Dec. 8 (Bloomberg) -- Just over five years ago, Todd Leopold flew from Ann Arbor, Mich., to Atlanta to persuade high-end restaurants to carry his distillery’s all-natural spirits. His pitch: Diners willing to spend on wine can learn to care about handcrafted booze, too. After days of unfruitful meetings, Leopold chanced upon Greg Best, the head bartender of Restaurant Eugene, a five-star Atlanta eatery known for its locally sourced ingredients. Familiar with Leopold Bros.’ unusual blackberry liqueur, Best invited Leopold to the restaurant that evening. By the end of the night, Restaurant Eugene’s chef-owner had agreed to stock Leopold Bros., becoming its first out-of-state customer. “It was the first time we didn’t feel like a spotted zebra,” says Leopold.
Today, Leopold’s spirits are distributed in nine states, including California and Illinois, as well as England, Scotland, Spain, and Switzerland. Scott Leopold, Todd’s brother, says revenue will reach $1.6 million this year, up nearly double from 2009, and he estimates about $2.2 million in 2011. Todd, 40, who studied distilling in Kentucky, Germany, and Austria, handles product development; Scott, 42, a former environmental engineer for construction company Black & Veatch, focuses on operations. Following in the footsteps of boutique wineries and microbreweries, the brothers are betting consumer interest in artisanal products will sustain their handcrafted booze, which can cost twice as much as the mass-produced stuff.
The brothers attribute their success to variety and a willingness to experiment. Unlike most other craft distilleries, Leopold doesn’t limit itself to one or two types: It makes and sells 18 spirits, which range from $33 to $66, including absinthe, gin, vodka, whiskey, and fruit liqueurs. Six of its spirits, including a unique whiskey flavored with blackberries, have earned favorable mentions from GQ, Wine Enthusiast, and nine other national magazines and newspapers. Besides inventing its own spirits, Leopold Bros. scoured old distilling manuals and researched archives to produce pre-Prohibition-style concoctions as well as a rye whiskey once found in Maryland that Scott says hasn’t been produced in 50 years.
LESS LABOR, FEWER MATERIALS
Such experimentation isn’t always a hit, so the Leopolds maintain an “ultra-low overhead.” The business doesn’t pay for advertising, and each of its four employees is expected to pitch in on sales, shipping, and production. The push to keep costs low led the brothers to relocate their brewpub and distillery from Ann Arbor to Denver in 2008, where distilleries are allowed to self-distribute their products. In their new home, a 6,000-square-foot space funded with $500,000 in savings, the brothers shuttered their beer business and focused on liquor, because they found it required less labor and fewer raw materials, making it more profitable.
Leopold Bros. is benefiting from an increase in wholesalers willing to carry and promote craft distilled products. The number of micro-distilleries (defined as producing fewer than 40,000 cases per year) nationwide has grown roughly 20 percent annually over the past eight years, to 226 today, according to the American Distilling Institute. While that accounts for less than 1 percent of the $18.7 billion in liquor that the Distilled Spirits Council says was sold last year, it’s enough to interest distributors small and large. Jeff Nowicki, chief strategy officer with beverage consultancy Bump Williams Consulting, says high margins available from craft distilleries’ products motivate distributors to carry them.
Changes to state liquor laws have also helped Leopold. Over the past decade, 27 states have legalized some form of tasting in stores and distilleries, bringing the total to 43 states. Tastings help entice new customers to try pricey spirits from craft distillers, says Bill Owens, founder and president of the American Distilling Institute. Brett Pontoni, a spirits buyer for Binny’s Beverage Depot, which holds tastings in its 25 stores in the Chicago area, says revenue from Leopold and other craft distilleries has been growing in the “double digits” over the past couple of years. He adds that while the overall volume of craft sales is small, retailers get margins of roughly 25 percent vs. 10 percent or less from selling major distilleries’ brands.
With interest growing among retailers and distributors, Scott says the company has begun talks with distributors in Minnesota, Kansas, Tennessee, China, and France, with the goal of being in stores by April, and it’s aiming for New York, Texas, Massachusetts, Missouri, and Florida by October. Consultant Nowicki says patience and perseverance is what craft distilleries need to carve a niche in the highly competitive liquor market. “It’s really grassroots,” he says, referring to Leopold’s measured approach to distribution. “They’re bringing to the table a truly American entrepreneurial spirit.”
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