Third party distillers ‘instrumental’ in craft spirits explosion

23rd June, 2017 by Tom Bruce-Gardyne

For all the talk of small-batch craft spirits, it’s an open secret that many companies buy in their base liquid from big, third-party distillers. The Spirits Business speaks to the both the big guns and the artisan labels to find out if the practice is coming out into the open.

It’s an open secret that many spirits companies buy in their base spirits from third-party distillers

“People don’t want to be misled, nor do they want it rubbed in their face that they are paying for a pretty label and a good yarn as much as the whiskey,” wrote Jason Cohen in Cincinnati Magazine last August.

The surge in craft spirits has brought the debate about style versus substance to the fore, particularly in the US, where it reached the courts in 2015 when the Iowa-based Templeton Rye was busted for deceptive marketing. It transpired that Templeton was being distilled in Indiana – a fact now mentioned on the rear label. The producer also agreed to drop references to ‘small-batch’ and ‘Prohibition- era recipe’ and to pay compensation at US$6 a pop to any previous consumer with proof of purchase.

The Templeton case highlights the role of third-party distillers such as Midwest Grain Products (MGP), which supplies the brand and many others from its giant ex-Seagram distillery in Lawrenceburg, Indiana. “It’s interesting that it’s gotten so much attention recently, when the whole concept of sourced alcohol has been an underpinning of different beverage categories forever,” says MGP’s president and CEO, Gus Griffin.

Barrels at MGP

Without the likes of MGP, it is hard to imagine that craft spirits would have exploded to the same extent in America. “I think we’ve been instrumental in them coming to market quickly,” says Griffin. “It has allowed more brand investment, which has created more interest, and has really helped propel the growth of the category.” Likewise, the UK’s love of artisan gins would never have flourished to the same extent without big third-party operators like Thames Distillers, run by Charles Maxwell.

“Yeah, it’s like a mutually beneficial club,” says Maxwell. “If you don’t have contract producers, anybody who wants to do it has to go the hard way round. They’ve got to build their own distillery, buy their own distilling kit, and get the necessary approvals from HMRC, all of which is time-consuming and expensive. It has let smaller players into the market who can then concentrate their limited resources in selling and marketing the gin.”

In the past, the big distillers may have felt the barriers to entry cocooned them from fresh competition, and if that fostered complacency it may explain why the gin category grew stale. The exception is William Grant & Sons, whose Scottish gin brand, Hendrick’s, “blew the doors off the old stable”, says Maxwell.

As for the gins he helps create, “each one is totally bespoke,” he insists. “We’ve got clients who’ve got four botanicals and others who’ve got 20. We’ve got some who’ve climbed mountains and brought back botanicals. As we say to all of them: ‘Whatever we’ve developed for you, you won’t find something suspiciously similar in the market that has just been mildly tweaked’.” And for Maxwell it’s the diversity of styles and flavours that is helping to fuel the gin boom.

Some spirits entrepreneurs go straight to a third-party distiller, such as Alex Nicol of Spencerfield Spirits. “When Edinburgh Gin started it was being made by Alcohols Ltd in Birmingham because we couldn’t afford to do it ourselves,” he says. After the brand was fully established, he took production in- house, three years ago, and now has two small distilleries in Edinburgh, and a new owner, Ian Macleod Distillers. Since moving north, “we’ve done everything as pure as the driven snow”, says Nicol.

Thames Distillers’ Charles Maxwell, left, with a colleague

In the late 1980s, Nicol worked for Beefeater, and says: “I remember going to see Desmond Payne at Plymouth Gin, which was buying in neutral grain spirit from London.” Charles Maxwell adds: “Until about 10 years ago HMRC didn’t permit you to do base distillation on the same site that you rectified the spirit into gin.” As a result, he calls the use of third-party distillers “the industry norm”, even if brand-owners never talked about it much.

Other new players take a different path from Edinburgh Gin’s, according to Guy van Everdingen, sales and marketing director at the Dutch group Sasma. “A lot of the time people start off with fermenting tanks and do the whole thing themselves,” he says. “They become successful and realise they need to produce more than 1,000 bottles a week, and they see that the fermenting tank is the bottle neck.” That’s when they go to Sasma, which describes itself as a ‘worldwide premium alcohol supplier’.

Clients tend to be small-scale, but van Everdingen does not believe Sasma has been an accelerator in the craft movement. “There have been quite a few success stories of artisan distillers, but that’s down to demand, and that’s why these new distilleries are popping up everywhere,” he says. “There is also the effect of people being in a restaurant, hearing of a locally produced gin then wanting to try it.”

In the US, MGP produces 14 mash bills just for whiskey, allowing endless combinations, according to Griffin. Even when clients do start distilling on their own, a lot of them continue to source their base spirit from MGP. “They then use their own distillate to help make their product unique,” he says. “So it really allows them to focus their time, effort and funds on creating brand differentiation, leaving the consistent, high quality mass production of distillation to people like us.”

What they divulge to their customers is left to them. “We try not to provide too much advice on how they do their marketing,” says Griffin. But when pressed on whether there needs to be more transparency, he says: “I think there’s been an over-focus on a centuries-old practice across the distilled spirits industry.”

James Chase of Chase Distillery

If you detect a slight wariness, it’s not surprising, given the hostile media coverage that blew up around the Templeton case, with The Atlantic magazine muttering about “modern-day snake oil”, for example. “Unfortunately, people got hung up on the location of the distillery, not the craft, expertise and innovation that was going in to make the final product,” says Griffin.

Then again, plenty of craft spirits producers have been banging the provenance drum louder than perhaps they should have done. Maxwell always advises his clients to be transparent, and says: “Those who make a false claim will find it comes back to bite them, especially as there are so many gin geeks out there.” Van Everdingen agrees, and says: “The whole non-transparency era was a child of the 1980s and 1990s, when the internet and all the information on it weren’t there.”

Adam Hunter, commercial manager at the Scottish ‘farm to bottle’ distillery Arbikie, believes there’s still “a lot of smoke and mirrors in the drinks world about sourcing”. But he feels consumers are “becoming more savvy about what happens behind the distillery wall” and “some might say ‘if you’re an artisan producer and outsource your entire production and bottling to a large plant in Birmingham or London, are you any different from the large-scale national producers?’.”

James Chase, founding family member of the namesake Herefordshire farm distillery, says: “It’s obviously very easy to put out a story that it’s ‘craft’ and that you’re making it by hand, whereas, in fairness, it’s being made in a huge still along with 300 other brands.” He refuses to be annoyed, however, and calls it “a smart move” that can only be challenged through the painfully slow process of education. But in some markets he feels the ‘farm to bottle’ message is definitely sinking in. “The States really understand that,” he says.

Arbikie’s Hunter says there’s ‘a lot of smoke and mirrors’ about sourcing

Alex Nicol suspects the issue of sourcing might undo certain craft brand-owners if and when they sit down with a supermarket buyer and have to come clean where the product is really made. “If it’s by a big, third-party distiller,” he says, “the buyer is liable to say, ‘OK, that’s £15 (US$18) a case, we’ll give you £25 (US$30) tops’. At which point people won’t be able to work the market.”

Charles Maxwell disagrees, arguing that supermarkets appreciate that a small gin producer lacks the economies of scale of a mega brand. He feels they also realise that: “If they drive the price of premium gin back down below £20 (US$24) they’ll be cutting off their nose to spite their face. They’re making a nice margin when it’s £38 (US$45) on the shelf.”

Many boutique gins appear happy to admit they come from Thames Distillers and relish the association with Maxwell – a master distiller whose family has been making gin since the late 17th century. And it seems this growing openness is spreading to the US. “I think our customers have been more willing to put out that they’re from MGP as a sign of quality that it comes from us,” says Gus Griffin, whose firm now has two spirits of notable provenance – its very own George Remus Bourbon and a Kansas wheat vodka called Till.

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