Has the Bubble Burst ?

In the 5-day distilling Workshops, I like to show the parabolic growth curve of craft distilling start-ups. I repeatedly caution that as a former stock broker, I am wary of things that go parabolic. I point out, usually to glazed-over eyeballs in the room, that the cheap-money, stupid-money Central Bank policies of the current time are fueling all things parabolic. Back in the 60’s and 70’s we had various fads. Today, fads have been replaced by short term parabolic bubbles all fueled by easy credit. With the stroke of a pen right now, I could mortgage my house. With one phone call I could drain my investment accounts. With that money in hand, I could easily find some flimsy financial institution to lend me even more. I could then go on to launch a craft distillery. Experience? Recipe development? Marketing strategy? Hell – who needs any of that when you have a bagful of money!

I am not then shocked to see on average two craft distillers a month in the USA going under. I watch the discussion forums on-line and it pains me to see people obviously going through angst as they liquidate equipment and even barrels of product. The bubble has burst. The wave has crashed over the bow.

So what to make of it all?

My message is simple. A bursting bubble is a good thing.

Remember way back in the 90’s when the Nasdaq tech bubble broke? Did all tech firms go under? No – they did not. The smart ones actually benefited by acquiring the assets of the failures. Remember the 2008 sub-prime mortgage implosion? Remember the more recent oil price implosion? In both these cases, the smart players who saw the trend changing were able to capitalize on the failures of the weak players.

And so it shall be with craft distilling.

Thinking about starting a craft distillery are you? Good! Now – relax and take a breath. Your timing is fortuitous. The urgency for fast action is off.

Take the time to develop recipes. Take a 5 day course! Take the time to develop a sound marketing plan and brand image. Look for used equipment that is being liquidated. Even if you have to store it for a while somewhere – no worries. The craft beer brewing movement went through a multi-year pause in the late 90’s as the first parabolic wave broke. Then, the marketplace caught up, the consumer became more savvy and a new phase of growth unfolded.

I suspect we will see something similar in craft distilling. There will be now a multi-year pause in net numbers of craft distilleries. Th weaker players with their poor recipes, poor websites, poor brand image and inferior equipment will be flushed away like grain kernels down a floor drain. But, the strong will survive. The consumer will catch up and eventually a new growth wave will unfold. To those aspiring new entrants that properly prepare for this new wave – the benefits will be many. It is just unfortunate that so many rushed in so fast on this initial parabolic wave and are now getting hurt. But, such is the nature of our fast money, stupid money economy. As the old saying goes….caveat emptor.

Craft Distilling – What is It?

In the 5 Day Distilling workshops that I am involved with, I waste little time on Day #1 in posing a philosophical question to the class. The question – “What does it mean to be a Craft Distiller?”.

As the week progresses, answers slowly start to materialize. By week-end, the consensus emerges that a Craft Distiller is a person creating something unique that a customer typically would not find on offer from one of the big, multi-national purveyors of distilled spirits.

This inevitably then leads to the very tricky subject of commercial alcohol or as it is often called Neutral Grain Spirit (NGS). Are you a craft distiller if you make use of NGS that comes from a large ethanol distillery such as Commercial Alcohols in Tiverton, Ontario or Western Bio-Fuels in Unity, Saskatchewan? Tough question.

Various Provinces in Canada have already dealt with this issue, while some have given it a wide berth. British Columbia, for example, says to be a craft distiller you must manufacture your alcohol from B.C. grown agricultural goods. So – that’s pretty clear. NGS is not allowed at the craft level. Alberta has placed a limit on how much NGS a craft distillery can employ and I do reckon that amount to be 20% of your distillery output. Manitoba and Ontario have also placed similar limits. Quebec allows for exclusive use of NGS to make craft distilled products, although they are now tightening the noose as it were with tax incentives to those who manufacture their alcohol from Quebec grown agricultural produce. The Maritime Provinces to the best of my knowledge do not have clear policies yet on the use of NGS.

And this brings us back to Saskatchewan where I continue to draw fire from the craft community for comments I leveled a couple years ago in which I made it clear that I was opposed to the use of NGS at the craft level. In fact, it seems fair to say that I am downright reviled in Saskatchewan for this NGS position. Good thing I have thick skin. You see, Saskatchewan allows for the full use of NGS by craft distillers. What prompted this policy shift, I do not know and I doubt that I will ever be enlightened on the matter by the good folks at SLGA.

I also seem to be drawing heavy artillery bombardment of late from one particular craft distillery in Saskatoon for my open encouragement that people contemplating becoming craft distillers ought to practice making alcohol at home first. This is a position that I will not recant any time soon. The irony of this situation is the image on the front cover of my self-published textbook that I use in my classroom teachings bears the image of this very distillery! This book continues to sell all over the world and thus de-facto is providing free, very positive, publicity to this distillery. I even use products from this distillery in my classroom tastings and people comment very warmly on how well their products taste. Maybe it is time for a change of artwork on the textbook cover? Maybe time to revamp my tasting lineup?

I have seen far too many people rush out of the 5 Day Distilling Courses and dive off the deep end of the pool. They end up buying sub-standard equipment and in many cases wrong equipment. And what’s worse, they end up producing sub-standard spirits that verge on undrinkable. What’s even more troublesome, they quickly find that they have amassed huge debt-loads and are faced with an uncertain financial future. Had these folks followed my advice and actually done some home experimentation, they very likely would have discovered that distilling was not for them. They could have avoided the precarious debt position they now find themselves in. On the flip side of this argument, those that have taken the 5 Day Course and have actually taken the time to play at home on a small still are now off to a glorious start producing some top-shelf products.

But – back to the main topic of NGS. I continue to grapple with the NGS question here in this Province that allows for its exclusive use. I have watched other jurisdictions and lobby groups also grapple with the issue. I have taken careful note as to how others have dealt with this thorny issue.

After much thought and careful consideration, as of here and now I would like to go on the record as saying… I am content with the use of NGS or any other 3rd party alcohol provided that the craft distiller in question makes open, honest, transparent explanation (when and if asked by a customer) as to the use of such alcohol. A little bit of open transparency won’t hurt you – will it? Explain to the inquiring customer that although the alcohol may have come from somewhere else, you the craftsman have taken it through additional processing steps and even some carefully created flavor formulation steps to produce a product that is otherwise unavailable from the big multi-national players. Keep the customer educated, and they will develop brand loyalty towards you and your craftsmanship abilities.

I would also like to go on record as saying…it is my strong wish that the regulators at SLGA take a page from the Quebec (RACJ) playbook and extend a small tax incentive to any craft distiller who manufactures alcohol from locally grown materials With the precarious budget situation in Saskatchewan these days, I am not holding my breath waiting for such a policy change. But – no harm in asking for it…

Readers of this blog post are invited to call me directly to openly and transparently discuss any of the above comments and positions.