There was a time when the distilled beverage market was almost exclusively dominated by big brands. Now, however, several micro-distilleries have brought a diverse range of flavours to the market, earning their place on the shelves of bars, restaurants and supermarkets alongside big brands.
Indeed, recent years have seen a huge rise in smaller distilleries, with the COVID-19 pandemic and subsequent lockdowns providing a springboard for a surge in entrepreneurship in the food and beverage industry. The number of UK distilleries grew by 29% in 2020 to 351 from 272 in the previous year, over three times as many as there were in 2015.
According to The Independent, there are currently over 800 distilleries in the UK making gin alone. Of those, a reported 730 are micro-businesses with 10 or fewer employees.
If you want to join this surge in UK micro-distilleries, you may wonder how you go about making and distributing your brand of spirits.
How do I start a distillery?
Starting a distillery is much like starting any other type of business. It requires a great deal of research, so that you know your market and how to adapt your product to its needs. You need to design a business plan, establish a brand, and of course, secure funding. Below is our ‘How to set up a distillery in the UK’ guide.
Step 1: Market research
Whether you want to make gin, rum, whisky or vodka, you will need to carry out a great deal of research to bring a product to market that will resonate with customers. Gin, for instance, is a quintessentially British drink and one that remains very fashionable. Nonetheless, with over 3,000 gins available in the UK, you’ll need to find a compelling hook to make your product stand out. From what kind of flavours you want to achieve to what kind of experience you want your product to represent. Find a niche and decide where your product will sit among competitors.
Tireless market research is essential. Get to know your market, try to understand the experience they want, and tailor your product to their needs. Taste is subjective, so your product needs to be associated with other qualities and experiences that make it desirable.
Step 2: Building a business plan
Now that you know the market better and have a clear idea for your product, the next step is to create a business plan.
A business plan acts as a roadmap for developing your business and building your brand, while also helping prospective stakeholders to better understand what you want to establish.
While there is no single way to put a business plan together, there are a number of free templates available online that will help you to ensure that your plan is comprehensive and includes everything that prospective investors and stakeholders need to know.
A description of your business and its USP
Evidence of thorough market research
Detailed competitor analysis
An overview of your product range
Your operational strategy
Financial analysis (startup costs, running costs, break-even analysis etc.)
Step 3: Setting up your business
Before you can begin trading you will need to decide upon a corporate structure. Do you want to be:
A sole trader?
A limited company?
Each have their own pros and cons and thorough research into each is advised.
It’s also worth looking into business insurance. A standard insurance policy may not adequately cover you for the unique risks you will face as a nascent distillery. You will be working with complex machinery and volatile compounds. As such, you may want to look into specialist business insurance that is built around the needs of your industry.
Step 4: Building a brand
The best brands know their audiences and how to market their product in a way that speaks to their needs and desires.
Remember, it’s not just enough for your gin, whiskey, rum or vodka to taste great. Your brand needs to be associated with positive experiences which suit the audience’s driving motivations such as:
An unforgettable night out with friends
An exotic holiday or trip
Entertaining guests at home
Each of these experiences speaks to consumers of different ages, social habits and disposable income.
Step 5: Funding your distillery
Now that your business is set up, you need to acquire the startup capital to lease a space, acquire equipment and materials, and get brewing.
This can be tricky in the current risk-averse climate. Banks may see distilleries as high risk and low reward due to the relatively slim profit margins (duty charges alone on spirits stand at £28.74 per litre of pure alcohol). However, under UK law, if your application is declined, they are obliged to help you find alternative funding under the Small Business Enterprise and Employment Act 2015.
Alternatively, you could try using a crowdfunding platform and win people within your target market to fund your venture. Business angels and other outside investors may also be interested in making an investment in your business.
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How much money do you need to start a distillery?
Even a micro-distillery requires significant startup capital. A high-quality still may cost anywhere from £50,000 to over £200,000. You will need to consider the cost of equipment such as a boiler, cooling system, pumps and tanks, with the installation of the same, as well as bespoke bottle moulds to make your product stand out on the shelves.
However, if you can provide accurate, realistic, and credible projections for how long it will take to recover that investment, you may well find that business angels and investors are not deterred by the substantial startup costs.
Step 6: Getting a distiller’s licence
In the UK distillers licences are distributed by HMRC, and an application can be made by downloading the DLA1 form from the government website. A licence will require your distillery plant and processes to be approved to ensure that they are conducive to public safety and quality products.
If you store your products on the same premises that you distil them, you will also need approval for this.
Step 7: Selling
There are many ways in which you can bring your products to market. You can sell directly to the public as a retailer (either online or in physical space).
If you want to sell your products in restaurants, pubs, bars, or supermarkets you will need to establish relationships with wholesalers and suppliers who act as an intermediary between you and other outlets. Keep in mind, however, that they will not actively market your products. It’s up to you to do your own brand-building.
You have a product you’re proud of and a target audience that’s primed to receive it. Now you need an infrastructure to get paid.
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We take care of the technicalities of getting paid and managing your cash flow more effectively. So you can focus on wowing people with your craft gin, rum, whisky or vodka.