Ottawa-area distillers tap into growing craft spirits market

Cole Miller might be majoring in cognitive science at Carleton University, but the 21-year-old entrepreneur has really been a student of business for most of his life.

Like many kids, his first jobs included mundane tasks like mowing lawns and shovelling snow. But even as a youngster growing up in Napanee, Mr. Miller had a knack for devising more creative ways of making money.

One of his first ventures was scouring garage sales for items he could resell at a profit on Kijiji. Later, he built benches that resembled, of all things, ice cream sundaes. He ended up selling more than a dozen at $1,500 each.

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Now just a few months away from graduating, Mr. Miller spends 80 hours a week on a fledgling business in an industry that has exploded south of the border and is gaining traction in Canada: craft distilling.

While the craft brewing industry has been booming in the Ottawa region for more than a decade – the area is now home to upwards of a dozen microbreweries – the craft distilling sector is still in its embryonic stage. Mr. Miller’s company, Twelve Barrels, is one of only two Ottawa-based enterprises in the sector.

The young entrepreneur believes the craft brewing space is almost tapped out at somewhere between 12 and 15 per cent of the overall Ontario market, but he sees plenty of opportunity in distilling.  

“Beer’s not sustainable,” says Mr. Miller, who began making booze for friends as a teenager using grape juice and baker’s yeast. “It’s not that the pie is growing any more – it’s that you’re cutting up the pie into smaller and smaller pieces.”

Based at Carleton’s Lead to Win incubator, Twelve Barrels doesn’t actually make its own whisky. Instead, Mr. Miller buys surplus stock from three larger suppliers – one in Ontario, one in western Canada and one in Kentucky – and combines it into his own smooth-drinking blend at 66 Gilead, a craft distillery southwest of Napanee.

Money in blending

It’s an approach he learned in the summer of 2015 while on an overseas apprenticeship sponsored by the since-discontinued Ontario Global Edge Program to help train young entrepreneurs. Mr. Miller spent several months working at England’s Lakes Distillery, which produces its own spirits but generates much of its revenue by blending whiskies from other sources.

He soon realized he could save huge money in startup and overhead costs by blending instead of distilling, allowing him to pour more of his precious funds and energy into marketing.

“Whisky has to be aged for three years,” he explains. “You’ve got to put lots of capital up front; you’ve got to build a warehousing space; stills are expensive. If you’re a first-time brewer, it takes four weeks to six weeks to (make) beer. You can experiment for six months until you get your recipe perfect. Whisky, you’ve got to wait three years at least to find out if it was any good. You’ve got no idea.”

When it comes to liquor, he says, branding is more than half the battle. It’s a lesson he learned in high school, when his friends chose to buy his crude version of moonshine “because it was illegal. There was a story behind me making it in my basement. I realized early on it doesn’t really matter what’s inside the bottle – it’s all about that label.”

Before launching his enterprise last year, he did months of research to come up with the Twelve Barrels theme. It’s based on the story of Napanee’s George Meagher, a champion figure skater in the 1890s whose father was a distiller. Mr. Meagher’s signature stunt was a leap over a dozen whiskey barrels on a frozen river, a feat he supposedly even performed for Queen Victoria on the River Thames.

Mr. Miller’s target market are those he calls “engaged newcomers” – consumers who are new to the whisky game and eager to experiment. The Twelve Barrels brand is a particular hit, he says, with married women over 55, who form the largest share of his 1,000 or so Facebook followers.

Females actually make most of a typical household’s whisky-buying decisions, he explains. They “love the Twelve Barrels story, and they’re willing to spend a little bit of extra money.”

The producers of CBC’s Dragons’ Den were also big fans of Mr. Miller’s pitch. In a segment that was filmed last spring and aired on Feb. 1, Twelve Barrels landed a $150,000 investment from dragons Jim Treliving and Michael Wekerle, who loved both the company’s story and its product.

In the end, various obstacles – including a delay in getting approval from the Liquor Control Board of Ontario to put his whisky on its shelves – scuttled the deal. But Mr. Miller says the experience was well worth it.

“We’re still on good terms,” he says of his relationship with Mr. Treliving and Mr. Wekerle. “I’d love to work with them moving forward if they’re interested.”

The LCBO has now given Mr. Miller the go-ahead for a six-month trial run at 25 stores, mostly in the Ottawa and Toronto regions, although the launch date has yet to be finalized. His goal is to sell 15,000 units in his first year at $35 for a 750-millilitre bottle, which would elevate him to the LCBO’s general listing category and allow his product to be stocked in hundreds more outlets.

Liquor boards in Nova Scotia and New Brunswick have also expressed interest in his whisky, as have stores in Alberta. Mr. Miller is setting his sights on the international market as well; he’s planning a trip to China later this year in the hope of winning a share of that potentially massive customer base.

Eyeing U.S. market

Currently financed by more than $40,000 in funding from Carleton’s Nicol Entrepreneurial Institute, the Ontario Centres of Excellence SmartStart grant program and the Ontario Global Edge Program as well as about $15,000 of his own cash, Mr. Miller is searching for bigger sources of capital with an eye to eventually cracking the U.S. market. His ambitious projections call for $1 million in North American revenues within four years on sales of up to 80,000 bottles.

But just as with crafting high-quality liquor, building a robust brand doesn’t happen overnight.

“I want this to be long-term, sustainable, slow growth,” he says. “We’re not going to rush it. We’ll expand into the States when we’re ready.”

SIDEBAR: Distillers urge province to give industry a boost

Considering the business they’re in, it’s appropriate that local distillers Greg Lipin and Jody Miall share a passion for rock climbing.

To make it in the whisky business in Ontario, they say, you have to be good at navigating your way around obstacles.

The co-founders of Ottawa’s first craft distillery, North of 7, launched the company in the fall of 2013 at the site of their other business venture, Coyote Rock Gym, an indoor rock climbing facility on St. Laurent Boulevard.

When North of 7 first got off the ground, it was one of just a handful of craft distilleries across the province. Today, the Ontario Craft Distillers Association boasts 16 members.

However, that’s still barely as many craft spirit makers as there are on Vancouver Island alone. Mr. Lipin says the business climate for small distilleries is far friendlier in British Columbia, where spirits aren’t taxed if they’re sold on-site and made with B.C. grain.

“We’re expecting something along those lines down the road, but Ontario’s a tough province,” he says.

By contrast, new legislation in this province replaces a longtime LCBO markup with a 61.5 per cent tax on each bottle of booze sold in independent distillery stores – 10 times what wineries pay for on-site sales.

The new system puts more money back in the pockets of craft operators – about $2.50 on a $40 bottle, according to Mr. Lipin, the distilling association’s secretary. But he says small operators in Ontario would prefer a graduated system similar to that imposed on beer and wine makers that taxes higher-volume producers at a higher rate.

“We were looking for that and we haven’t seen it yet,” Mr. Lipin says, adding craft distillers are also pushing for the right to deliver their spirits directly to bars and restaurants.

North of 7, which currently sells its gin, rum and vodka in about 25 local LCBO outlets, is also in the midst of redesigning its logo after a trademark dispute with the provincial Ministry of Transportation. The province argued the company’s current logo, based on a 1940s-era provincial Highway 7 sign, looks too similar to current road markers.

“It’s a pain, but it’s manageable,” Mr. Lipin says of the decision to revamp the logo.

Despite those setbacks, he says the business is “pretty much breaking even.” North of 7 sold an average of about a case of a dozen bottles of its spirits at each LCBO location over the peak Christmas period, and Mr. Lipin says he expects the firm to start showing a profit once its first batch of three-year-old whisky hits shelves at the distillery’s store in May.


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