renaissance that continues today.
High West’s first product was Rendezvous Rye, a blend of the Seagram’s spirits and a 16-year-old rye produced at the Barton Distillery in Kentucky. “We didn’t want to sell the Indiana rye alone. Anyone can do that. Blending took it to a new level. This gave us the luxury of time to perfect what we were doing in the distillery.” Those early years were full of failed efforts. “We had to dump a lot of bad stuff down the drain. There are 50 places to screw up when you go from grain to glass.”
Ten years into his second career as a distiller, Perkins is selling High West in 44 states and has some of his own aged whiskey in the mix, he says. With a new 30,000-square-foot distillery capable of producing 700,000-proof gallons opening east of Park City next to a boutique hotel, he will be making a lot more of it. “It takes a lot of money to run four 500-gallon stills,” says Perkins. “Buying spirits and blending them got us to this point. We still buy from the Seagram’s old plant. We buy a lot of what they’ve already distilled and a little bit of what we ask them to do for us. We’ve learned how good the big guys are at what they do.
“Would I do anything any differently? No. I’m pretty happy. Blending existing whiskeys is paramount to our success,” he says. “No one likes to be duped. We were selling a 10-year-old whiskey when we hadn’t been open that long. It was hard to not tell the truth in that circumstance.” Today, about 20 percent of High West’s spirits are produced in its own stills.
High West was always upfront about what they were doing,” says Nicole Austin, King’s County Distillery’s master blender. “Buying spirits is a shortcut. It’s a way to build a brand while you wait for your spirits to age. A lot of people bought [aged industrial spirits] cheap and sold them high,” says Austin. “There is a long history of market fluffery with whiskey. But we are coming to a sea change. Consumers are not going to accept it anymore,” she says.
“The difference is telling your story without guile. Almost every craft product is in the premium category, even if by cost alone. But there are plenty of noncraft producers selling their whiskey at craft prices.” Consumers want to know they are paying for something special. “The heart and soul of the spirits industry is up for grabs. It is hard not to feel rage when someone tells a bullshit story. The goal of craft is to expand what spirits can be, not to copy what is already out there,” says Austin. “I hope we come out on the one-for-all side. No one wants to be lectured to when they drink.”
The definition of “craft” with distillers is “extremely frustrating,” says Paul Hletko, founder of Few Spirits (www.fewspirits.com) in Chicago. “I know what it takes to do this, and it would be a lot easier to just buy the stuff. My costs per bottle would go from $9 to about 50 cents.” Still, Hletko believes there is room under the craft umbrella for anyone who discloses how they produce their spirits. “Consumers should simply be told the truth up front. Once you think someone is lying to you, you think everyone is. It hurts all the other small distillers.”
Hletko started Few Spirits in 2008 and has had his spirits available on the market for three years. “Our sales are tiny. We work really hard. It looks romantic from the outside, and we do it because we love it. But it’s a surprise to a lot of people how difficult it is to introduce a packaged good to the consumer market. A lot of people right now are just holding on. The opportunity is less than what people think it is. Don’t do it if you have less than $20 million.”
To the distillers who are truly crafting their spirits from grain to glass, Bert “Tito” Beveridge is an irritating pebble in their shoe. He launched Tito’s Handmade Vodka (www.titosvodka.com) in 1997 in Austin, Texas, and now produces an estimated 10 million cases of what is little more than industrially produced neutral grain spirits that he cuts with water and appears to pass through only one last distillation process.
The American Craft Spirits Association, where Beveridge is a member, “is heavily engaged in the discussion of truth in advertising,” says Ralph Erenzo. “We have ethics agreements members must sign. It has to do with transparency, saying whether you actually distilled it. One of the problems is that the law is ambiguous on this point.” And Beveridge’s membership in the association is a contentious topic. No one but Tito seems to believe there is anything “handmade” about his vodka. “We want penalties on the producers of untruthful labels,” says Erenzo. “It is important for the whole industry. Too many people buy their spirits and then put their own label on it.” The problem with Tito’s and Templeton Rye is “the labels imply they made it,” he says.
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“Neutral grain spirits (NGS) cost 60 cents a gallon,” says Ralph Erenzo, noting that Tito’s Vodka makes 10 million cases a year using NGS, making a fortune selling a slightly cheaper “premium” vodka.
In the beer sector, the equivalent controversy has been over contract brewing, where a craft brewer gives a recipe to a larger brewery and pays it to have that beer produced and bottled. Contract brewing is still frowned upon by most craft brewers, but the practice is increasingly rare, reducing its divisiveness. No one begrudges the success of the big craft brewers, who have all grown while producing consistently high-quality beers made with traditional ingredients. And while not all craft beer is well made, there seems to be no one who substitutes cheap corn in a mash they claim is barley malt.
The identity questions focus on distribution and marketing. Is 10 Barrel still a craft brewery if it is owned by Anheuser-Busch? Most craft brewers say it is not. While their product has not changed, the muscle behind it certainly has. The Brewers Association has thrown them out of the craft club, just as it did Craft Brew Alliance, Goose Island, Blue Point, and other small breweries purchased whole or more than 25 percent by larger breweries. Breweries with major stakes held by nonbeer industry investors, however, remain welcome . . . for now. The debate continues and the ownership issue will only heat up as more founders retire and look for ways to cash out of their companies.
As for cider, it is defined as either “artisan” or “industrial” and is rarely referred to as “craft.” Artisan ciders are pure fruit juice—predominately apples but also pears, quince, and other pomme fruits. Most rely on added yeast, and sometimes an added fresh fruit juice, such as elderberry, for a distinctive flavor. The difference between these beverages and their industrial brethren can be read on the side of the bottle. Reconstituted apple juice and high fructose corn syrup are industrial ingredients. Still, it is not a battle royal over identity similar to what is happening in craft spirits.
One of the best ways to hammer out these issues of identity is to consider what makes your craft product unique and special, what sets it apart from other beverages in the craft market. To do that, you need a “unique selling proposition.”
Understanding Your Unique Selling Proposition
Before you can begin to sell your product to anyone else, you have to sell yourself on it. This is especially important when your product or service is similar to those around you. Very few businesses are one of a kind. Just look around you: How many clothing retailers, hardware stores, air conditioning installers, and electricians are truly unique? Likewise, how many craft brewers are truly unique?
The key to effective selling in this situation is what advertising and marketing professionals call a unique selling proposition (USP). Unless you can pinpoint what makes your business unique in a world of homogeneous competitors, you cannot target your sales efforts successfully.
Pinpointing your USP requires some hard soul-searching and creativity. One way to start is to analyze how other companies use their USPs to their advantage. This requires careful analysis of other companies’ ads and marketing messages. If you analyze what they say they sell, not just their product or service characteristics, you can learn a great deal about how companies distinguish themselves from competitors.
Each of these is an example of a company that has found a USP “peg” on which to hang its marketing strategy. A business can peg its USP on product characteristics, price structure, placement strategy (location and distribution), or promotional strategy. These are what marketers call the “four P’s” of marketing. They are used to give a business a market position that sets it apart from the competition.
Here’s how to uncover your USP and use it to power up your sales:
Put yourself in your customer’s shoes. Too often, entrepreneurs fall in love with their product or service and forget that it is the customer’s needs, not their own, that they must satisfy. Step back from your daily operations and carefully scrutinize what your customers really want. Suppose you own a brewpub. Sure, customers come into your location for beer. But is beer all they want? What could make them come back again and again and ignore your competition? The answer might be quality, convenience, reliability, friendliness, cleanliness, courtesy, or customer service.
Remember, price is never the only reason people buy. If your competition is beating you on pricing because they are larger, you have to find another sales feature that addresses the customer’s needs and then build your sales and promotional efforts around that feature.
Uncover the real reasons customers buy your product instead of a competitor’s. As your business grows, you’ll be able to ask your best source of information: your customers. You will be surprised how honest people are when you ask how you can improve your service.
Since your business is just starting out, you won’t have a lot of customers to ask yet, so ask your competition instead. Craft producers routinely drop into each other’s breweries, distilleries, and cider houses to see what’s happening and talk with their competitors. It’s part of the craft ethos of openness and mutual support. You can see firsthand how customers respond to products and chat with them about their preferences.
Once you have thought through your unique selling proposition, you need to take the next—and hardest—step: clearing your mind of any preconceived ideas about your product or service and be brutally honest with yourself. What features of your business jump out at you as something that sets you apart? What can you promote that will make customers want to patronize your business? How can you position your business to highlight your USP? Do not get discouraged. Successful business ownership is not about having a unique product or service; it’s about making your product stand out—even in a market filled with similar items.
When you choose a type of craft beverage industry with which to align yourself, considering these identity politics first is a smart move. Know your product, know its market, and be sure you are able to create a clearly defined brand that does not rely solely on the latest perception of the product, nor on a contrived marketing ploy. Work with pure product, practice truth in advertising, and work hard to ensure that your brand identity is clear to the consumer.