Little Bitty Bourbon

Paul Tomaszewski pulls into the local granary every month to pick up 50-lb. bags of white corn, which he then hauls 6 miles down the road, past a scrawled sign touting turnip greens and a printed one welcoming visitors to the town of Pembroke, Ky. (pop. 869). He is heading home to a former Amish dairy farm that is now MB Roland Distillery, where he and his wife are starting out in the bourbon business. “We jumped in with both feet,” says Merry Beth, her Southern accent coating the words. “Everything is mortgaged to the hilt.”

The Tomaszewskis have company. Seven years ago, there were about 50 so-called microdistilleries in the U.S. Today there are about 250, many of them small, self-financed, sputtering start-ups. But the Tomaszewskis’ choice of spirit separates them in the microbooze biz, both in terms of the difficulties they face and the prospects they have as a small company. Bourbon, after decades of playing second fiddle to clear spirits like vodka and gin, is booming. The bourbon business grew faster than any other big-liquor industry in the U.S. last year. Fancy firewaters did particularly well: sales of superpremium bourbons grew just over 15% in 2010 and 2011. Like craft beer in the past two decades, corn-mash whiskey is undergoing something of a rebirth. “What we’re really talking about,” says Bill Owens, president of the American Distilling Institute, “is a redefining of the word bourbon.”

The easy choice for craft distillers is to produce made-today, sold-tomorrow products like vodka or niche drinks like apple brandy. By contrast, bourbon is a type of whiskey that by federal law must be distilled from at least 51% corn and then aged in charred new oak barrels, which gives bourbon its color. Straight bourbon, an industry standard, must be at least two years old, which means you can’t start a bourbon distillery one day and sell straight stuff the next. Another challenge is the competition: the old bourbon industry is already dominated by behemoths like Jim Beam and Evan Williams. How giant are they? Though there’s no official cutoff, craft producers typically make up to 100,000 gal. of spirits a year. Beam makes 112,370 gal. a day.

The micro rush is especially visible in Kentucky, but there are craft distilleries in 45 states, up from 12 about a decade ago. A number of states have lowered licensing fees for tiny distilleries, and a few have loosened regulations against on-site tasting. “It’s sort of like if you’re standing at Sutter’s Mill in 1849,” Frank Coleman of the Distilled Spirits Council says about the microdistillery boom. “You’re seeing all these people rushing by you with mining tools.”

And because corn grows outside the heartland, micro bourbons are being distilled well beyond the Bluegrass State. Ralph Erenzo, who ran a climbing gym in New York City, originally bought land in the Hudson Valley to start a climbing ranch. When neighbors objected and threatened lawsuits, he and a partner settled on starting Tuthilltown Spirits in Gardiner, N.Y. “We had no experience making whiskey whatsoever,” Erenzo says. Not knowing the business, they felt free to ignore tradition with their Hudson Baby Bourbon, a 100%-corn spirit aged for only four months. Business took off after buzz spread among beverage managers at New York City restaurants and bars.

For consumers attracted to all things handcrafted, organic and locally produced, consistency matters less than some special spin on the process. Take the Garrison Brothers Distillery, outside Austin, for instance, where they use rainwater for production and have a long waiting list of volunteers who want to help bottle the spirit. Corsair Distillery in Tennessee, known for unconventional whiskeys, has a 12-grain bourbon mix in its barrels (far beyond the standard three). And Tomaszewski boasts about MB Roland’s (named after his wife) pure, barrel-to-mouth feel. “If you get our bourbon,” he says, “it’s literally as if you went up to the barrel and pulled it out yourself. We don’t add a drop of water. We don’t filter it. Nothin’.”

The business model for most microdistilleries seems simple enough: go from local to national and then hope someone big buys you out. As Tuthilltown expanded from one state to 10, its bourbon sales shot from $8,000 in 2006 to $450,000 in 2009, when spirits giant William Grant & Sons called. Soon the whiskey brands were sold in a deal that could yield the owners $15 million. Chad Kurland, a Big Apple landlord who invested in Tuthilltown before the deal, says the decision was not “for the faint of heart financially,” but he was sold on liquor’s recession-proof reputation, the artisanal angle and the rare marriage of New York and whiskey. “Nobody contemplated that we’d be successful,” Erenzo says.

Washington State’s Woodinville distillery may also be on the expansion track. After taking in $140,000 in 2010, the company hit revenue of $1.3 million in 2011 and has plans to double that in 2012. Though Orlin Sorensen and his partner make other spirits, they expect bourbon to bring in half their proceeds this year and more going forward. “If there’s an opportunity,” Sorensen, a former Alaska Airlines pilot, says of a big company’s knocking at their door, “I don’t think we’d turn away from the conversation.” As with many young micros, most of their early sales were made on-site at their distillery, which is tucked in among wineries outside Seattle.

Then there’s the model of a bourbon like Pappy Van Winkle: cash in on exclusivity by keeping supply low. At the Garrison Brothers Distillery, revenue leaped from $125,000 in 2010 to $550,000 in 2011, after the company was saved in the early days by investments from family and friends. Founder Dan Garrison, a former marketing director with a penchant for Stetsons, advises vendors to sell the company’s bourbon at a wallet-lightening $69.95 price point but has seen it priced as high as $98. He says there are no plans to expand beyond the Lone Star State: “We think Texas is big enough for this little business.” Confining the bourbon to Texas might actually add to its allure, and its price. “When you plan bourbon,” he says, “you have to think in terms of decades.”

Back at MB Roland, the bourbon comes in hand-numbered, pint-size bottles bearing a picture of the Tomaszewskis’ friendly border collie Cass and is capped with a red wax seal. The owners steer a very small ship: they expect to make only 400 gal. this year. Doubling production in their fridge-size still wouldn’t kill their cachet, says Tomaszewski. It would just mean going from “a little to a little bit more.” Sales are small too: they rose from $120,000 to $210,000 in 2011; the Tomaszewskis hope to bring in $400,000 this year. For now, the young company still relies on unaged spirits like pink-lemonade moonshine to pay the bills, but the owners have turned down multiple offers from venture capitalists for fear they’d lose control of their business. “Come hell or high water,” Tomaszewski says, “we’re going to grow our bourbon.”