Last week I had the opportunity to tag along with Bill and Nancy from the American Distilling Institute when they visited Lee Pascelli of Valley Spirits in Modesto, CA. Lee produces Cold House Vodka, a local premium vodka, along with a white whiskey (Lee calls it a moonshine), some flavored vodkas, and hopefully some whiskies and bourbons. We wanted to check out Lee’s operation and see if there was an opportunity for us to help him with some aspect of marketing, organization or expertise.
What I got instead was an amazing inside look into the life of a one-man-show entrepreneur/distiller. I’ve heard people describe this career choice as a ‘labor of love.’ After a couple of hours with Lee, there’s no way I can disagree with that. It’s an endeavor that can take more than $250K to get started, not including the money it takes to pay the bills while you’re struggling to get off the ground. It’s also an industry in which the big players have tremendous advantages, including:
1) Economics of scale — Everything costs less if you buy in bigger quantities. Lee talked of buying more glass bottles, more caps, more neutral grain spirits, distilling bigger batches of vodka. Big distilleries will use continuous stills, which can continuously distill alcohol. Smaller distilleries like Lee will use pot stills, which can only run 1 batch at a time. This all combines to explain why a big distillery can charge 2-3 times less for a bottle of vodka than Lee can. That makes for a next-to-impossible sell job…imagine trying to get your vodka sold in at Safeway at $15/bottle when Grey Goose costs $7-8/bottle.
2) Resources — An automated bottling line is a standard piece of equipment for a big distillery. For Lee, it’s a luxury. Instead, he hand-bottles and individually labels each bottle of Cold House Vodka that he produces. That takes time; time that isn’t spent producing or selling his product. An administrative assistant? Forget about it. Lee takes care of answering the phones, answering emails, scheduling appointments, keeping track of expenses and finances, paying the bills, etc., etc. All the small things that we’re all used to having other people take care of for us.
3) Relationships — On one hand, big distilleries will have relationships with big distributors, who themselves will have relationships with big retail chains, bars, clubs and restaurants. In that sense, the job is half done once your product is ready — you turn on a switch and your products are on the shelf. On the other hand, a small distillery like Lee can’t afford to give away 40-50% of his gross sales to a distributor. Instead, he has a license that allows him to sell directly to off-premise and on-premise establishments. So FIVE days out of the week, Lee is out meeting with the owners of clubs, bars and grocery stores. The other 2 days, often Saturday and Sunday, are spent distilling his vodka.
The big bars and clubs also expect free product samples, help planning promotional events, and an investment of marketing dollars. Lee can’t do all that. But he gives away half of the vodka he produces as free samples to consumers or decision-makers at tasting events or meetings, just to get his product out there and to try to keep up with the big boys.
Also, being without a distributor also means that Lee has to deliver his product himself. Not fun at $4.20/gallon for gas.
So what does Lee have going for him?
1) Timing — He’s in the game during a great time for spirits. The micro-distilling movement is in full force. Consumers also want to know where their spirits are coming from, how they’re being made, and they want to meet the people who are making them. The same way they want artisanal cheeses, wines, beers, and organic produce, they also want handcrafted spirits and cocktails. They want slow food. They want American. They want local. Lee is all those things.
2) Versatility — We’re entering an age of spirits enlightenment. America isn’t all about bourbon, single malts and blended Scotch anymore. Rye is back. Gins, including genever, are plentiful. Japanese whisky is on the scene. Other countries are jumping up and down for attention. Consumers want white unaged whiskey too. They want experimentation with all aspects of wood maturation. Vermouth and herbal liqueurs are gaining in popularity. Tequilas and rums are more refined than ever. Consumers even want pisco, cachaca, grappa, Italian amari, applejack, calvados, armagnac, etc. The list goes on and one. These bigger distilleries don’t have the leeway to experiment with all these different types of spirits. Micro-distilleries can, and many have. They’re the ones leading the charge. In my opinion, the bigger distilleries are just along for the ride.
3) Labor of Love — Back to the labor of love thing, key word labor. To me, that word means blood, sweat and tears. It also represents the sacrifice that a mother will go through to carry, birth, nurture, raise and love her child. Valley Spirits is Lee’s child, in a sense. Spend an hour with him and you will feel that. Nobody how that child turns out, it will be his and he will be proud of it. Plus, he is in the minority of people who have actually found his or her passion and had the courage to throw all caution to the wind to pursue. That’s more than I can say for some people who are sick to their stomach, sitting behind a computer, toiling away at a 9-to-5 job that they can’t stand. Lee’s tried it, he’s gone after it. I hope I can say the same for myself when all is said and done!
