In the Magazine

Bring me moonshine…

01 May 2012 By db staff writer

America’s original home distillers may be long gone, but they appear to have been reincarnated in the form of craft distillers. Small but growing, this innovative industry is fast making its mark in the US. By Roger Morris

For most of the 20th century, the only spirit-producing stills in America were either owned by large corporations, who primarily made Bourbon and sour-mash whiskies in the heartland states of Kentucky and Tennessee, or by moonshiners, the illegal home distillers who often set up shop in the dense woods of the eastern mountain forests.

These wily moonshiners who thwarted the “revenuers” were the stuff of legends, novels and movies – much more accepted by the general public than the moms and pops who today run illegal methamphetamine labs in their basements or the drug gangs who grow marijuana in California’s redwood forests. But by the late 1900s, moonshiners had largely vaporized because of better law enforcement techniques paired with the stark economic fact that someone else could make it better, cheaper, legally.

Now, the moonshiners are back – if not in name, well, certainly in spirit. They’re called craft distillers, and they have hit the US by storm over the past decade.

“When our organisation was founded in 2003, there were about 60 DSP [distilled spirits plants] in the United States,” says Bill Owens, president of the craft-oriented American Distilling Institute (ADI). “Today we had 240 DSP members, and we expect that to grow to 400-450 by the end of 2015.”

Consultant distiller David Pickerell agrees with Owens’ optimistic forecast. “The market will still absorb a lot,” he says, “especially since much of the product is sold ‘off the back porch’,” at the small craft distilling facilities where production takes place. “There are several different drivers for growth,” Pickerell says. “The slowdown of craft brewing had people looking for the next thing, consumers continue to be interested in sustainability and drinking local and, finally, the big boys just can’t do innovation.” Pickerell should know – he was one of the big boys as a master distiller for over a decade at with the premium brand Maker’s Mark.

THE ART OF CRAFT

Typical of this growth is Philadelphia Distilling, which launched its first product, Bluecoat gin, in 2006 when 28- year-old master distiller Robert Cassell teamed up with his uncle, CEO Andrew Auwerda, and investor Timothy Yarnall.

A few years earlier, Cassell had decided to travel to Scotland to learn distilling at Edinburgh’s Heriot-Watt University and on his return worked for a while in the craft beer business before helping launch the new venture.

“I had to work 37 hours straight to meet our first purchase [of Bluecoat gin] from the Pennsylvania Liquor Control Board,” Cassell recalls. “I had to distill the gin, hand fill the bottles, put the corks in and put on the labels.” At that time, they were the only distiller of any size in Pennsylvania, a state that once was awash in rye whiskey manufacturers in the 1800s. Now several other startups have joined Philadelphia Distilling in the region.

“Today, we’re in 38 [of 50] states, as well as Spain, Italy and France,” Auwerda says, and while gin is still their biggest product, they also produce individually branded Vieux Carré absinthe, Penn 1681 vodka and XXX Shine whiskey. “When we first starting pitching distributors, they didn’t know what craft distillers were,” he continues. “Now, many of those same distributors have separate divisions devoted to craft brands.”

Many industry observers see the growth of craft distilling as a natural outgrowth of two waves of small startups in the production of alcoholic beverages, first in small wineries in the 1970s – they were called “boutiques” at the time – and then craft brewers who broadsided the traditional beer industry with brewpubs where customers could have a meal while drinking beers and ales made on the other side of a glass wall or in the basement. Owens maintains that “half of craft distillers today are marriages of brew pubs and distilleries. Distilling is the last of the [alcoholic beverages] trinity”.

Kitchen appliance heir Fritz Maytag was one of the pioneers in all three areas, his revival of Anchor Steam Brewery in downtown San Francisco in 1965 led to the first nationally distributed craft beer, and his Anchor Distilling (Junipero gin,Old Potrero rye whiskey) forged a parallel path beginning in 1993. He also owned a vineyard and eventually a winery.

Today many new distillers start with the easiest-to-make spirit – vodka – and expand to other categories. “I’ve got clients making everything from rum to brandy to whiskey to vodka,” says consultant Pickerell. “Part of the reason for the diversity is that they have to have cash-flow products while waiting for whiskey to age.”

Which must mean that cash-flow today must be good, as the production of corn- based Bourbons and ryes has exploded in the last two to three years. “At this moment, 156 of our members are doing whiskey,” the ADI’s Owens says, although some, like Philadelphia’s Cassell, make moonshine-style whiskey that doesn’t need barrel ageing. One distiller, Terressentia of South Carolina, claims to have a whiskey ageing process that doesn’t require barrels or even time.

“Another category that I believe will start having rapid growth is genevers,” Pickerell says, referring to the Dutch- style gin which is beginning to appear in some markets.

In general, craft distillers are behaving more like their craft-brewing brethren than boutique winemakers in their love of experimenting to find new tastes and having less interest in traditional categories and recipes.

For example, Chicago mixologist Adam Seger in his spare time began working on infused spirits below the bar at restaurant Nacional 27, which led him to invent “Hum” (the word “rhum” was taken), a mix of pot still rhum, hibiscus, ginger root, green cardamom and kaffir lime. Seger says it’s officially a liqueur, but he calls it “an American botanicals spirit”. What started as a bar hobby for Seger is now a full-scale distilling operation.

Similarly, a company called Art in the Age of Mechanical Reproduction has brands called Snap (ginger), Root (sassafras root and birch bark) and Rhuby (rhubarb). “I think you will see more and more bartenders going to local craft distillers to help them create new spirits,” Seger predicts.

LOCAL FOCUS

Indeed, part of the market positioning and charm of the craft distillers are that most see themselves as part of the “eat- and-drink-local” movement. And, unlike many trade executives who welcome growth at any cost, Owens draws lines in the sand dividing craft distillers, whether they are members of his organisation or not, into “purist” and “non-purist” camps. “I believe that we should source grains and botanicals locally whenever possible,” he says. He rails at big traditional distilleries as being “ethanol factories” and refers to “Tito” Beveridge, whose Tito’s Handmade Vodka has become a super-regional producer as “not a purist”. Tito’s is not a member of the ADI.

When asked what barriers to future growth the industry faces, Pickerell’s answer is only two words – “cash-flow”, explaining that “everything else can be overcome”. Similarly, Auwerda and Cassell laugh that they don’t have any problems at craft distilling trade fairs telling who’s new to the business and who’s an “old-timer” – anyone who has been around for five or so years.

“The new-timers are all on a first-year high with unrealistic marketing expectations,” Auwerda says, and are enjoying what Pickerell calls “being handed the keys to the men’s room”. “Everyone else is asking each other, ‘are you making money yet?’”, says Auwerda.

Marketing plans for craft distillers – where they exist – can be categorised as “stay small and local”, “get bigger and go regional” and “get bought out”. Increasingly, the latter is not an unrealistic expectation. Industries tend to consolidate when there is over- production or when there is great demand. “We will have more consolidation,” Pickerell predicts. “The big boys are waiting to see which brands have traction.”

Anchor Distilling, as well as its Anchor Steam brewing arm, had sufficient traction that Maytag sold them in 2010 to venture capital funds. Similarly, New York’s Tutilltown Spirits (Manhattan brand rye and Bourbon) was bought by William Grant last year, and Stranahan’s Colorado whiskey was bought in late 2010 by Proximo Spirits after a six-year run as an independent.

“I have seen the big players start to buy up some of the smaller players, which is a double-edged sword,” says Kim Haasarud, owner of beverage consultants Liquid Architecture. “On the one hand, that can be greatly beneficial – the brand can utilize their distribution arms in getting the product out there to a wider audience. But the downside is that often these smaller brands won’t be able to keep up with the demand, and bars get burned.

“I just think these smaller brands should take it slow and grow their brand organically, word of mouth,” she continues. “Tito’s is such a great example.”

As usual, Owens has the last word. “What we are doing,” he says, “is reinventing the spirits industry.”