Food Interview: The Challenges Of Starting A Craft Distillery

The Unique Challenges Of A Startup Distillery

\ Dec 20, 2012

5 min read

Follow the Spirit — Starting a craft spirits business requires signficant financial investment, especially for the equipment. (Eric Williams ericwphoto.com)

These days, craft spirits are following the trail blazed by small breweries to become the next big thing. When Colin Keegan started Santa Fe Spirits four years ago, though, he was just trying to prevent his homegrown apple juice from spoiling.

Back in 2009, Keegan made dozens of gallons of apple juice at his home orchard in Tesuque, N.M. Realizing it would spoil before he could drink it all, Keegan’s friend Nick Jones—at the time a Santa Fe Brewing Company employee —suggested they distill it into an apple brandy, which would give it an indefinite shelf life.

Together, Keegan and Jones did just that and put it in a barrel to age. When they tasted it a year later, they were surprised at how good it was. “Nick and I said, We should make a bottle or two to sell, and I began to read up on the licensing we would need to do that,” Keegan says. Keegan thought the creativity he used in his profession as an architect could also apply to liquor, and that he could use what he learned in his orchard to build a sustainable business. He traveled the country taking distilling classes and started to navigate the complex federal and state paperwork required to start a distillery.

“We worked on the business plan through 2010,” says Keegan, “and opened the doors to the distillery in 2011.”

Keegan says the leap of faith needed to quit his architecture job and open a New Mexico distillery was huge, especially with the financial investment required because of state and federal regulations. “We had to buy all of the equipment, sign a lease and try to generate sales before we even distilled one drop,” says Keegan. “The federal regulations are difficult to understand and they sometimes contradict each other.” Keegan also discovered that even after everything in the distillery was in place to open, he still had to wait several months until his federal application was submitted and approved.

New Mexico regulations for liquor distilling, on the other hand, are almost nonexistent, says Keegan. “We contacted the state to ask what we needed to do to open a distillery. Since there was one other in the state at the time, the state licensing office told me that we should ask [the other distillery] to find out what we should do.” Not comfortable asking his competitor for legal advice, Keegan again did all the work on his own.

Eventually, it paid off. Starting with three employees back in 2011, including Keegan as owner and Jones as master distiller, Santa Fe Spirits has since doubled its staff and tripled the square footage of the distillery.

Distribution of its liquors has extended to New Mexico and Oregon, with expansion into Colorado and Texas planned for 2013. The current product line includes apple brandy, vodka, unaged “silver” whiskey and a newly introduced gin. Many of the spritis feature New Mexican botanicals and ingredients, and 20 percent of the juice that goes into the apple brandy comes from fruit harvested from that orchard back in Tesuque.

The distillery’s premiere product, though, has been sitting in barrels for two years: an aged, mesquite-smoked whiskey. “We estimate that in late 2013 we can begin to release our aged whiskey, but only if it tastes right,” says Keegan. “If it doesn’t, we’ll just age it longer.” While they wait, though, Santa Fe Spirits has employed some creativity and partnered with local liquor stores to sell an “age your own whiskey” set, including a 2-liter aging barrel and two bottles of silver whiskey.

Now that the business is on its feet, Santa Fe Spirits is running into a different kind of challenge. Liquor can only be sold to retail by distributors, a legal requirement that’s been in place since the repeal of Prohibition in 1933. This prevents distillers from selling directly to stores, which Keegan says creates a bottleneck for small companies like his. He says that Santa Fe Spirits is able to produce a large amount of liquor, but the distributor model makes it difficult to sell what it produces because the distributors ultimately control what ends up on store shelves.

“It’s much easier for a salesperson to sell dozens of cases of Smirnoff Vodka or Jack Daniel’s than a single case of our Silver Coyote,” Keegan says. “[The big liquor companies] are able to give away cars and overseas trips to the salespeople, but we are still a small company, so we don’t have the same resources as Smirnoff.”

Some customers have suggested that Santa Fe Spirits stick to the local boutique liquor stores like Jubilation in Albuquerque or Susan’s Fine Wine and Spirits in Santa Fe, but Keegan disagrees. “Most of the locals go to Albertsons or Walmart to do their shopping. They deserve to drink a good spirit as well, so we want to be available for them,” he says.

In spite of the hurdles that Santa Fe Spirits has faced so far, the business is growing and Keegan is proud of his work. While he says New Mexico is not an easy environment to start a small business, he adds that he and his employees are committed to being here.

While federal regulations and the distiller-distributor-retailer model frustrate him, Keegan says it would be too easy to simply complain about the regulations he has to deal with. “We’d rather change the environment. … The liquor industry is changing. We are 20 years behind where the microbrew industry is, and now everybody has their favorite microbrews. I think in five years, everybody will have their favorite local spirit as well.”

Greg Mays is the curator of simple-cocktails.com.