I really want to create a brand of gin. I want to do it remotely, make it scalable and as a one-man band. All on a shoe-string budget. But every distillery I have contacted has laughed in my face: “It’s too hard”, “the laws are too strict”. So I was delighted to be introduced to Patrick Ryan who has done just that, but with vodka.
Ishka vodka tastes delicious and can be bought now. They are taking pre-orders for the first batch on their website. Plus I think the bottle is one of the best I’ve ever seen:
Over to Patrick.
How I Managed To Start A Vodka Brand
I (Patrick Ryan) have spent the past year creating Ishka Single Grain Russian Vodka, all while continuing to do my day job working for the Irish trade department in Russia.
In this article, I outline exactly what it takes to start a vodka brand (or any one-man/women spirits company). In an ideal situation, the supply chain will look something like this:
With me, the brand owner, looking on and managing from the side. Sam did an excellent post a while back on creating and selling a physical product.
It is a bit more complicated to start a vodka brand:
- Alcohol is very heavily regulated.
- People don’t buy alcohol online very often (yet).
However, the shift in consumer behavior in the spirits segment, towards niche brands, creates opportunities for would-be master distillers. If you can create a product with a unique taste and a brand with a great story, there is money to be made.
Sourcing the liquid
In spite of the current trend for gins and whiskeys in the UK and the US, I chose to start a vodka brand. There are several reasons for this:
- A lot of existing competitors are poorly branded and/or overpriced.
- Vodka is the easiest spirit to make, and make well. Russia is a cost-effective place to make it.
- There is an ownership opportunity for a Russian craft brand in this space.
Setting up your own distillery complete with copper pot stills, hand-bottling, labeling et al. sounds great, but is costly, time-consuming and limits scalability. The solution is pretty obvious – you outsource it. You might be shocked to hear this, but about half of the five hundred or so gin brands available in the UK today are made by just a few companies. Such as Langley Distillery.
Just because your product is outsourced, doesn’t mean it needs to be bad quality. In fact, it means the opposite as you can get the best most experienced master distillers in the world working for you.
I started by sampling the vodkas currently available in Russia and then finding out who made them. This is pretty easy as the information is usually available on the back of the bottle. If not, you can find it online. Having narrowed my search down to six manufacturers that were making the best vodka I could find, I set about contacting them.
I asked if they would be able to manufacture small volumes (1000 bottles per order to start with) under my brand. Then I did some due diligence and went with the one I felt was the best fit for us.
I visited them and detailed exactly what liquid I wanted – the highest-quality spirit and water they had, bottled at 43% ABV. This increased our cost but ensured we had a differentiated product that stood up to any of its competition.
How your product is made is an important part of your brand story. Consumers today appreciate transparency, so you have to be able to back up your claims with facts and exceptional taste.
Most suppliers do not want to do such a small batch. We knew this and came to our distiller with a decent rough draft of the product. This included a specification for packaging, a proposed sales strategy and some projections for orders.
We were then able to convince them to accept a smaller order at a price that was not very profitable for the distillery because they saw us as a valuable long-term customer. We managed to get them to buy into our dream to start a vodka brand.
Seeing as we were total novices to the spirit market, I also spoke to whiskey and rum makers to find out about their costs, which gave me a better idea of what I should be paying the suppliers.
Packaging & Branding
Sourcing your dry goods is not difficult. Once you have found suppliers, you can outsource the procurement to your distiller/bottler, meaning you don’t have to deal with these guys on a daily basis. It is, however, important to have a relationship with them so you can negotiate better pricing over time.
It is important that you have a strong story behind your brand that you can integrate into your packaging. Here is the story behind Ishka:
We want to call all the other vodka brands out on their nonsense. Because the world’s best vodka should never cost more than £25 pounds on a supermarket shelf. This is because if vodka is made properly, as it is in Russia, it cost significantly less to make than cognac whiskey or even most gins.
There are plenty of bottle manufacturers out there that stock set bottles you can buy off the shelf in small volumes (usually about 1,000 minimum). You should look to pay no more than about 50p per unit for your glassware. You can pay 10p a unit if you want, but a quality bottle for a premium product is an essential part of your value proposition. Once you scale up you will be able to drive this cost down with your supplier very effectively.
Designing your own bottle is only an option if you have at least £10,000 to spare to get the mould made. It is economical to do this once you reach scale, but not starting out.
Most of the bottle manufacturers also offer engraving, colouring, etc., which is an easy way to differentiate your packaging if your bottle isn’t overly unique.
Your choice of bottle is very important- people buy with their eyes.
This is also a very important area – it can really help your spirit to stand out, even if the bottle itself is an off-the-shelf product.
For our designs, I taught myself a bit of photoshop and drafted some ideas I had in my head. I shared them with some close friends and asked for feedback. I trawled the internet for interesting typefaces and artwork. Eventually, I had something minimal and simple I was happy with.
Once I had my photoshop mockups ready, I sent them to our label manufacturer, who adjusted them to fit our bottle. In total the first 2,000 labels cost about 40p per bottle (front, back and neck label), but a lot of that was due to one-off setup costs. For subsequent orders, the costs drop. And get even cheaper as you scale.
If you really aren’t up to it artistically, find a friend who would be willing to do the design for you. Make the brief for your designer as specific as possible to avoid wasting their time and yours. Think carefully about what values/essence you want your product to communicate and make sure this comes across in your packaging.
In the image below you can see how I’ve used our packaging to reinforce our key messages.
Be aware that you will need a barcode for each SKU (Stock Keeping Unit) you create.
This is also an important part of your product image. Most vodka brands use a screw top, so I wanted a cork stopper. The product I was trying to create needed to reflect the 115-year heritage of our partners in Russia. A cork is also a signal of quality.
I thought our low volumes would be a little problematic cost-wise. After a bit of a search, I eventually found some suppliers on Alibaba who were willing to do 3,000 – 5,000 units for about 8p a unit plus shipping. Believe it or not, this is still pretty pricey. Again, as our order sizes increase, this will come down.
Getting the product to your destination market is something you need to consider from the very beginning. Alcohol is complicated. Different markets have different labelling requirements, import restrictions, duty systems, etc.
Eventually, you want to build a network of buyers (distributors or agents) who handle all importing and distribution for you in individual markets. You give them an ex-works (from factory) price, and they do the rest, with support from you on sales and marketing strategy.
But before a distributor is willing to work with you, you need a recognisable brand. Which you have to build yourself. In alcohol, this usually means acting as the importer/distributor and finding end customers willing to stock your product. Whilst handling distribution means more work, it also means greater control over the sales and marketing process and potentially better margins.
I decided to focus on the UK initially. It’s the third-largest vodka market in the world, I know the culture and I was planning to move back from Russia anyway. Obviously, it is easier to start selling in the country where the product is made – and as you build your brand, importers from other markets will hopefully come to you. However for us, the opportunity was always going to be in export, so I made that the focus from day one.
Moving the product itself is not difficult – there are a number of large freight-forwarding companies that specialise in alcohol shipping. If you have small orders, you have to ship LCL (Less than Container Load), meaning your product will be moved between containers on its way from A to B. This increases the cost per unit and breakage risks, but it is much more economical for small volumes than FCL (Full Container Load).
Your freight forwarding partner will cover shipping insurance, movement guarantees, customs brokerage etc., meaning all you have to do is pay them and wait patiently for the goods to arrive. Our vodka travels over land from Russia, which takes about two weeks. Costs are very varied depending on distance, weight and volume. It’s a commodity business, and you have to haggle to find the best partner.
Once it arrives in the UK, you have two options – you can deliver to a regular warehouse, in which case you must pay full duty and import VAT up-front, or you can deliver to a bonded warehouse like London City Bond, who can hold your stock indefinitely in duty suspension for a monthly fee.
Duty on alcohol in the UK is huge! About £8 a bottle and so the second option is obviously much much better for your cashflow. But it does means you’ll need a WOWGR registration (see below).
Most bonded warehouses also offer fulfilment, meaning they will deliver it directly to your customers for you. This is a handy option but it doesn’t always make financial sense.
I have found it is best to collect a small amount of stock from the warehouse each month that I can hold ready for small orders. Any order over two cases I then send via the warehouse’s fulfilment solution.
Once we have established ourselves, we will sell on to distributors who handle fulfilment and may also have their own bonded warehousing.
Licences and Legal Considerations
This is booze. It is very heavily regulated. Which puts a lot of entrepreneurs off, but if you are willing to do the reading, follow the rules and be a little patient, you can get everything sorted in just a few months. Once it’s done, it’s not too much of a headache, and you can get on with the fun stuff.
Below is a list of the licences you will need in the UK…
AWRS – ‘Alcohol Wholesaler Registration Scheme’ – you have to be a registered alcohol wholesaler if you wish to sell goods to retailers (bars, restaurants, off-licences, supermarkets, etc.). The process is simple but takes a month or so to get through. Expect customs to ask for quite a lot of detail. I submitted a business plan with information on the product, market research, sales and marketing strategy. And even a three-year sales projections. I don’t really believe such detailed business plans have any value in the chaotic world of entrepreneurship, but customs don’t care about your opinion.
Duty stamps registration – since my company acts as a UK importer, I registered for the UK duty stamps scheme. This means I can order free-standing duty stamps and send them to our supplier to be affixed with each batch. Each stamp has a unique reference number. Most countries will have an equivalent scheme for control of duty payments. If you are making your product for your local market your bottler may be able to handle this.
WOWGR – ‘Warehousekeeper or Owner of Warehoused Goods Registration’ – if you want to store imported alcohol under bond (without paying duty), you will need one of these. Again, they’ll ask you for a detailed business plan, and they will want letters of intent or emails from potential buyers. If you are making your product in the UK for sale in the UK, your manufacturer may be able to store your goods on your behalf.
Personal Alcohol Licence – this is handy to have. It means you can apply for and run up to 10 pop-up events a year where you sell your product. It costs about £100 to do it through an accreditor and it means you can do promotional events that make you money.
Selling online – to sell online yourself, you may think you’ll need a premises licence. This can be costly and complicated to obtain for what is likely to be a very small percentage of your sales. The easier and smarter option is to use a fulfilment partner that has a licence. Like any other e-commerce solution, you can integrate their back-end into your payment portal and automate the online ordering process. You should only hold a little stock with these guys, as online sales aren’t a big part of the booze industry.
Sales and Marketing Strategy
Like any industry, food & drink is very competitive. Even with a product that is fairly differentiated, you’re unlikely to be moving from Zero to One, as Peter Thiel would say. That’s okay, we’re not all building billion-dollar businesses. However, you must still look to innovate your sales and marketing strategy in order to get the edge on your competitors.
Below I’ve outlined the classic sales channels and strategy that most people take when trying to start a vodka brand, followed by a couple of ways in which we are trying to innovate.
The Classic Strategy
Wholesalers and distributors.
Wholesalers are traders. They are not typically interested in helping you build your brand or promoting your product over your competitors who they also stock. If you want them to do this, there has to be something in it for them.
As a small brand, partnering with smaller wholesalers and aiming to ‘grow together’ by offering them interesting pricing, kickbacks for hitting volume targets, sales support, product exclusivity or even vested equity terms can all be options.
Once you have built out your own end customers in your launch market by doing the hard graft, you will find it much easier to get interest from wholesalers and distributors. They offer opportunity to scale as they have good networks and better economies on fulfilment.
Retail – On-Trade or Off-Trade?
In markets where you spearhead the sales yourself, you will deal with a lot of retailers. They come in two categories:
- ‘On-trade’ – bars, restaurants, nightclubs.
- ‘Off-trade’ – off-licences, online retailers, supermarkets.
Each of these channels has its advantages and disadvantages. You probably want to try both, and tailor your sales & marketing approach appropriately.
On-trade is a great place to build brand recognition, but it’s not likely to drive a lot of sales volume for you. It can do so if you pay to get on cocktail menus or manage to list your product as a house spirit, but this is not always easy or cost-effective.
The main things that bartenders look for are product quality and a unique story that they can tell their customers about. Think hard about that story, and make sure you can tell it to bartenders in a compelling way.
Events can work in bars, but it’s difficult to quantify their effect. Only offer events to bars that hit volume targets. Instead, offer bartender training and try to engage the staff with your story, encouraging them to sell it.
The off-trade is a different beast. The larger retailers typically won’t stock a product unless you can prove it is already popular. They will also charge you absurd listing fees and may insist on very unfavourable payment terms (eg. two months of credit).
Small online stockists are a good place to start – they will usually take a case if your product isn’t complete rubbish. Likewise, independent bricks & mortar retailers tend to support small, unique brands that aren’t stocked in supermarkets. You need to go out and meet them face to face, understand their business and work together to build your brand and their sales.
Think about what you can offer your customers that competitors can’t – prizes for hitting volume targets? Better product information? Better margin per unit? Superior level of service?
Innovative Approaches We Are Trying
This is a great way to do several things:
- Pre-sell your product directly to the end consumer to generate cash-flow.
- Create a loyal fan base and collect their email addresses.
- Generate free publicity and word of mouth in advance of your launch, creating interest from potential customers.
I am currently running a campaign on IndieGoGo (EDIT: this has now finished raising a total of £11,412). There are quite a few crowd-funding sites out there, but I chose IndieGoGo because they let you offer alcohol as a perk and have flexible funding. Meaning you get the money even if you don’t reach your goal.
The campaign finishes on Saturday 22nd April, so if you found this article useful and want to try some unique, great value and delicious vodka, then please head over and pick up a bottle.
UPDATE: The campaign has now finished and Ishka vodka raised £11,412.
If you want to do a crowdfunding campaign, then make sure you are offering your backers something unique. PLAN EVERYTHING IN ADVANCE (I can’t stress this enough) and use a variety of channels to promote your campaign.
It’s a good idea to leverage your loyal fan base as much as possible. They have friends and family that work in bars, restaurants and retail. They have favourite venues that they go to often. In the age of the internet, it has never been easier to reach out to them and ask for help!
If they are able to get you listings, reward them with goodies, free product, discount vouchers or other prizes. Building a strong mailing list (MailChimp is great and free to start with) is essential for this.
Partnering with companies in non-competing segments can also be a great way to build your sales. Think about sharing contacts with guys making craft beer, delivering food or doing popups, etc. If you help them out, they will return the favour.
I am only at the early stages of this journey. Reception to our product has been very positive so far and the sales are starting to come in. We have also had interest from distributors in several new markets. If you’d like to try a bottle of Ishka, take a look!
Thanks for reading, and as we say in Russia, Za Zdorovie!
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