Show me the money. A look at revenue models
Commercial Spirits Intelligence No.51
As people who have worked in and around the spirits industry for many years, we found that there was a lack of good, public, research on the trends in the spirits industry. Whether it’s trends in wood, or distillery capacity, or M&A activity - many of the existing research providers speak to a specific niche when we wanted a whole-market analysis. In this newsletter we leverage our experience, contacts and market intel to provide meaningful analysis that speaks to relevant issues for you. This newsletter is a collaboration between Duncan McFadzean of Noble & Co, and Martin Purvis. If you find this newsletter valuable, please consider a paid subscription.
Show me the money? How revenue models are changing
Executive Summary
In the current climate, with bank funding harder to come by, many of the newer Scotch distilleries are questioning what revenue model works. We have seen many different revenue models over the last decade, as companies seek to plug the gap between construction of the distillery and the establishment of sufficient scale of branded cased goods sales for the core brand. In this week’s article we look at how those models are facing pressure at every turn.
The requirement for revenue
As a simple recap, the challenge for any distillery is that from the point of securing funding, it will usually take 18-24 months until commissioning of the equipment. This construction phase is a 0% income, 100% investment and overhead phase. Dependent on maturation and product launch strategy, the distillery owners then have a minimum of 3 years and a day up to perhaps 8-10 years to wait before they can bring a single malt to market and see revenue back. In the meantime they still have to cover the cost of distilling, marketing costs to build the brand, warehousing and maturation costs and other overheads. The costs of these often run into the millions of £ every year.
How to plug the cashflow gap? What has been tried and what is the current status of each?