The Economics of Small-Scale Distilleries
Distilleries differ significantly from most SMEs when it comes to economics: setting up one requires significant upfront capital, especially to produce on an industrial scale and sell directly to consumers or through on-premise and direct to consumer retailing channels. Profitable production typically doesn’t materialise for three or five years. Furthermore, warehouse costs, marketing expenses, tasting rooms fees and other overhead expenses all add up quickly.
Considerations should also be given to whether a distiller intends to pursue high-end spirits or budget friendly brands when choosing stills and allotting funds for purchases. This will impact which stills are purchased and how much is budgeted towards these purchases.
Distilleries’ startup costs will primarily consist of purchasing raw materials to produce alcohol. A top-of-the-line 40 gallon still can cost approximately $50k; more economical models, though less efficient, can be purchased for approximately one quarter of that cost, leaving money left over for other infrastructure items.
Grain/liquid and raw glass bottles typically represent the two highest costs per unit at a distillery, so careful attention to both components, in combination with overall product positioning, can help distillers control total cost of goods. It may also be worth considering designing the facility so as to minimize moving or moving around too many tools that get in the way and cause injury during distilling operations.