Justin Stiefel

Craft Cocktail Sales in Tasting Rooms - when will it start?

15 posts in this topic

In looking over the local distillery landscape one thing is becoming clear to me: with 100 distilleries in WA (soon to be 100) there is not enough retail shelf space for all the Washington-made brands, and the volume of movement through bars and restaurants on the back bar won't sustain the current numbers of WA distilleries. We either remove the artificial barriers that cap the ability of distilleries to maximize multiple revenue streams or we get ready to see cheap equipment on the market in the coming years.

How do wineries and microbreweries get their financial start? They sell wine by the glass and pints of beer in their tasting rooms. Sure, they sell growlers to go and bottles to go, and they give out samples, but the highest margin item is that item you sell in the smallest quantity (5 oz glass of wine or a pint of beer). The wineries and breweries do this until they get to the point where they get demand for their products outside their tasting rooms. Then they start selling kegs.

Don't get me wrong, selling a bottle of vodka for $25 in the tasting room is great. But selling 18 cocktails made with that same 750 ml bottle at $8 per cocktail would generate $144 in revenue in the tasting room, with little additional costs involved. I say making $144 is better than $25.

Distilleries carry the same liquor insurance as wineries, breweries and bars. All people pouring and selling must have MAST 12 permits. We all abide by the same service observations, yet the distilleries are treated differently than the wineries and breweries, which puts an artificial cap on sales. Even WSLCB training states all servings are equivalent: 1.5 oz spirits = 5 oz wine = 12 oz beer. WSLCB training also says the only thing that overcomes intoxication is time, not food. So why would we need to have a commercial kitchen to sell a cocktail when no food is needed to well a glass of wine at a brewery or a 16 oz pint at a brewery. If the state says its all the same then a serving should be treated the same. We have all invested enough in our equipment to make the spirits that we shouldn't have to also invest in the equipment and staff to run a commercial kitchen just to get the right to sell a cocktail.

Several states allow for tied cocktail sales in or next to the distillery, such as New York, Chicago, Oregon, South Carolina, Colorado, Idaho, and now soon Alaska. Here is the link to the latest legislative action in Alaska which will allow distilleries up there to sell a cocktail in the tasting room in addition to giving out samples - http://akdemocrats.org/rep_tuck/2014/04/17/news-legislature-approves-craft-distillery-local-sales/.

I have started to put together a comprehensive legislative package to remove the equitable imbalances between wineries, breweries and distilleries to allow us (distilleries) full access to the market, just as the wineries and breweries enjoy. This would include limited drinks by the glass so long as the majority of the cocktail is comprised of products produced by the distillery (after all I don't want to have to start also making vermouth), samples and sales at qualified farmers markets, the ability to sell WA made wine and beer in the tasting room (not everyone likes spirits, and again, find more ways to generate revenue), sell guest spirits (bottles made by other WA distilleries), additional off-site tasting rooms just like wineries and breweries, etc.

Anyone else say its time?

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I've been wanting this from the beginning. We need equal privileges all across the board.

Alcohol is alcohol; treating spirits as though they're any different from wine or beer is just superstitious, prohibition-era nonsense.

I will admit, though, that serving actual cocktails might be be a tricky proposition to get approved. I'd expect a requirement that all alcoholic ingredients in a drink be made on the premises.

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We shouldn't limit ourselves artificially from the beginning by saying only product made on premises can be put in the cocktail. Again, I don't want to have to distill vermouth just to make a Manhattan. We should put the package together and then start gathering feedback, but not negotiate ourselves out of the room before the talks even start. Just my two cents. As I said earlier, I have started putting a comprehensive package together to get feedback.

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I'm all for this. But it might be better if we included other industries as well. Some thing like an add on privilege for wineries, breweries, and distilleries. I would even go as far to say 75% of the products served should be produced in Washington (that should be plenty to make up for mixers). Might be a good idea to get some of the independent public houses involved if possible. Technically they're considered breweries but they need the add on endorsement to sell spirits by the glass. Which includes the requirement that they serve food. I would love nothing more to roll our distillery tasting room into our brewery tasting room. Feds wouldn't have much to say about it because technically brew-pubs are allowed to retail spirits per their federal license. I know the wineries would be happy serving samples of brandy made from their wine. I'm sure if you looked hard enough you could find a brewery that could sell Malt whiskey made from their mash.

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Thanks for rallying this Justin. I fully agree with the assessment on the market. The on-premise doesn't hold enough volume for all of us, and that's where we go square up against the pay-to-play budgets of the big guys. Better to create destination distilleries offering a range of services from bottle sales to cocktails.

We're in the process of planning a cocktail bar as a way to diversify revenue streams, so now we're having to deal with the requirements for a commercial kitchen and food service. I didn't go into this business to be a restauranteur.

I would also love to sell other local spirits in my retail area.

It's time to break down some of the rules that unfairly target spirits in WA.

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So is there a certain minimum sales requirement for food in order to sell cocktails? Or is it just you have to have food to offer? If i remember my MAST training correctly, it's the greasy food that counteracts alcohol absorption. So grease on tap? j.k.

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The LCB requires a full Eight menu items, all needing to be prepared onsite. Sandwiches are a bare minimum, while lighter meat/cheese plates don't count. If you're frying anything, you need to spend some $30k on a vent hood. You're starting a restaurant with a separate liquor license at this point - very costly. There's a lot of details to it, even makes starting the distillery seem easy.

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Plus the cost of the grease traps/interceptors, the chilled food requirements (fridges/freezers), the commercial dishwasher equipment, food grade chemical cleaners, pest control, dishes, plates, extra staff and time, etc.

From the WSLCB MAST training class question 20:

"Which of the following will help an intoxicated person get sober?"

Answer is "D"...Time.

"While a number of things go into absorption only one thing works for all individuals in ridding the body of alcohol and that is time.To help ensure no ones gets intoxicated in a short amount of time and consequently sobers at a faster rate the introduction of food during the absorption/metabolizing phases can assist in these goals but only in combination with time."

And yet, the breweries and wineries have no food requirements when they serve pints or wine by the glass, even though WSLCB says only time solves intoxication, and again, since the WSLCB says 12 oz beer = 5 oz wine = 1.5 oz spirits we all could be making servings just like the breweries and wineries, with much higher margins compared to bottle sales.

As for wrapping in the wineries and breweries, etc I fear going down a rabbit hole that draws in the wine commission and beer commission. Wineries and breweries can already sell by the glass without a food requirement, it's just that we distilleries can't. Plus the issue of multiple off site tasting rooms, farmers markets, etc, all of which the breweries and wineries can take advantage of while we distilleries can't.

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It seems to me that if we look at the States that allow these type of activities and we utilize the rules and regs that they use, we should be able to make a good case for change. I also think we as an industry need to look at the 17% fee that craft distillers are exempt from. Those holding distiller/rectifier licenses should also be exempt from paying and additional 17% fee on the products they make and sell in their tasting rooms.

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It seems to me that if we look at the States that allow these type of activities and we utilize the rules and regs that they use, we should be able to make a good case for change. I also think we as an industry need to look at the 17% fee that craft distillers are exempt from. Those holding distiller/rectifier licenses should also be exempt from paying and additional 17% fee on the products they make and sell in their tasting rooms.

We are compiling the list of other states that allow cocktail sales in the tasting rooms.

As for the 17% fee issue, recall that trade off was because of the requirement to use 51% or more WA grown ingredients by craft distilleries. Non-craft distilleries have no requirement for sourcing ingredients, and waiving that fee will generate a fiscal note possibly requiring a budgetary offset in the budget. Since the new law going into effect this summer gets rid of bottle sales caps and allows non-craft distilleries to do tastings in the tasting rooms the only distinction left between craft and non-craft is the 51% home grown requirement and the nominal difference in the annual fee structure for the licenses. Waiving the 17% fee for non-craft licensees means there is no point in getting a craft license and that craft license might as well be taken off the books. My reading talking to people in Olympia is that going down that route opens up the door for using less WA grown materials, which they won't support.

And I would prefer personally not to muddy the issues again. If someone wants to put together a separate bill on the 17% fee issue be my guest. But when it comes time in Olympia to play the "you get one or the other" game, getting the in-tasting room cocktail privilege and multiple tasting rooms, farmer markets, etc equity with wineries and breweries will generate more money for the state (and we don't have to worry about budgetary offsets) and for all distilleries compared to how much the 17% fee waiver will save for the smaller number of non-craft distilleries. That's just the math.

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I seem to recall that the original intent of the 17% was specifically assessed against holders of a retail license. Since distilleries and craft distilleries were not issued retail licenses they should be exempt. (I could be wrong on the original understanding of 1183)

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It seems to me that if we look at the States that allow these type of activities and we utilize the rules and regs that they use, we should be able to make a good case for change. I also think we as an industry need to look at the 17% fee that craft distillers are exempt from. Those holding distiller/rectifier licenses should also be exempt from paying and additional 17% fee on the products they make and sell in their tasting rooms.

As a craft distillery I have always looked at that 17% waiver as one of the things that sets the craft distillery apart from the distiller/rectifier. If you were to do away with the 17% fee that the other license holders are responsible for I'd like to see a bonus replace it. I certainly wouldn't mind having a privilege like the craft breweries have like (may sell products produced by other Washington distillers and craft distillers as long as it doesn't exceed 25% of products produced in-house). Or something to that extent. It would be a boon to both the craft distiller and holders of the distiller license. As far as push back from the retailers and distributors, oh well let em complain. I'm generally disgusted with how few products I see on the liquor store shelves that are produced in Washington.

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I seem to recall that the original intent of the 17% was specifically assessed against holders of a retail license. Since distilleries and craft distilleries were not issued retail licenses they should be exempt. (I could be wrong on the original understanding of 1183)

The statutes that authorize the craft and non craft licenses state that they are subject to the same rules as retailers, thus that seems why WSLCB applied the 17% fee on distillers. That 17% fee was eliminated in the negotiations with the legislature for craft license holders two years ago.

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All for this Justin! Thank you for your diligence regarding the issue!

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So does this license require food service?

Private Club – Spirits, Beer and Wine

$720

Allows a private club to sell spirits, beer and wine by the individual glass to members, visitors and guests for on-premises consumption. Beer and/or wine may be sold either on tap or in opened bottles or cans.

Add-on Endorsements: Non-Club Event; Off-Premises Sale Wine

Anyone ever been into a VFW or Legioners club to see if they have to serve food? It wouldn't be hard to charge a $5 membership fee or something for serving privileges.

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