JP: With all craft distilleries in Canada, there’s a limit to pro- duction – which gives you a favourable pricing outside of a controlled regulatory environment. In other words, if I were to sell through a government distribution I would get very little money. In fact, I’d be losing money on every case that I make. If you want the real numbers, it’s 85 percent of the retail price. The distribution agency or government-owned liquor stores make 85 percent or 85 cents out of every dollar spent. The producer gets 15 percent or 15 cents out of every dollar. Like I said before, that’s not a lot of money. I’ve been there. “So for us, the advantage was that before the attractive licencing was in place, we were actually contracting our product out.” As craft distillers, if we sell through a privately-owned liquor store, we don’t have that restriction. We can provide a margin to the retailers and then we keep the rest to cover our higher costs: excise and sales taxes, investments and capital, rent, and labour. It’s much more expensive to produce small batch products than if you were to contract it out – in a very large commercial contract – to a bottling facility. It boils down to know how much vodka is there being sold, how much being consumed. Then, we match it up with how much can we make. For us, for example, for our business, the relationship between the two is this: there is roughly two-hundred million dollars in vodka sold in BC every year. Our licence capacity is around a million dollars. In other words, optimally operating and selling everything we make, at the very most what we’re after is half of one percent of the total market share. That’s not a big number. If, for example, you go through this exercise and you find out that you have to capture 20 to 30 percent of the market share to actually make money, then I would question whether that was a rational move. John, I think it’s time for the big introduction. Can you please tell the readers about your craft product? JP: We don’t make just one product, we make two: one from corn, one from wheat. Our corn product has a slight sweet- ness to it, so it’s a signature craft product. The reason we’re making that is because we identified a need in the market place for something different than the taste of the recog- nizable brands already on the shelf. It was a differentiation issue that we felt was important to our success. The corn vodka gives us a signature product. The second product, the wheat vodka, is a more neutral product. It appeals to a broader range of palates. It gives us balance and it’s exactly the same process and exactly the same quality.
we were in the 15 percent world.
It’s really hard to make any money on 15 percent of your retail sales, so we did well on the production side, the retail side, and we learned how to develop relationships in the industry, but the business model didn’t give us enough of a margin. It was not going to go anywhere until regulations changed in British Columbia just a couple years ago and it was possible then to have a licence to make your own product. For us, that change was most welcome. It allowed us to leverage the experience we had in contracting - our contract modelling, if you will – into making our own product and basically servicing and assisting our clients that we had a relationship with already. That’s very different than someone starting out. How have you thrived within such a complex regulatory environment?
The more neutral a product is, the easier it is to mix. This
62
SPOTLIGHT ON BUSINESS MAGAZINE • NOVEMBER 2017
Made with FlippingBook Learn more on our blog