Thursday, December 23, 2010

Is Selling Out Selling Out?

Back in October Jonathan Shikes reported on that Stranahan's Colorado Whiskey, one of the early success stories in the micro-distillery movement, is in the process of being sold to Proximo Spirits. Proximo is a marketer of premium and super-premium spirits brands such as 1800 Tequila.

Proximo is no Diageo, but neither are they a small, local, artisan spirits producer. They are a well-heeled international marketing company with a fat portfolio of brands.

Shikes quoted an anonymous Proximo executive who said, "We have no intention of changing anything." He assured Shikes that co-founder and owner Jess Graber and head distiller Jake Norris will "keep doing what they are doing."

Officially, Stranahan's and Proximo have said nothing about a sale, but shows that Proximo has re-registered the Stranahan's trademark in Proximo's name. That certainly suggests a deal done .

The lack of comment spanning several months is itself a bad sign. Part of the idea of a small, local, artisan producer is to get close to your customers, communicate with them, and make them feel like they are part of the operation. For example, Stranahan's invites fans to help bottle the product at the distillery. Don't they owe it to those same fans to tell them who owns the company?

Obviously, things will change if the sale goes through, otherwise why do it? That same anonymous executive who said nothing will change also said they intend to help Stranahan's ramp up production. That's a change.

Stranahan's moved into a new facility 19 months ago. By June of 2010, the last time I talked to Jess Graber, they were making 12 to 18 barrels a week. "Our goal, in late 2011, is to purchase 2 new wash stills and a second spirit still from Vendome, which should boost our capacity to about 50 barrels per week," said Graber in June. "That level of production would maximize the current location. No concrete expansion plans beyond that. It will be more than enough if it all falls together." He said that by summer of 2011 they hope to be in 14 more states and start international distribution. He didn't say anything about selling a majority interest in the company, as Shikes reported.

I was talking to Jess in June of 2010 because that was when William Grant & Sons, makers of Grant’s Scotch and single malts Glenfiddich and The Balvenie, acquired the Hudson Whiskey line from Tuthilltown Spirits, a New York craft distiller. Grant bought the brand and contracted with Tuthilltown to produce it. Tuthilltown itself is still independent.

So when is selling out selling out? We won't be able to assess what Stranahan's has done until we know what it really is. Cashing out, in whole or in part, is the goal of most entrepreneurs, regardless of their platitudes about staying small and local and close to their customers. Can you be both? We'll see.


David D said...

A very interesting subject that can definitely go either way. While I'm not ever happy to see a small company five way to a larger one, I must say that at St. George/Hangar One here in the Bay Area, Proximo has only helped them grow and make even more experimental stuff. Basically Proximo bought the vodka and now helps churn it out at such a volume that Lance & Dave now have the bank to focus on other more interesting spirits. As a result we've seen the Firelit Coffee liqueur, our K&L St George Single Malt aged in apple brandy barrels, dungeness crab-infused vodka, and all kinds of other wacky fun stuff. I think the piece of mind that Proximo gives them by paying the bills, allows for more creative work that we here are really enjoying.

Delaware Phoenix said...

I think these kinds of deals show that the larger distributors/brand owner corporations control the market. Of course, with vodka some would say there's not much craft involved and so you could sell that brand (as above) to do more interesting things.

However there is the very real question of why the public purchases a vodka such as Hangar One. Do they see it as better, or do they see it as local? If the latter, will they remain loyal to that brand. Maybe they won't. Or maybe the new owner will simply find many more new customers who think they're small.

The "craft" distilling movement (not sure it's an industry) is really being supported by a small group of purchasers willing to pay higher prices for something made on a small scale instead of an industrial one. There has to be a reason for people to buy those products, and if they become made by a smaller version of Diageo, in a similar industrial manner, there might not be much point for the purchaser to pay the premium.

While experimentation is a good thing for the industry, especially everything outside of vodka, the never ending stream of special whiskey/bourbon releases celebrating this-that-and-the-other with the only goal to increase the bottom line. I guess it's to be expected that if you can get a 20% or 30% premium or a portion of the whiskey that might have been blended into the product anyway, why not? With the secondary effect that if the people willing to pay a premium are buying the special stuff they might not have enough left over to buy the local, craft stuff.

I think part of this too is that there isn;t as much brand loyalty as there might have been long ago.

Chuck Cowdery said...

Paula Moore in the Denver Business Journal last week caught a few more clues that this deal in done.
The Stranahan’s trademark was transferred to Proximo last Monday, according to a check of Colorado Secretary of State records Thursday. And on Dec. 14, Proximo acquired Stranahan’s Denver-area real estate for $3.07 million, Denver County property records show.

I can't help but think that Stranahan's silence about all this has actually devalued the business significantly. I hope Jess cashes the checks fast.