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Sunday, 30 March 2014 22:31

Coppercraft Distillery owners leverage financial backgrounds to manage startup phase

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Coppercraft Distillery founders Mark Fellwock, left, and Walter Catton, right, have invested heavily in the company’s startup phase. Coppercraft Distillery founders Mark Fellwock, left, and Walter Catton, right, have invested heavily in the company’s startup phase. PHOTO: Joe Boomgaard

Imagine setting up a manufacturing operation and not being able to ship your signature product for close to two years after it was made.

It would take laser-like fiscal discipline to manage cash flow and run operations, plus more than a bit of confidence to take that leap in the first place.

However, that’s exactly the situation the founders of Coppercraft Distillery find themselves in today. After being federally bonded in 2012 and opening a tasting room last November, the Holland Township-based company has yet to sell a single bottle of its signature bourbon, a spirit that needs to age from 18-24 months in white oak casks before it’s bottled and ready for sale.

To date, Coppercraft has made close to 200, 53-gallon barrels of bourbon that are racked and in various stages of aging. The craft distiller expects to bottle its first batch this summer at the earliest.

“We’ve made some sacrifices in some places to do it,” said co-founder Walter Catton of the company’s startup strategy. “Barrels aging for two years is a little strain on cash flow, so you really have to be in tune with every element of your business. … Being able to lay down as much inventory as we can will benefit us in the future.”

Rather than initially make a line of clear spirits such as vodka, rum and gin just “to pay the bills,” he and co-founder Mark Fellwock wanted to produce as much bourbon as possible to avoid a situation where they would let down future customers, Catton said. After competing for customers’ attention, they didn’t want to lose them just because the company had exhausted its inventory because of poor planning, he said.

“If we’re not on the shelf, you’ve now built up some animosity because I wasn’t able to meet your demands,” Catton said. “We want to make sure … that we’re been able to maintain (our presence) and execute. … We were going to invest in being able to maintain that curve with the demand of brown spirits increasing.”

Only after building up an inventory of bourbon did the company turn to making “unique and highest quality” clear spirits, including rum, gin and two types of vodka that it’s been selling at the tasting room.

Coppercraft starts distributing its clear spirits in Michigan this week and plans in the coming weeks to branch out into Colorado and the Chicago market, where it plans to debut its Applejack product, a collaboration with Fennville-based Virtue Cider.

“We want to be in key markets where we feel we could have a good presence and that will support our brand,” Fellwock said.

Shipments of bourbon should commence later this year.

While the Coppercraft tasting room will serve as a way to introduce people to the brand and its products, “our revenue stream is going to be primarily through distribution,” Catton said.

Financial foundation

As the company’s signature bourbon continues to age, it’s had to find ways to bridge the financial gap after investing heavily into Coppercraft’s startup phase.

Before Coppercraft even opened the doors to its tasting room to sell its first bottle of clear spirits, the partners realized that they needed more capacity than their initial 300-gallon still and ordered a 750-gallon still that’s being delivered in April. The additional investment pushed their upfront costs “into the seven figures,” Catton said.

But Catton and Fellwock are perhaps uniquely qualified to manage Coppercraft through that startup process.

Catton was a CPA and served in a variety of administrative and financial functions at manufacturing companies around West Michigan before becoming a partner and CFO at New Holland Brewing Co., where he was brought on to help lead a major expansion. That’s also where he met Fellwock, a Hope College graduate who worked his way through the ranks from a server to the accounting department.

“We use that as a differentiator,” Catton said of the partners’ financial backgrounds. “The key to this industry is twofold: It’s knowing how to sell a phenomenal product, first off. … The other piece is, you need to know how to be profitable. You need to understand working capital. At the end of the day, we still have to get product made and get it out the door or we’re not going to make any money. I can tell you what each bottle costs, what each raw material costs.”

They also know the circumstances involved in each barrel, from the raw material inputs down to the weather the day it was distilled, Fellwock said. A third partner, who’s based in Colorado, wrote a production tool for the company to track all the data, and the tool has proved to be in-demand from other distilleries, he said, noting the company is licensing the software to another startup in Pennsylvania.

Growing, connected industry

Nationwide, the nascent craft distilling industry — which is roughly 20 years behind the craft beer sector and 40 years behind where the wine sector is today — included about 350 companies, according to the American Craft Distillers Association (ACDA).

In Michigan, there are 32 locations licensed as small distilleries, according to December data from the Michigan Department of Licensing and Regulatory Affairs (LARA). That compares to about 110 licensed microbreweries in the state. About half of the small distilleries are located in West Michigan, including two in Kent County, three in Ottawa County and four each in Berrien County and Grand Traverse County.

Unlike in the craft brewing industry where many of the entrepreneurs were first home brewers before going into business, that’s not an option for craft distillers where it’s a federal offense to make spirits without a license. But the partners in Coppercraft have confidence in their ability to produce a high-quality product “because of the inputs going into the barrel” and their thorough testing throughout the distillation process, Catton said.

“There’s a correlation to what you have (going in) there to what the barrel is going to do over the aging period to know what you’re going to get,” he said.

For the other issues that have cropped up, luckily, the nation’s small craft distillery community is very willing to help out, he added.

Catton and Fellwock spent a lot of time researching the distillation process and immersing themselves in hands-on training. For example, Catton worked for a week at Breckenridge Distillery in Colorado as a sort of “mini-apprenticeship.” Both partners spent time at Smooth Ambler Spirits in West Virginia, where the owner walked them through their processes and opened his books for them. They also enrolled in refrigeration, plumbing and welding classes to get familiarized with all aspects of their business.

“It’s a laborious process,” Catton said.

Telling the story of each bottle

One major barrier for all craft distillers is that 68 percent of consumers said they buy only mainstream brands, an ACDA survey said.

That’s why Coppercraft is focusing on storytelling to form a connection with customers.

Unlike with mainstream brands, craft distillers have a story of what goes into each bottle and that helps shape the customer experience, Catton said.

For Coppercraft, the story hinges on the local ingredients used to make the products. The distillery worked with a Holland-area farmer to supply its red wheat and corn, and the farmer plans to plant 50 acres of rye just for the company this year.

“One of the things that we also recognize is that the rye or the corn that came from the farm … is going to be different next year. So the bourbon that we make today isn’t going to taste like the one tomorrow because there’s a temperature difference or (different precipitation),” he said. “There’ll be a story. There’ll be a point to talk to you about why it’s different. … We don’t blend to taste. We get what the grain gave us.”

The company has also focused on making an introduction of its products and sharing the story with local bar managers, chefs and restaurant owners to make sure they know what goes into each bottle, he said.

Coppercraft will also be adding microbrewing and winemaking this summer to complement its spirits and have alternatives on hand during events that are hosted at its tasting room, Catton said. The company is not allowed by law to bring outside wine and beer into its facility. Coppercraft’s beer and wine will be made to consume on site, and there are no plans to bottle and distribute either product, he said.

The partners also recognize the lessons they’ve learned from their experience in the craft brewing industry. In particular, they say they need to have a distribution plan built on “depth versus width” and to really focus on their core markets.

“For us, if we sold everything we made in Michigan, we’d do back flips home,” Catton said. “Our goal isn’t to be nationwide. If that happens someday: OK, great. But that’s not the plan that we started. We want to make sure we support our state first.”

Read 7032 times Last modified on Wednesday, 02 April 2014 13:43

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