Craft Distillery Business w/ Real Estate — A $6.1 Billion Dollar Industry

A Wet Dream, or Sour Mash?

Silverwave Field Notes combs through and analyzes thousands of businesses available for sale that may be of interest to entrepreneurs looking to acquire an existing business. We are not affiliated with the business listed for sale unless otherwise disclosed. The business highlighted below is represented by Boss Group International.

Business Overview

• Industry Growth: The craft distillery industry is expanding rapidly, and this business, being in Florida’s “Space Coast”, is positioned in a high-growth area which could contribute to an increasing customer base.
• Years of Operation: Established 5 years ago, the business has been under current ownership for 2 years.

Financials

• Sales and Profitability: In 2022, the business reported gross sales of $255,485 with a Seller’s Discretionary Earnings (SDE) of $27,818. However, this level of profitability is relatively modest compared to the asking price.
• Asset Inclusion: The sale includes real estate valued at $1,700,000; a significant portion of the asking price.
• Cost Structure: The cost of goods sold and total expenses are quite high relative to the sales and suggests a need for efficiency improvements or revenue growth.

Operations

• Hours of Operation: The business operates on a limited schedule, which may offer opportunities to increase sales through extended hours.
• Employee Structure: There are no full-time employees; the business is run with 3 part-time employees. The owner works 40 hours per week.
• Location: The business is not relocatable, and the facility covers 2,000 square feet.

Licensing and Regulations

• Required Licensing: Operating a distillery requires specific federal and state licensing, including a distiller’s license and permit from the state of Florida. Compliance with these regulations is required to run the business.

Potential Growth and Opportunities

• Market Trends: The craft distillery market trend seems to be continuing, so there is potential to capitalize on interest in artisanal and locally-produced spirits.
• Expanding Operating Hours: There is potential to increase revenue by extending business hours or even days.
• Marketing and Outreach: The business could probably benefit from enhanced marketing strategies.

Considerations for Potential Buyers

• Investment Justification: The high asking price appears to seek justification because of the included real estate. Buyers should assess the business’s potential for growth against the investment required.
• Owner’s Involvement: The new owner would need to be significantly involved or have a plan to hire management, given the current owner’s high involvement.
• Licensing and Regulatory Knowledge: The buyer must be prepared to navigate the licensing and regulatory aspects of the distillery business.

ANALYSIS

Craft spirits along the growing Florida “Space Coast” could be a good business. And craft distilleries have seen a notable rise in the broader trend towards artisanal, locally produced goods. A growing appreciation for craft spirits is gaining traction with young consumers as well. While a significant part of the listing is the inclusion of real estate valued at $1,700,000 (70% of the asking price) the other $700,000 is 25x the $27,818 in seller’s discretionary cash flow. Even if you factor in appreciation on the real estate, your ROI probably still wouldn’t be much to write home about.

The absence of a formal familiarization period for the new owner is another red flag. Given the complexity of distilling and the regulations that go along with owning an alcoholic beverage company, this is extremely concerning for all but potential buyers with extensive industry experience.

In addition, while the craft distilling industry is growing, it’s become increasingly competitive. The financials, as represented, are abysmal. Cost of goods sold and overall expenses relative to sales suggest significant operational inefficiencies. The limited hours of operation and no full-time employees suggests either a lack of market demand or poor management. Given the modest sales figures and the business’s current scale, penetrating the market more deeply or expanding the customer base could be challenging. The growth potential might be limited unless significant changes and additional investments are made in marketing and operations.

The craft distillery presents an intriguing opportunity in a unique market, but there are considerable risks and challenges with this listing. The financial performance, combined with the competitive landscape, operational inefficiencies, and regulatory complexities, suggests a pass to most entrepreneurs through acquisition, myself included.