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Financial Analysis of Tours
We don’t offer tours at our distillery. Doing some quick back-of-the-napkin analysis, i concluded they’d cost me more than I’d make if i offered them.
We have had numerous requests for tours, direct pressure from community officials suggesting we have an open house, and the share of random people knocking on our door wanting to know more about what is inside. (We don’t even have a sign, just an address) Our location is pretty remote on what is the end of an “industrial park” so there is little traffic to begin with, but you always get some who are just looking for a way to spend the afternoon, and oblivious to our product or existence. We’ve kind of made a policy where we don’t offer tours. Our operation is currently 3 people, incl me, and if we were open for tours we’d have to take one of those 3 people away from making spirits, and have them answer questions or lead/babysit groups of strangers in and then out.
I was once asked by a professor “what business is google in?”. the answer he was looking for was “advertising”, because that year they were on track to make record profits, and every penny came from selling ad space, not from searches. I find i have to keep reminding myself that we’re in the “vodka” business, not the “tshirt” business, or the “web page” business, or the “tourist trap” business. So far, that logic has steered me away from potentially costly or wasteful distractions. Knock on wood.
So i’m asking the field, are tours really worth it financially? Do they generate more directly in revenue than they cost? Or do they consume (in the form of employees and upfront capital for inventory or renovations and other associated costs) more than they generate? Does anyone have hard numbers on this they are willing to share, or at least reference when they comment? I’m interested in actual physical spending or revenue, i don’t think it’s fair to say “they’d never by a bottle if they didn’t have a tour” because we haven’t offered tours and we’re selling bottles.
Did anyone have to jump through any super-crazy hoops to be allowed to give tours? In Maine i think we’d need to install a handicap ramp, and handicap bathroom, plus would need to sign-on as an agency liquor store to be able to sell our product on-site (a cost of $2000 per year).
-Scott
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20 Replies
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We don’t offer tours at our distillery. Doing some quick back-of-the-napkin analysis, i concluded they’d cost me more than I’d make if i offered them.
We have had numerous requests for tours, direct pressure from community officials suggesting we have an open house, and the share of random people knocking on our door wanting to know more about what is inside. (We don’t even have a sign, just an address) Our location is pretty remote on what is the end of an “industrial park” so there is little traffic to begin with, but you always get some who are just looking for a way to spend the afternoon, and oblivious to our product or existence. We’ve kind of made a policy where we don’t offer tours. Our operation is currently 3 people, incl me, and if we were open for tours we’d have to take one of those 3 people away from making spirits, and have them answer questions or lead/babysit groups of strangers in and then out.
I was once asked by a professor “what business is google in?”. the answer he was looking for was “advertising”, because that year they were on track to make record profits, and every penny came from selling ad space, not from searches. I find i have to keep reminding myself that we’re in the “vodka” business, not the “tshirt” business, or the “web page” business, or the “tourist trap” business. So far, that logic has steered me away from potentially costly or wasteful distractions. Knock on wood.
So i’m asking the field, are tours really worth it financially? Do they generate more directly in revenue than they cost? Or do they consume (in the form of employees and upfront capital for inventory or renovations and other associated costs) more than they generate? Does anyone have hard numbers on this they are willing to share, or at least reference when they comment? I’m interested in actual physical spending or revenue, i don’t think it’s fair to say “they’d never by a bottle if they didn’t have a tour” because we haven’t offered tours and we’re selling bottles.
Did anyone have to jump through any super-crazy hoops to be allowed to give tours? In Maine i think we’d need to install a handicap ramp, and handicap bathroom, plus would need to sign-on as an agency liquor store to be able to sell our product on-site (a cost of $2000 per year).
-Scott
we have done some of the obligatory tours (chamber etc….) but we maintain a not open to the public policy due to our fire marshal and building codes. we are also a small operation, about your size. if open to the public (in fla) we lose our meares exemption on ethanol storage with osha and would have to install sprinklers and spill retention vessels due to our square footage. in fact the fire inspecter was on site today and i love saying sorry not open to the public, because they lose most of their regs. presently we are building a larger location and we have wondered if the additional costs would be worth being open to the public, but fl frowns on spirit mfg (and only spirit) selling to the public, so it would be difficult for us to capatilize on foot traffic
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I’m also not open to the public. No tours. No tastings. No direct sales.
I like it.
I have a local retailer practically right around the corner that stocks my products. They do a very good business.
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Hi Scott,
Since we are both a winery and distillery, and in a tourist area, our plan has always been direct sales. We do about 98% direct; 50% tourists 50% local. Yes it takes time and can be difficult but we build brand loyalty directly with the consumer. Having the two product lines reinforces sales of both. In Maine we have to pay an extra $100 to become a retailer and can only retail our own products; we cannot be a full blown agency store. There are no requirements regarding bathrooms (we do not have one) but I’m guessing handicap access is required by the ADA. Maine is a control state so the retail markup is fixed at the same rate as a normal agency store, usually 10-12%. If I were in a more remote location, like you, I would consider opening only certain days like weekends, and see how it goes. Feel free to email/call me directly.
Cheers,
Keith
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In NY State we are permitted now to operate a shop/tasting room in the distillery. Before that visitors were just in the way. Now we invite and promote heavily to visitors. If there are costs involved they may pale compared to the potential revenue and the PR value of inviting visitors and showing them your operation. We stage tours only on weekends so they don’t really interfere with operations.
The best example I have to offer is the added revenue we enjoy as a result of on site sales. Since we opened the shop in July of 2009 it has become our second largest customer, surpassed only by our distributor. It has generated over $150K in direct revenue to the distillery for product and accessory sales (tee shirts, etc.) And it creates unbeatable brand loyalty among the people who get to see how it’s made and meet the distillers.
Can’t speak to Maine alcohol law, but perhaps you should be looking at legislation to permit distilleries to sell at the distillery, generating tourism dollars and helping to establish the brand.
Ralph
Tuthilltown Spirits
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…If there are costs involved they may pale compared to the potential revenue and the PR value of inviting visitors and showing them your operation. We stage tours only on weekends so they don’t really interfere with operations.
The best example I have to offer is the added revenue we enjoy as a result of on site sales. Since we opened the shop in July of 2009 it has become our second largest customer, surpassed only by our distributor. It has generated over $150K in direct revenue to the distillery for product and accessory sales (tee shirts, etc.) And it creates unbeatable brand loyalty among the people who get to see how it’s made and meet the distillers.
Good good, this is exactly what i’m looking to learn more about. So, we know the ‘money in’ number was 150K since 7/2009 or almost $19,000 a month! That is pretty impressive! I could totally use that additional money in per month. But how much did it cost? Inventory? Extra Staff? Renovations? You can’t just say “If there are costs” , there are always costs…
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Good good, this is exactly what i’m looking to learn more about. So, we know the ‘money in’ number was 150K since 7/2009 or almost $19,000 a month! That is pretty impressive! I could totally use that additional money in per month. But how much did it cost? Inventory? Extra Staff? Renovations? You can’t just say “If there are costs” , there are always costs…
We here at Colorado Gold Distillery have now and always had Free tours and Free tastings. We are a small distillery but our tours and retail shop produces over 50K a year. Our distillery has become a go to place in western Colorado. This does not count all the good it does within the community. The town loves us, the banks love us, we have two liquor stores in town along with a few resturants they have all our products and they love us. It is a win win deal. We have about a 5k dollar inventory. It cost us nothing to man it as we are here anyway. Our store takes up about 300 sq.ft. The net income from it pays for all our rent, utilities for all production. Coop
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It depends on your business model and the regulatory situation, but as a general proposition you are going to benefit in many ways, some of them intangible, by being open and welcoming to the public. Not all of the big distilleries welcome visitors but most of them do and, in fact, fall all over themselves to provide a positive visitor experience. It’s no coincidence that Jack Daniel’s is both the best-selling American whiskey in the world and one of the top tourist attractions in Tennessee.
If you want to think in terms of cost, think about this. Which is more profitable, selling all of your output within (say) five miles of your distillery, or having to market to a much larger geographical area in order to sell everything you care to produce? Most of you–virtually all of you, I dare say–are running local businesses that are going to remain local. The main advantage you have over bigger producers is that direct connection to your best potential customers; your neighbors.
If you’re trying to sell craft and quality and artisanship, how better to do that than to immerse your customers and prospective customers in the total experience?
To say it’s “all in the bottle” is hubris. This is a high-touch business. Your customers don’t just want a drink, they want a drink and a story.
Granting that there are business models where a ‘no tours’ policy makes sense, as a general proposition it’s extremely short-sighted.
I don’t know if you’ve all seen this article about Tuthilltown, but in it Ralph reports that his distillery’s store is the company’s second-largest customer – raking in over $150,000 in its first five months.
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I’m really intrigued by the number of people who put so much business-faith into the “intangible”. With all due respect, and much appreciation for everyone who’s contributed, that word has no place in business. Either it is measurable (ie tangible) or not measurable and you have no way knowing if this is something costing your business $ in the end. I know as a fellow business owner that i don’t have any “gimmies” or “happen-stances” or “intangible events” that occur inside the walls of my operation. Everything has a cost associated with it, including time, which it feels that many are conveniently forgetting. If you are busy working on anything, and someone stops by for a tour, than you need to stop that productive activity to conduct the tour. If that isn’t the case, then that means you’ve hired a person to do nothing by wait for people to want a tour. I don’t yet see the value in those expenses, and i don’t agree that some intangible benefit or potential good or other super-brand-loyalty is achieved in the magic that is a tour. I feel I’ve achieved those things and I don’t offer tours. I’ve recently been dedicating a lot of time to facebook, and my fan count has benefited greatly. http://www.facebook.com/twenty2vodka
I want to direct the conversation back to the financial analysis of tours, specifically the cost. It seems like there isn’t a real measure out there. That would scare me a little if i had a component of my business that was essentially a question mark. Cowdery’s comment attempts to answer the question of cost by drawing attention to the potential profit of selling out all inventory. That’s not an answer! Coop, you mention that your costs are so minimal that you have plenty in profit to cover basic monthly expenses like rent and energy. That’s huge! Considering the hours and money you’ve put into the tours so far, are you confident you wouldn’t have generated more sales if that money and time were spent differently (in total)?
In this internet-virtual-shopping-cart-age, is the physical act of visiting the brick and mortar building really that important? A direct connection can be made virtually with quite effective results. Facebook users aren’t lazy, but to get them to participate in things is like pulling teeth. I don’t believe that trend is going away, and providing instant interaction with them via the internet is the wave of tomorrow, not visiting locations for the sake of visiting. (unfortunately, we are getting fatter as a country because we move less, not more)
I honestly did not think much product (as in spirits) would be sold through the doors of a distillery. I assumed that most people would rather purchase as many of their items in one location as possible, instead of making multiple trips or stops. I think the success of big box stores speaks for it’s self, and while price is certainly also a factor, the convenience of purchasing everything you could possibly need by making one trip to a Super-Walmart can not be denied. (issues about shopping locally vs big box stores is debate for a different thread).
Finally, to talk about being short-sighted, shame on you if your vision is to remain local only. Why cut your self so short? Use local ingredients, methods, techniques, or styles, but don’t ever turn down a sale based on geography. At least I won’t. I’ve been active in this section recently because i’m surprised how little attention the brand or marketing gets (at least on this overall forum). We don’t’ need big firms or even bigger budgets any more to spread the word virally about the next best thing. The best thing we could all do is support the craft-industry as a whole, so more people become aware of it’s very existence.
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I’ll add some remarks based on my cidery tasting room, as the spirits aren’t released yet.
I figured last year that, from a simple product cost and revenue viewpoint that I get four times the margin selling direct, compared to selling through a distributor. I’m in WI, and other than recently having lost self-distribution, alcohol law is fairly generous here. (I hear Guy Rehorst choking in the background 🙂
Scott, you are absolutely right. Everything has a cost. And if you can’t put a number to something, it’s opinion, not fact. Some of the benefits of direct sales are hard to put a number on (not impossible) – so I due them based on faith, rather than science. I believe there is value in completing the sale directly with a consumer – but a measureable response that comes quickly to mind would be a count of sales due to referrals. ‘I came in because my friend had a great time here.’ And I don’t go through the expense of collecting that data just to have it.
Anywho, I consider the cost of wholesale to be the time and effort spent at store tasting and shows. And the samples used – but the WI Brewers Guild has some some luck in changing the expecation that vendors at a show donate the product – which isn’t even legal most of the time in WI.
The Tasting Room has staff (sometime me and my family, but extra part time help during peak season), merchant credit card accounts and fees, samples (I figure about 10% of a batch, which turns out to be an over estimate – but helps pay some of the other cost), pallate resetters (crackers in my case), machine tapes and ribbons, glasses and cleaning supplies and a fair bit to bags and tasting sheets. I also count brochures and advertising meant to direct people to the tasting room (the only advertising we do).
Um, let’s see, I just pulled up a spread sheet from last year. I figured the wholesale overhead at $5/case and the tasting room overhead at $55/case. Now that number wraps up _all_ the non-material and packaging costs and attributes them to the two sales routes. For one mid-price point product, I get $11 margin for a case wholesale, and even with the 10X tasting room cost, I get $66/case margin selling through the tasting room.
The last time I sat down and ran the numbers, I figured that about sales of $200 for a day was the break even for for opening up.
A local winery recently closed their tasting room and went strictly wholesale. The only one of 38 in WI to do so. It’s caused a few raised eyebrows. A New York state cidery argued quite strongly (on the Cider Digest) that Tasting Room sales were at least as expensive as wholesale. But I think that depends on where you are. That cidery is in an area with _many_ tasting rooms, so a lot of money goes into meeting visitors expectations (lest they pass you by for the next one down the road). My distributor noted that a tasting bar can be as simple as two barrels with a board across them.
I think that simplicity and integration with other tasks/processes are important in holding down tasting room/tour costs – and thus making them more worthwhile.
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Lots of good information in this thread. Scott, thanks for being active in this part of the forum; it will benefit us all. I will try to be more active here too.
I’ll get another $56/case at retail than selling to wholesale and, with logo merchandise sales, I expect the retail sales to be big business. I need the tasting room to make that happen. Is it worth it? Since I’m just getting ready to open up, I don’t know….it’s just a “best estimate” business plan at this point. But I’ll know soon enough. I expect it to be very big for us.
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If the question is of gain over expense, ROI, from tours, t’s, hats, etc. is for a business plan, and you cannot sell your own product, do not fall into the trap of counting on even a dime. Although it will come to you over time. The distilled product and its sale is your center. We consider our store and it’s activity a seperate entity. Drives my accountant nuts.
That said,
Without the tours we will all lose something. From the smallest on up, we are selling hand crafted spirits.
Without the tours, how can we sell the difference between large scale produced product or the basement rectifiers and our crafted product? You are telling the customer base “Trust me, it is”. If they cannot see it, you and I know that doesn’t play in New England.
To me it is like leaving the phone off the hook.(Am I the only one who knows about that?) You never know who will walk through that door. For me it was a tour bus operator. Ka-Ching!
I am in an industrial park also. They still find me.
If it is the cost/attention of tours that is concerning , shave the costs. Limit the times available to one or two slots when your schedule allows. We post Thursday, Friday and Saturday, 10:00 AM. But we never turn someone away. Use the inconvenience as a positive. Tailor an abriveated tour for the “droppers by”. “We are really busy right now, but I’ll run you through quickly”. But you do need some personality to do this correctly. Not just there is the fermenter, there is the still. Our experience is that they will show appreciation at the cash register.
Just my thoughts. Good luck, Bob
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I’m really intrigued by the number of people who put so much business-faith into the “intangible”. … Everything has a cost associated with it, including time, which it feels that many are conveniently forgetting. If you are busy working on anything, and someone stops by for a tour, than you need to stop that productive activity to conduct the tour. If that isn’t the case, then that means you’ve hired a person to do nothing by wait for people to want a tour. I don’t yet see the value in those expenses, and i don’t agree that some intangible benefit or potential good or other super-brand-loyalty is achieved in the magic that is a tour. I feel I’ve achieved those things and I don’t offer tours. I’ve recently been dedicating a lot of time to facebook, and my fan count has benefited greatly.
Scott,
How do you reconcile your time investment in Facebook? Are there tangible results from that effort that wouldn’t translate when interacting with consumers in person?
I can understand your resistance to public access due to the addition costs (upgrades, permitting, etc.) but based on Ralph and Coop’s experience that shouldn’t be an issue. In a heavily regulated industry with limited access to the consumer I want as much exposure and interaction as possible. Online venues are a great way to spread the word and keep in touch with your customer base, but my impression is a physical encounter leaves a much greater impact. Furthermore, I’d suggest it’s the move towards “one stop shopping” and limited contact with producers that creates a market opportunity for micro distillers.
John
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In this internet-virtual-shopping-cart-age, is the physical act of visiting the brick and mortar building really that important? …….
Yes. Especially if you actually have something to show them. Can you show them your raw materials, and show them what fermenting potatoes or grain looks like? Can they taste the mash? In my experience, it is the most effective thing we do…and we aren’t even open to the public.
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Yes. Especially if you actually have something to show them. Can you show them your raw materials, and show them what fermenting potatoes or grain looks like? Can they taste the mash? In my experience, it is the most effective thing we do…and we aren’t even open to the public.
We have a guest book that every one signs when they do a tour. I can say with no doubts as we see these people over and over and over. Each time any one who has toured and tasted has any one come for a visit the very first thing they do is call or come back with their friends for another tour. It has become the thing to do when visiting Delta, Montrose or Mesa county. We show them the entire process, everything. They all go nuts when they walk up our osha approved rolling step latter and look into a tank of fermenting mash, the smells the whole process just amazes them. Then at the last thing I tell them just how much we pay in taxes for every gallon produced they fully understand why our products cost more than the big guys and step up to the bar and by some. Coop
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We sometimes describe our tours as a marketing expense that just happens to cover its costs (and then some). I would continue to offer tours even if they weren’t a financial net positive. To me, focusing on the financial side (while important) misses the core business value of tours, at least to us as a small craft company with a small craft marketing budget.
People come into our facility curious and leave as evangelists. They talk about us, blog about us, send their friends to our site, bring their relatives by the distillery for another tour, stop in with their dinner party to see what we’re working on next, and so on. Then the people they introduce start coming by with their friends. Out-of-town visitors start asking their local haunts if they’ll pick up our products.
Further, being open to people coming through the distillery has led to news articles, tv spots, solid information on potential accounts, partnership opportunities, and so on.
Marketing majors will happily put a valuation on this stuff, but I’m comfortable calling it intangible.
Tours can be very disruptive if handled by staff with production duties, and the best visitors – the ones who become evangelists – can spend hours at the distillery asking questions if you have an open format, like we do. For us, it’s entirely worth it.
-Andrew
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Scott,
How do you reconcile your time investment in Facebook? Are there tangible results from that effort that wouldn’t translate when interacting with consumers in person?
Great question. At first Facebook was another thing i needed to have on my todo list, to make sure i “fed the beast” as best put by Scott from Catoctin Creek. However, Facebook is now integrated into my day and actually every electronic device i carry. While i spend a large portion of my day in the office, at the computer, i can contribute to FB without “switching modes” like i would with a physical tour. I can interact with FB while waiting in line at the postoffice via my phone, or while at home relaxing on the laptop. So far, facebook hasn’t interrupted me requiring I perform what is in essence a “show” (not a bad thing) until the visiting party is satisfied and moves on. Facebook is still (for the very moment) free, and does only require time. Photos, exciting content, and contests are bonuses, not required. While i don’t technically measure my time spent on FB like I don’t technically measure my time spent in Excel or Quickbooks, i can say unequivocally that it is less than 1 total hour per day and entirely at my leisure. I do measure the success by the number of fans, our growth rate of fans, and their “interactions”, all tracked and provided by FB to page admins also still for free. I’ve also made connections via FB that has landed me free press (radio 3x and print pieces in news papers and local magazines), event/party/and sponsorship invites, and an actual physical expansion into a supermarket chain (no joke). My fan count is something i can point a third party to as “proof of existence outside of my local bubble”. With that said, if my time spent wasn’t generating new fans, i’d drop it and focus on plan B. My total physical investment so far has been about $100 which is the cost of shipping shirts to winners of the FB contests we’ve held.
But in all it seems like there are two camps of contributors. One side is people who don’t offer tours, never did, no regrets. The other side offers them, loves them, and sees so much value in them that they’d continue if there was a tour-tax levied on them. This is encouraging. So to continue the conversation, were tours always a part of your business plan/model, or did you discover this un-met need in the public that has been paying off handsomely? Do tours always end in a tasting? If tastings are prohibited, would you bother with the tour? Do you sell merchandise too? And track sales tax, and all that other good stuff??
-SCott
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But in all it seems like there are two camps of contributors. One side is people who don’t offer tours, never did, no regrets. The other side offers them, loves them, and sees so much value in them that they’d continue if there was a tour-tax levied on them. This is encouraging. So to continue the conversation, were tours always a part of your business plan/model, or did you discover this un-met need in the public that has been paying off handsomely? Do tours always end in a tasting? If tastings are prohibited, would you bother with the tour? Do you sell merchandise too? And track sales tax, and all that other good stuff??
-SCott
Tours were not a part of our business plan. We didn’t offer them initially, then began inviting curious service industry people and found it a great way for them to understand how we’re different from the big guys. We couldn’t do tastings or direct sales and when we moved the distillery to a busier part of town we partnered with some local bars- tour the distillery then do the tasting at a local bar. It didn’t make us any money directly but we already could see the marketing value was worth the time invested. What other opportunity do you get to spend an hour talking about your products with people? In July of 2009 we got the law changed and began doing the tastings and bottle sales and even cocktails at the distillery. This has increased our total sales about 25% almost overnight. We sell merchandise, but it’s a very small part of tasting room sales. 2/3rds of our visitors have never even tried our products before- it’s a tremendous opportunity.
Of course we track sales tax, merchant account fees, part time tasting room help and all the other costs associated… but with the margins and the marketing value it is certainly worth it.
Congratulations on your Facebook success, I’m guessing your experience has been somewhat exceptional. We have close to 1500 fans, it’s a great way to keep in touch with people but I can’t attach any tangible sales number to our effort. Just another way to get in peoples heads.
Good luck!
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I want to clarify what we do. Mainly, we do tastings with some explanation of the process depending on time etc. We seldom do tours except for specific groups, by arrangement, special events …. These always include a tasting followed by sales. Tastings are how we sell most of our production; tours are rare and thus a small part of sales. I’m usually a busy one person shop so cannot give tours most of the time; but customers can take a look into the production area. I do not believe it would be worthwhile to dedicate labor to regular tours for a small operation; most customers seem happy with a quick look then on to the tasting.
Keith
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Most successful wineries, especially those outside of Northern California, will tell you that tourism and sales at the winery are an essential part of their business model. Many if not most craft breweries are associated with a brew pub and most brew pubs are designed so the brewery operation is visible from the dining area.
If local law prohibits sales at the distillery then you probably have to look a little harder to justify welcoming visitors, but Jack Daniel’s was a very successful brand, supported by its tourism operation, long before sales at the distllery became legal.
The point about “local business” was the efficiency of being as successful as possible as close to home as possible. Unless you’ve chosen your location very badly, your best potential loyal, long-term customers are your neighbors. It’s not about turning down sales from further away, it’s just about concentrating where you have maximum efficiency. It’s almost always more cost effective to sell five units to one person than to sell five units to five people, and it’s a well-established principle of marketing that the most cost-effective sales are repeat sales.
And as for “intangibles,” brand loyalty and identification is not measurable, the relationship a consumer has with a brand — whether a liquor or a car or a hot sauce — is intangible. That’s usually what marketers mean when they talk about intangibles, and if you think intangibles have “no place in business,” tell that to just about every major business in the world. They all talk about intangibles such as corporate image, brand image, etc. Most “branding” deals with intangibles.
Also, one of the oldest adages in advertising is the statement by Sam Wannamaker, a department store mogul, “I know half of my advertising budget is wasted, I just don’t know which half.”
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I don’t turn people away that show up, but I let them know I can’t sell them anything, and I can’t do a tasting. Last I heard (and this may have changed) I can’t even sell brand merchandise according to the SLA (that’s promoting drinking, and they’re all about temperance). And they are also told (and can see) that I’m actually working. I’m also about 45 minutes from the nearest major highway. Three hours from NYC. No public transit system comes to this place (they tore up the old railway lines back in the 70’s when Penn Central went belly up). In spite of that I’ve had people show up from as far away as Pennsylvania and Washington DC.
For people closer to civilization, I’m sure all these things are really useful, especially when combined with an online shop to let you reach customers from further afield.
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