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The Business of Bourbon

by St. Augustine Distillery

This article originally appeared in St. Augustine Social’s February/March 2017 issue.

 

You were already successful businessmen, why open a distillery?
Philip McDaniel: In 2001, my brother and I sold our sales and marketing company, which we founded in the mid-1980’s. From 2001–2011, I was active in the community on a number of issues including recreation as well as arts and culture. Helping to research and shape the management structure of the Amphitheatre was a truly gratifying accomplishment. But after a decade of non-profit work, I was ready to return to the private sector. Yet, I still wanted to help build our community. The distillery project offered a unique opportunity to create, as I am so fond of saying, an “intersection of social good and economic development.” The idea of helping revitalize Lincolnville, create jobs, buy from local farms, restore one of the coolest buildings in the city and on top of all that, bring together a world-class team of distillers to help us make the best craft spirits in the world, inspired us to fully commit the project. What could be more exciting?

Mike Diaz: First and foremost, we look for good, solid business opportunities. Phil showed me the growth trends of craft wineries and breweries in the USA, and we saw the trend lines emerging for distilleries in just the same manner, only about 20 years behind the wineries and 10 years behind the breweries. We felt that if we could make an excellent product and have a chance to offer samples to people coming on tours, that we could have a successful business. Finally, I feel strongly that you invest in management, and I felt that Phil McDaniel would move heaven and earth to ensure the enterprise was successful.

 

What was your original vision? Did you set out to create a tourist destination just for St. Augustine or really make a name for yourself in the small-batch spirits industry?
MD: Our vision was to create a business that could produce excellent spirits from Florida agriculture, and utilize the tourism of St. Augustine to obtain consumer trial and grow a brand. At the same time, we felt that we could promote Florida agriculture, create jobs, and be a positive force in the community. The most difficult and expensive process in growing a consumer goods product is obtaining consumer trial.  In our case, we planned to offer free tours, and use these tours to showcase our products. We have been fortunate to partner with Old Town Trolleys and the Red Trains who deliver a tremendous number of visitors to us, as well as our hotel and lodging partners who have also been very instrumental in delivering guests.

PM: Both. We wanted to create an immersive guest experience and at the same time, a complete line of world-class spirits. Since 2005, craft spirits have been undergoing a nationwide renaissance. In 2011, when we started the project, nobody in Florida was making a complete portfolio of spirits. There was one corn whiskey distiller and a few guys making rum. We saw an opportunity to be first to market and the first to do it right. In the process, we had to learn how to make the best possible spirits we could, using “local” agriculture. As part of our commitment to consumer education, we wanted to share our experience and newfound knowledge with the public. The tour then provided the perfect vehicle to share what we were learning with our guest; equally important, the tour experience would help us create consumer trial. We knew the Winery (San Sebastian) had pioneered and mastered that piece. So we thought if by making a “great guest experience”, with a balance of education and entertainment, we hoped to create a loyal following of consumers who would continue to enjoy and purchase our spirits in their home towns.

 

How has the business evolved from your original vision?
PM: It’s been a remarkable three years. The spirits industry is extremely competitive and forces small producers like us to innovate. We can’t compete on price, so we have to do things that the big boys can’t. We founded the company to be a world-class distillery of brown spirits, particularly Bourbon Whiskey. In December of 2013, we started laying down our first barrels of bourbon. The challenge with bourbon is that if you are committed to being transparent, distilling it yourselves, and have it be an excellent spirit, you have invest a lot of time and money. Then you have wait years before it can be bottled and sold. Sadly, about 50% of “craft whiskey” brands today in the US are simply clever, re-packaged commercially produced spirits (made in KY) that are purchased and re-bottled to look like craft. That was not who we are as people, nor could we feel good about letting the first whiskies in Florida be made in another state and posed as Florida spirits. To keep to our mission as well as keep our doors open until the bourbon was ready, we chose to distill clear spirits that we could get to market quickly. Evolution, adaptation, and change are things we do daily in order to compete and grow the business. Our distilling team loves to pioneer and develop new spirits every year; our tour guides love to tell our story. In a sense, we are writing new chapters of history here at the Distillery. This is particularly rewarding to us because we all call St. Augustine, the nation’s oldest city, home.

MD: I would say that we totally underestimated the cost, time, and complexity of selling through the wholesale channel. We have spent a tremendous amount of time and money on the offsite sales area. Additionally, we have spent significant time and money on the legislative changes that have affected the business.

 

Did you run into unforeseen issues launching or running a distillery?
PM: Yes. We sometimes think we should write a book about what it took to get the Distillery up and running before we forget everything we did. We had to find and secure the Ice Plant (as a building) to call home. It took two years to lease the building and convince the two separate families who owned the building to sell it to us. Then we realized we could not operate a restaurant and distillery under the same ownership, so we had to ask the city and county to let us split the building in two in order to create two different addresses so we could then realize the full dream of having a distillery, gift shop and the city’s first craft cocktail restaurant all under one roof. We had to get the state law changed twice to let us sell our spirits to the public (the winery was doing it for years, so who knew that would even be a problem?). So add being a full-time lobbyist for three years to the list of challenges. So yeah, we’ve had an issue or two, that we had to overcome. But that’s what businesses have to do every day to succeed. It’s also what makes it rewarding.

MD: Foremost among the unforeseen challenges was the severe restrictiveness of Florida law. We toured distilleries in Washington, Oregon, Colorado, Kentucky, and other states prior to building our business plan, but were unpleasantly surprised to discover how restrictive Florida’s three-tier system is compared to the more visionary states. Also, the efforts required to support off-site sales have been tremendously challenging.

 

How many employees does the St. Augustine Distillery employ?
PM: 42. We started with about 10 people when we opened our doors three years ago. Without question, it is our staff that make the company so successful.

 

Partners can be complicated, what’s the dynamic like between you both?
MD: Fortunately, Phil and I compliment each other very well. We have a deep mutual respect for each other, and share our core values. I would call our dynamic highly collaborative, highly communicative, and solution-oriented. I think we both want to leave our community better than when we found it, and a lot of our discussions and decisions reflect that commitment.

PM: Mike is an amazing individual, on many levels. I’m so lucky to have had him become a partner and co-founder. He has a brilliant business and finance mind, with vast experience in growing and operating companies. Overlay that with my 30 years of sales, marketing and product development and we compliment one another rather nicely. We both are at a stage in our lives where we want to “do good” and leave our community better than we found it. I think we both agree that our collective passion defined the company’s culture and soul.

 

What is a day-in-the-life like for you?
PM: A few words that come to mind are: busy, vibrant, challenging, and stimulating. We operate in an extremely exciting and dynamic work environment. Day in and day out, 365 days a year, we operate three separate and different businesses – the tour, the gift shop, and a rapidly growing wholesale business. We host approximately 150,000 visitors each year, manage hundreds of unique retail products, and are now selling our spirits and mixers in three states. I go to bed exhausted, but I wake up with a dozen new ideas on how to build and improve the business.

MD: No day is ever the same. It could be meetings around production levels, reviewing marketing plans, evaluating new label designs, discussions on new gift shop products, or visiting customers, as well as a number of other things.  Fortunately, we are building a tremendous team at the Distillery, and we have capable people who can jump in and handle all sorts of opportunities.

 

Where do you go from here? Can you tell us what’s coming next down the pipeline for the St. Augustine Distillery?
PM: We will continue to develop and innovate new products (and consumer services) that will help us fulfill our company’s mission: To make and present the world’s finest craft spirits using local and regional ingredients. As we increase our understanding and knowledge of distilling, blending and finishing our spirits, we will share those products and that knowledge as often as we can with our industry partners and loyal consumers.

MD: We challenge ourselves with four things: how do we make our products better, how can we make our employees jobs better, how can we be more sustainable in our business practices, and how can we be a better community partner? You will see us continually refine our products…[and] you will also see us investing in sustainable energy for our facility as well as continuing to increase our community involvement in Florida agriculture, the arts, and Lincolnville.