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Published on 22-07-2013
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Craft distilling for Profit
Setup costs, profitability and other information
Craft distilleries in Europe are highly popular, profitable and the market for craft spirits is expanding tremendously. This trend is also visible in the USA with craft distilleries popping up all over. In South Africa, this already started but is not nearly as wide spread as in Europe or the US yet, despite our legislation making ample provision to allow highly profitable craft distilleries.
The fact that craft distilleries are not common in South Africa yet, is due to the perception that it is an expensive and a "myserious" business. However, that is changing rapidly and craft distilling is expected to BOOM over the next few years. All the indicators are there. With new proposed liquor related legislation, craft distillers will greatly benefit - much more than any of the big mega distillers.
The time is ripe to take your share of the multi-billion Rand liquor industry in South Africa.
Factors to consider to setup a small craft distillery:
Setting up a craft distillery is not about the equipment and end product alone. Craft distilling is also about creating one-on-one relationships with the owners of liquor outlets, restaurants, hotels, guest houses etc. and providing them with excellent products based on the requirments of their target markets.
To compete (legally) with the mega-distillers in South Africa on a low value product, is very difficult as they rely on mass production, volume sales and economies of scale to flood the market for cheap products. However, high perceived quality is the hallmark of small craft distilleries. High perceived quality leads to premium pricing and this is where the craft distiller can make a big impact. HIgh value and unique products supplied to unique but smaller customers.
To setup a succesful small craft distillery a few attributes are required by the owner/manager:
1. Must be a "persons" person to create excellent relationships with his/her customers.
2. Must have a " creative flair" to package and label products in attractive, appealing ways and create a "story" behind the products.
3. Must have suitable premises where the distillery can be operated for a few months (as an article 116 manufacturer) to experiment and create the manufacturing protocols for specific end-products while waiting for a micro-manufacturing and distributor's license.
4. Must have enough funds available to setup at least the still and one fermentation tank for experimentation purposes AND not be concerned about earning revenue while waiting for the applicable licenses.
5. Must have an entrepreneurial spirit to identify promotional;, marketing and sales opportunities ...and exploit it!
6. Be prepared to work through the applicable legislation to identify the many restrictions, requirements and also the "loopholes" hiiden in liquor related legislation. Again, this can be done while waiting for your licences.
7. The ability to learn and implement knowledge about fermentation, distilling and spirit enhancement procedures, or appoint someone who does.
Note that the first 6 attributes are exactly the same as for any other small business owner. Distilling is no different. The technical side (attribute 7) can be delegated to someone who do not posess the first 6 attributes.
8. Be a member of SACDI (South African Craft Distiller's Institute) to benefit from shared resources and be part of the exclusive growing craft distiiling industry in South Africa.
Product pricing, profitability and expected sales turnover:
Top craft spirits can easily achieve prices in excess of R300.00, or more, for a 750ml bottle. This is however not the norm but can definitely be achieved. Rather start working on figures around an average of R200.00 a bottle. This will clearly take you out of the "cheap mass product market" and contributes to perceived quality and value of your craft spirits. To work on a gross profit of R130.00 a bottle (after excise tax has been paid) would then be fairly conservative. This translates to gross profits of:
- R143 000.00 gross profit per month for a small 100L craft distillery setup - with a capital investment of:
less than R70 000.00 for a basic setup
less than R140 000 for a comfortable setup
less than R300 000 for a luxurious setup!
- R416 000.00 gross profit per month for a small 300L craft distillery setup.- with a capital investment of:
less than R180 000 for a basic setup
less than R 370 000.00 for a comfortable setup
Not bad at all if you consider the return on investment!
Typical layout of a small distillery (based on 100L still)
Small scale dIstilleries does not require a lot of space. The following layout gives the absolute minimum space requirements for a distillery with a 100L boiler size. Depending on the raw materials used, and method of preparation, additional space might be required for the particular raw materials. Stillage handling (waste after the distillation process) also might require additional space if, for example, the stillage is processed to be sold.
Summary of setup costs:
The following two tables will give you an idea of the costs involved to setup the equipment for a small craft distillery, as well as an indication of monthly direct costs involved.
(Note: Excise taxes has not been included simply because it will vary a lot dependig on the %abv of your spirits - off-course you may work on an budgetary estimate of around R37-00 to be on the safe side)
The costs to acquire your micro-manufacturing and distributors license might vary dramatically. If you decide to "do-it-yourself" budget for about R6000.00 or budget around R25 000.00 to work through a reputable liquor license attorney. Doing it youself will have the advantage that you become familiar with all the related legislation to find all those "loopholes" to exploit and be up to date with all the requirements.
The following setup costs are based on some very specific equipment and processes as optimised by DIstillque. Do not let the small boiler sizes and low costs fool you! The same setup can easily exceeds R1M if using other equipment and different production processes!
During the small distillery business plan workshop you will get a full rundown on setup costs and the detail thereof.
1. A 1000 bottle per month craft distillery (with 100L still): (June 2014 Costing)
2. A 3200 bottle per month craft distillery (with 300L still):
Note on above figures: These figures are failry accurate but might not include everything you may require. It all depends on your particular product, your premises, your source of raw materials and the way in which your prepare your source materials.
Craft distilling is a highly lucrative fun business for "people's" persons. If you like dealig with people, can listen well to their requirements and have an entrepreneurial spirit (no pun intended), then craft distilling will be a highly lucrative business proposition for you to consider.
As a distiller, you will work mostly behind the scenes but arrange spirit tasting evenings to gain visibility and promote your customers. Remember that every distiller is in the entertainment business. If you, through your products, entertain your customer’s customers, you will thrive.
Craft distilling - for spirited people