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Jobs + Skills10.30.14

How a Once Illegal Beverage Rose to Mid-Market Fame

Liquor manufacturing is a competitive and fiercely regulated industry, but this humble Prohibition booze is now available in 49 states and Canada.

The touristy town of Gatlinburg, Tennessee is a collection of amusement attractions and small businesses nestled in between the natural wonders of the Smoky Mountains.

Along the town’s main drag, the Ole Smoky Moonshine Distillery is both an active manufacturing business and a tourist destination with moonshine tours, live music, souvenir merchandise and free samples of the staple product.

Historic Moonshine – strong, high proof distilled corn liquor that hasn’t gone through an aging process – used to be a solely illegal drink brewed to defy Prohibition and torment the local authorities (at least those who weren’t brewing it themselves). These days, it’s gaining pop culture appeal and is a rapidly growing and very legal segment of the liquor and spirits market.

The Tennessee folks behind Ole Smoky Mountain Moonshine might have descended from simple hill folk, but they’re no longer farmers and poachers cranking 180 proof alcohol out of a tinny still. They’re lawyers, civic leaders and business people making a big noise in the booze business by staying true to some very old recipes. That dedication to staying loyal to old methods sets Ole Smoky apart from its rivals.

You’ll find many brands of mass-marketed Moonshine in any liquor store – most brewed up in huge batches by the big distiller conglomerates under satellite names. In most cases, mass-produced Shine is simple corn liquor dashed with sugar.

The minds behind Ole Smoky Mountain Moonshine chose to stay clear of the big batch philosophy and created a larger version of the same stills their ancestors used to create the jars of liquor they passed between each other.

Now, Ole Smoky Tennessee Moonshine nationally retails 13 flavors of moonshine made using authentic East Tennessee recipes, jarred and shipped from the company’s Gatlinburg distillery (The Holler). Its varieties are available in 49 states and Canada.

Joe Baker, the company’s co-founder and a former criminal defense attorney said the people behind the company and their families wanted Ole Smoky to be a successful business, but they also want the company to represent their heritage.

“We’re proud of who we are and where we came from here,” Baker said. “We wanted to share that with the world in a positive way. There’s an old caricature of a hillbilly, and we don’t shy away from that. We’re proud of it. But, there’s also a way to share what we’ve become.”

The distillers making Ole Smoky are part of the community, and it’s not difficult to settle into conversation with them at local drinking holes. One issue the distillery had to battle to become a successful mid-size business was the burden of taxes layered onto liquor manufacturing. According to various sources within Ole Smoky, the combined local, State and Federal taxes taken out of every bottle of Shine can chew up 80% of potential profits.

To maintain their growth and refine their business model in the face of such challenges, Ole Smoky brought John Cochrane on as CEO. A beverage industry veteran, Cochrane explained that the distiller deliberately diversified into merchandise and Moonshine based food coverage to increase overall profits away from liquor taxes. However, some of the tax burden is passed on to consumers.

“Any beverage company spends a lot of time working on a price point,” Cochrane said. “But spirits have always been more difficult to position because of the tax scrutiny of making alcohol. Distillers always pass some of that over to buyers.”

However, the very nature of Moonshine as a liquor makes it an easier product to drive profits than its more elaborate rivals. Since it has a minimal aging process, proper Moonshine is considered a “white spirit” like vodka or gin. White corn mash alcohol only becomes Bourbon after it sits for, say, five to 10 years in a wooden barrel. The relatively immediate transfer to market of white spirits lowers overhead costs and makes them more profitable more quickly.

“Brown or aged spirits always incur more developmental costs, causing the tax costs to be felt more significantly, We can go to market with our jars within four to five days of initial distilling. That helps to minimize the difficulties a smaller distillery like Ole Smoky faces while trying to build scale.”

Once it’s bottoms up, Cochrane insisted that all talk of production costs, taxes, vertically integrated business planning, production scale, market presence and volume doesn’t mean much if the product passing over a consumer’s lips doesn’t past Tennessee muster.

“It wouldn’t matter how many t-shirts we sell or what price point we set if the product wasn’t high quality,” Cochrane insisted. “There are an increasing number of small, craft distillers entering the market. The simple taste in that jar or that bottle goes a long way to helping small companies build scale.”

“I know we’re doing something right here because Ole Smoky has carefully built itself up to a 12% overall market presence.”

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