The Booming Business of Craft Cocktails

Harvard Business Review

An interview with Thomas Mooney, co-owner and CEO of House Spirits Distillery.

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SARAH GREEN: Welcome to the HBR IdeaCast from Harvard Business Review. I'm Sarah Green. I'm talking today with Thomas Mooney, co-owner and CEO of House Spirits Distillery, one of America's leading craft distillers. Tom, thank you so much for joining us today.

THOMAS MOONEY: Thank you for having me.

SARAH GREEN: I'd like to just start with, if people aren't familiar with house spirits, what's the 30 second background on the company and where you are right now?

THOMAS MOONEY: Absolutely. We're a Portland, Oregon-based distillery. We're one of the pioneers of what has become America's craft distilling resurgence, and really best known for Aviation American Gin, which is our flagship brand and now distributed nationally.

SARAH GREEN: So it's interesting to me that you are really part of and in fact in the vanguard of this whole craft distilling, craft brewing, craft everything movement. It's really part of the zeitgeist. One of my questions just to start with is, if trends change are you worried at all that you're a too much part of the zeitgeist. What happens if tomorrow people aren't as into that kind of thing?

THOMAS MOONEY: We don't really worry about that at all. Cocktails are something that has always been there. They're a part of this country's cultural heritage and something that now has been exported around the world. What really has happened in the last decade is we've rediscovered something that was always there. So it's not a gimmick.

It's not an appletini. This is really part of who we are. And it had been lost and has now fortunately been rediscovered and has really gone out to the mainstream. This is no longer about Drink or PDT or Milk and Honey, some of my favorite bars in the world. But this is about the menus of Darden restaurants and Landry's and Brinkers.

And it has really become a part of how we enjoy going out.

SARAH GREEN: So that raises an interesting question for me, which is, as a kind of a cocktail snob myself, one of the things I enjoy is feeling like I found something that no one else has found. When I find a new gin or I find a new whiskey, I kind of like showing it off to all my friends and having them be amazed that I found something exclusive. I know that you guys have some pretty ambitious plans for growth.

How do you balance people's desire to feel special and exclusive with your desire to frankly grow your company?

THOMAS MOONEY: There is something magical about discovering something, but we're in no danger of becoming commonplace. Even as one of the leaders in the craft distilling movement, our goal this year is to be somewhere around 30,000 cases in volume. That's in an industry that does around 200 million cases.

So we're small. And if we keep growing like crazy, we're still small. And we're still going to be a discovery. And we're still going to be something special that even you loving cocktails would probably enjoy every day.

SARAH GREEN: So I think there's also an interesting question there about the authenticity factor, because, for instance, the look of Aviation Gin is beautiful. It's a really beautiful bottle, and it has this kind of 1930s almost art deco kind of feel to it. How do you balance that desire for hearkening back to kind of a prohibition era look with the desire to not really veer into camp?

It's not a costume. It's not a bartender with a mustache and suspenders. So how do you balance that and still feel authentic to people?

THOMAS MOONEY: What we've always aspired to be is relevant. And I agree, relevance isn't a period piece and a handlebar mustache. The reason we got into this business and created Aviation is that we felt there was no such thing as the definitive American cocktail gin, which was somewhat ironic, since cocktails have been such a big part of our history. But the history of gin and the history of cocktails intersected, but didn't really develop together.

So I think our authenticity and our relevance begins with the product itself, which we designed to be very different from London dry gins, very different from what was available in the market and very much what people wanted based on our habits. And that isn't going to change.

SARAH GREEN: So I'm glad you mentioned that aspect of it, because I wanted to get into innovation and product innovation, because I think that one of the interesting things here is that you're this flagship brand of gin. Gin is an old product. At the same time, you're trying to do something new with it. But it's interesting, because you don't want to be so traditional that it's your grandfather's gin.

At the same time, you don't want to do Bud Lite Lime-A-Rita here. So how did you think about that, and how did you try to develop something that felt like it was rooted in history but also was something new?

THOMAS MOONEY: Aviation was the first partnership between a bartender and a distiller in American history, literally. And so because of that, it is what it is. It was an attempt to fill a need that was there and to solve a problem that was there.

SARAH GREEN: What was the problem?

THOMAS MOONEY: The problem is that what most people think of as gin, which is the London dry style of gin, has a history that has a lot more to do with the British empire and needing to drink quinine because of malaria and wanting to chase that down with something that at least made that experience a little better. We don't have a lot of malaria problems in Portland, Oregon. So we didn't feel that was necessary.

As the American palate evolved and particularly as cocktails developed, people started drinking different things. 80% of the cocktails that people order are fruit-based. Most of those are citrus-based. There was just a basic food reality that it a juniper forward gin doesn't mix very nicely with citrus.

So the world had lots of great gins, many of which I love. But the world really didn't have the definitive cocktail gin in the sense that it would be not just very mixable with citrus flavors, but actually work much better and enhance those fruit flavors. And that's what we wanted to do.

We went through 35 different batches. We thought the answer might be to use less juniper. We were wrong. The answer was actually to use more of the other botanicals and then creating a more complex flavor that let all of these different flavors shine through. We ended up creating something very balanced that mixes really nicely, and again, that is ideal for the way we like to enjoy cocktails.

SARAH GREEN: Interesting. So I think there's maybe traditional un-HBR approach to innovation would be to do something like assume that you know you needed to use less juniper and then just go with that. But it sounds like you actually did a fair amount of prototyping and I hope a fair amount of taste testing.

THOMAS MOONEY: Yes. In fact, we called our gin Aviation after the aviation cocktail, that is a classic cocktail that is steeped in both New York and London cocktail history. You may have enjoyed one at some point. And we did so because the aviation is an extraordinarily complex cocktail in terms of all the flavors that are in it-- creme de violette, maraschino liqueur, citrus, gin.

And so we figured if our goal is to develop the most mixable gin that works the best with fruit flavors, that is the torture test. If it works in that cocktail, then it works in any fruit-based application. That was about the extent of the board room-style thinking. The rest was going down to the floor and trying different batches.

And yes, all those 35 batches we came back and tasted them in an aviation and in other staple cocktails until we decided was what we felt that right botanical build would be and what the right proof for it would be, and there was born Aviation Gin. And the gin didn't have a name. We ended up giving it that name because that cocktail was so much our inspiration throughout the development process.

SARAH GREEN: So I ask a question about the competitive landscape, because I think earlier this week in Slate I was reading that there's been over 200 new craft distilleries in recent years, I think, springing up all over the United States. At the same time, a lot of the really big players, the people behind Maker's Mark, Woodford Reserve, some of these other really big companies, are starting to produce their own imitation craft sub-brands.

And so if you are just walking into a liquor store, you might not know that the bottle you're looking at is actually made by a mega company that's owned in Europe or something. So when you look at that kind of landscape as one of the early forerunners of the movement, how do you see yourself and the company being able to maintain a distinctiveness as the field gets more crowded?

THOMAS MOONEY: There were 24 distilleries in the US the year before we started operating. There were more than 50 new ones that opened up last year. So there's no doubt that the number has grown and that the trend is accelerating. I would answer in two ways.

One is, depending on what number you look at, there are probably around 300 craft distilleries today. Is that a lot? Well, there were 5,000 distilleries in the US at the end of the 19th century. So it took Prohibition to make that go away, and maybe we're just starting to work our way back to historically normal numbers. There are over 2,300 craft breweries.

There are over 7,200 small wineries. So 300 is not a big number. And there are breweries and wineries that have done perfectly well in an environment where they have thousands of peers in that craft community. So we don't worry about that.

And in the end, the distinctiveness for us is around what we make and what those brands stand for and what they mean for the people who enjoy them. And so again, going back to Aviation as an example, it is a very purposeful brand. It does something that other gins don't do. And it does it really well.

And we were fortunate to get a 97 point rating from Wine Enthusiast. They rated it the best gin in the world, essentially. And so that's distinctiveness. If anything, far from being concerned about the rise of this craft movement and it getting crowded, I think it helps us all.

In beer, craft is now about 10% of industry revenue. In spirits, it's still far less than 1%. So I think the more of us there are doing good things, helping each other, I think the better for everybody. It will be the proverbial rising tide that lifts all of us. And we're going to give consumers something they love.

SARAH GREEN: So do you have plans to expand beyond the United States?

THOMAS MOONEY: We do and we have. We do 20% of our business now in Europe, mostly in Spain, which is actually one of the three largest gin markets in the world for fascinating reasons.

SARAH GREEN: Explain the reasons. I'm just really surprised.

THOMAS MOONEY: Spain is in love with gin and tonics. It's not even gin specifically. It's gin and tonics. And so just about any self-respecting restaurant and bar in Spain will have a menu of dozens and dozens of gin and tonics.

And they have really turned pairing specific gins to specific tonics with the right what they call the perfect serve, the right combination of other garnishments. They've really embraced it.

SARAH GREEN: That's really interesting. I have to get over to Spain.

THOMAS MOONEY: So there are many good reason to go to Spain.

SARAH GREEN: To wrap up, where do you hope to take the company next? What's ahead for you guys?

THOMAS MOONEY: We see tremendous upside. And again, the cocktail culture that is fueling a lot of the growth in gin and a lot of our success isn't going anywhere. Actually, as of last year, I read in the Mintel report last week, cocktails became the number one word on restaurant drinks menus for the first time. They displaced margaritas. And that is now we just the use of the term and therefore the importance of cocktails in menus just across the hospitality industry has grown by about 55% in the last three years.

And if you want to know what the future brings, look at what younger people are doing today. And it turns out millennials are really driving that. 48% of millenials have had a cocktail in the last month. That's about twice the rate for the population at large. And they go out more.

And so that's going to continue, and that will continue to fuel both our Aviation American gin growth and the growth of our other brands. And I think for us it's really just about not forgetting our roots. We need to always be who we have been in terms of our values. And we need to make sure that as we make more small batches of Aviation-- and trust me, they're small, 92 cases a batch-- that every one is as good as the best one we've ever made, and consistent over time. And that really will get us from here to there.

So we're very excited about the future. And we believe that we can grow to become the largest craft distillery in the country.

SARAH GREEN: And that's not an oxymoron.

THOMAS MOONEY: No, just ask Jim Cooke. Jim actually really inspired me to get into this business. He and I spoke a few years ago, and he told me about the landscape when he was creating Boston Beer and what he learned and then what worked for him. And he actually pointed me to craft spirits as a place where he saw the possibility for the same kind of growth overall, but also the opportunity for a very well-run company that makes great products and is honest to have the kind of success that he and others have had.

So yeah, I wouldn't mind being the Jim of craft spirits.

SARAH GREEN: So Tom, it sounds like you see a lot of headroom for growth here.

THOMAS MOONEY: Absolutely. The spirits industry as a whole is growing. year on year. But within gin in particular, there's a tremendous opportunity. Gin was one by far the largest clear spirits in the spirits industry. And over the last decades, it lost that position to vodka, to the extent that today only 13% of adult consumers drink gin at all, and only 5% will name gin as their preferred spirit.

So there's a ton of upside. And when you look at the gin category as it exists, the growth is more than 100% coming from the brands that offer these new expressions of gin that are more balanced, that are more approachable brands like Aviation. So we're exactly in the right place in a category that is working its way back to its rightful place.

SARAH GREEN: Tom, thanks again so much for joining us today.

THOMAS MOONEY: Thank you.

SARAH GREEN: That was Tom Mooney, the co-owner and CEO of House Spirits Distillery. For more, visit hbr.org.

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