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Make Room at the Bar

America's micro-distillers are causing drinkers--and the liquor establishment--to take notice.

"We're making absinthe today," says Scott Leopold with a hint of mischief in his voice. That explains the pungent aroma of anise wafting into his office from his small but apparently thriving liquor distilling operation. His brother and business partner, master distiller Todd Leopold, is in the back concocting a fresh batch of the cloudy, 130-proof spirit. Until recently, absinthe was illegal to produce in the United States because it was (erroneously) believed to contain hallucinogenic ingredients.

Today the Leopold Bros.' micro-distillery, located in a nondescript industrial complex on the outskirts of Denver, makes absinthe that will eventually sell for about $70 a bottle. Tomorrow it could be one of several liqueurs--or perhaps a gin, vodka or whisky, or even a test batch of the new Pisco or triple sec--the brothers plan to introduce soon.

Founded in Michigan as a brewpub and now exclusively a distillery, Leopold Bros. is part of a growing micro-distillery movement in the U.S. The number of small-batch distilleries has more than doubled in just a few years, from fewer than 80 in 2006 to 165 in 2009, says Bill Owens, founder of the American Distilling Institute. Boutique, artisan, craft, small-batch, micro--whatever the moniker--these independent, entrepreneurial distillers are fueling a "renaissance in American spirit-making," Owens says.

Not only are entrepreneurs building viable, sustainable businesses using traditional, hands-on distilling techniques, they are enthusiastically embracing the distinctly American "moonshine culture," he says. "I think there's something very, very deep in the culture where, if you control the process of making something that alters consciousness, you control a kind of magic. There's allure in that."

Carrying the mystical mantle of the moonshine culture is all the more alluring if you make a profit doing so. Using what Scott Leopold describes as an "ultra-low-overhead" business model--no retail storefront or distillery tours, a handful of employees, strictly grassroots marketing with virtually no advertising--the Leopold Bros. distilling operation was cash-flow-positive after 18 months.

Fellow Denver micro-distiller Stranahan's, maker of Stranahan's Colorado Whisky, became profitable in its fifth year. Like Leopold Bros., which recently invested $100,000 in a new still to increase production capacity, Stranahan's is in growth mode, founder Jess Graber says. This spring the company purchased and moved into its own facility, in the process adding new equipment to triple its whisky-making capacity. Stranahan's Colorado Whisky, which tastes like a hybrid of scotch and bourbon, is available in 36 states and a handful of countries outside the U.S.

Stranahan's has succeeded "beyond my wildest dreams," gushes Graber, a former contractor and volunteer fireman who admittedly has been "experimenting with distilling techniques" since the early 1970s. Graber says he's savoring his success in the micro-distilling business and the lifestyle that comes with it. "It's crazy and it's fun, and it's almost like I'm beyond the worrying stage now."

Stranahan's is at the forefront of a micro-distillery movement that reminds some observers of the microbrewery uprising that in the 1980s and '90s enlivened the domestic beer market with entrepreneurial spirit, not to mention better-tasting suds. "The climate is certainly similar," says Brett Pontoni, the specialty spirits buyer at Binny's Beverage Depot, a huge Chicago-based liquor retailer and acknowledged cheerleader for the micro-distiller movement. "There's a perception that a lot of the big guys (corporate distillers) are not fulfilling a need for quality, so you have entrepreneurs trying to fill the gaps the big guys aren't hitting."

Similarities aside, to say the micro-distillery movement will ever match the scope of the microbrew craze would be an overstatement, Pontoni and Owens agree. "We might get to 400 [craft distillers in the U.S.]," Owens says, "but we're not going to get to 1,500, like the microbreweries have."

Unlike the microbrewery movement, which attracted new beer drinkers, "I don't think micro-distillers are creating new consumers of distilled spirits," Pontoni says. "They're not bringing people in off the sidelines. What they are doing is getting consumers with taste to try their products."

Another difference between the first wave of microbrewers and the micro-distillers of today is business acumen, Pontoni observes. Micro-distillers in general appear to have a sounder approach to capitalizing and scaling up their operations, he says.

Even with a solid business plan and a good product, "it's a definite challenge" wresting market share from huge corporate distillers, which represent the chief competition, says Chris Sule. Sule is master distiller at Celebration Distillation, which produces highly decorated small-batch rums out of its facility in the Ninth Ward of New Orleans.

As with the spirits they produce, micro-distilleries have varying recipes for success. Celebration Distillation and Stranahan's have elected to stick to a single core product, while Leopold Bros. has found success by making a broad range of products. Meanwhile, the strategy for some distillers is to market themselves as destinations, with conference centers, facility tours, restaurants, gift shops and the like to provide additional revenue streams. Others, like Leopold Bros., are sticking strictly to distilling without marketing themselves much at all.

With shrewd business tactics and products that stack up against the best the big distillers have to offer, infused with a hint of the moonshiner mind-set, micro-distillers are primed to compete over the long run, Graber says. "We're fighting for shelf space just like the big guys. We don't make enough [spirits] to rob much market share from them but, trust me, the distilling establishment knows who we are."

David Port is a freelancer based in Denver who writes on small business, and financial and energy issues.

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