VOL. 40 | NO. 3 | Friday, January 15, 2016
From DNA lab to whiskey distiller: A well-laid plan gains steam
By Jeannie Naujeck
Bruce Boeko, who is transitioning from DNA lab manager to whiskey distiller, has had to get creative with his business plan to overcome the “very tough” economics of whiskey making. -- Lyle Graves | The Ledger
When Bruce Boeko’s company shut down its Nashville operations, he could have parlayed his experience into a similar position elsewhere.
He’d been successful in a small and specialized industry, rising in 20 years from scientist to manager of a DNA laboratory that conducted forensic analysis of biological samples for agencies like the Tennessee Bureau of Investigation. It was work he enjoyed in a field he loved.
But instead of taking a new job and coasting toward retirement, Boeko made a big bet on a long game.
After the lab shut down, he got his MBA and laid the groundwork to start a distillery, newly allowed under Tennessee law. And now, three years later, as whiskey and other spirits start flowing at Nashville Craft, Boeko will see if his bet on the growing market for premium liquors pays off.
“This is a trend that’s been building around the country so it was a relatively new opportunity that also has some additional barriers to entry compared with other businesses,” Boeko says.
“I loved what I did and the clients I worked with – the TBI and other state crime labs, the federal government. I could’ve continued on that path and it would have been a satisfying one.
“But being presented with the opportunity to relocate or do something else created the conditions necessary for me to think about something different. And I am excited about it, and confident, and really looking forward to this being successful.”
For Boeko, who has gotten his greatest career satisfaction from hands-on work with a tangible result, Nashville Craft is a chance to build something on his own, investing only his own money and taking on all the risk that entails.
It’s also an opportunity to serve a broader cause – supporting American manufacturing and agriculture by partnering with local suppliers and vendors. Almost every piece of equipment at Nashville Craft was made in the region – the copper still was produced by 100-year-old Vendome Copper & Brass Works of Louisville – and all business services are provided locally.
Boeko also is partnering with local farmers to purchase natural ingredients and send back the liquor byproducts for use as feed and fertilizer.
Distilling whiskey is not a get-rich-quick scheme. Nashville Craft’s operation has the capacity to produce 10,000 to 12,000 cases per year. While the still will start producing clear liquors in the next couple of weeks, the whiskey will need several years to age before it is ready.
If you go
Nashville Craft Distillery is located at 514 Hagan Street, across from the old Greer Stadium. It will produce whiskey, brandy and other spirits, which customers can sample and purchase in the tasting room and retail shop. Information is at facebook.com/nashvillecraft.
“Whiskey economics are very tough,” Boeko explains. “You have to spend a lot of money upfront and you can’t sell anything for a very long time while the product ages.”
They’re tough in another way, too: It’s a relatively low-margin business due to the disproportionate tax rate of spirits compared to beer and wine, and the cut taken by middlemen. Generally, a distillery sees only 47.5 percent of the gross revenue for every bottle sold outside its own tasting room and retail shop.
Because of the long lead time between when a whiskey is produced and when it is ready to be consumed, small distilleries often package finished whiskey from another supplier to start making money while they wait for their own to age. Others sell whiskey that is not yet mature.
Nashville Craft isn’t doing either.
Along with whiskey, it will produce clear spirits that don’t require aging, such as vodka and gin, and non-traditional alcoholic products that will be available to customers in its tasting and retail room across from Greer Stadium in the hot Wedgewood-Houston neighborhood.
It’s in a development that also includes the Zeitgeist and David Lusk galleries and Dozen Bakery, and is a stone’s throw away from the newest location of Corsair Distillery, the craft distiller that put Nashville on the map for high-end experimental flavored whiskies, spiced rums and artisanal gins.
To spread risk and create another revenue stream, Nashville Craft will also produce liquors, including vodka, gin, rum, brandy, whiskey and rum, for Fugitives, a new label launched by partners Jim Massey and Darren Briggs that is named after the Fugitive Agrarians, a group of post-World War I Vanderbilt intellectuals who extolled independence and self-reliance.
That will allow Massey to focus his resources on building another distillery, Cane Land Distilling Company, in Baton Rouge, La., in partnership with one of that state’s last family-run farms and sugar mills.
“The economics of opening a small distillery are pretty daunting, so bringing Fugitives together with Nashville Craft made more sense for all of us,” Massey says. “We see Nashville Craft as a brother in the process. Similar to two bands going into the same studio, we each have our own songs to sing and will only be limited by our own creativity.”
Boeko can’t pinpoint the exact moment he decided to become a whiskey distiller. He had the taste and the interest, having been a beer homebrewer for 25 years (the first 70 percent of the distilling process is similar to brewing beer). But the opportunity to make it his second act came at a fortuitous time.
He got word at the end of 2009 that the lab he managed would be shut down and operations consolidated in Dallas. While he would remain with the company another year and a-half winding down operations, laws affecting the liquor business in Tennessee had just changed.
Prior to 2009, distilling of spirits was only legal in counties where there was already a distiller operating. In 2009, lawmakers opened up the rest of the state to small distillers eager to capitalize on the craft beverage trend that had started with small wineries, expanded to micro brewing and then hit the liquor segment.
“The potential market for Tennessee whiskey and Tennessee spirits in general is quite astounding,” explains Massey, who was instrumental in passing the bill.
“The vast majority of these sales belong to a handful of international companies, but the highest growth in most segments is in the premium and super-premium segments, which is exactly where craft brands can flourish.”
Whiskey is the third most consumed liquor worldwide. The U.S. exported $1.2 billion worth of whiskey in 2014, accounting for more than two-thirds of all exported liquors, including vodka, gin, tequila, rum and others, according to the Distilled Spirits Council of the United States. Gross sales of American whiskey, the vast majority of it coming from Tennessee, surpassed $2.7 billion that year.
Most of that whiskey is supplied by commercial distilleries. The four largest, including Brown-Forman and Beam Suntory, control almost half the market with whiskies like Jack Daniel’s, Crown Royal, Fireball Cinnamon Whiskey, Jim Beam, and Jameson, the best-selling brands last year, according to IBISWorld’s Whiskey & Bourbon Distilleries market research report.
That still leaves a considerable market for craft distilleries, which are expected to drive sales growth over the next five to ten years on the strength of consumer trends toward premium liquors and whiskey-based cocktails.
Craft spirits are definitely having a moment, in tandem with the trend toward locally-sourced food in restaurants and markets. The American Craft Spirits Association estimates there are more than 800 craft distilleries today, up from a few dozen just 10 years ago.
But how long will that moment last? For guidance, Massey looks to the beer industry, where craft beers currently claim over a quarter of the market.
“In the beer realm, the artisan brands have exceeded all expectations of the pundits on Wall Street and have grabbed increasing amounts of market share from the corporate brands,” Massey explains.
“The simple fact is that more and more people care about where their food and beverages come from and increasingly identify with the ‘maker’ mentality. There is no reason we shouldn’t see this continue to happen in the spirits business, which should result in demand growth for authentic craft brands, with ample space for legitimate new entrants.”
Authenticity is what Boeko is after, as well. He’s determined to maintain the integrity of Nashville Craft-branded spirits by using natural ingredients purchased from local farmers. That, he says, will help the brand find its niche.
“My interest in making something in a craft distillery setting was not only the small business aspect, but in trying to reverse some of the homogeneity of businesses across the country,” Boeko says.
“If you use local resources, you become unique because it’s a natural consequence that you are not making the same kind of thing that someone in Arizona or New York would.
“I don’t want to be too dogmatic about it, but if we buy and use things that are produced locally, then that supports the local economy and it has a multiplier effect.
“I think that’s better for everybody and that applies to everything.”