Spirit Strategy

Most people don't see craft distilleries and industrial recycling going hand-in-hand.

But the Iafrate family thought expanding to craft spirits was exactly the kind of diversification they needed in their family-owned business portfolio.

The Iafrates are known for bringing a large industrial recycling company, Angelo's Recycled Materials, from Michigan to St. Petersburg. Now they want to pay homage to the city that has become their home — by naming a distillery after it.

In 2014, the family had a large property in the city and knew they wanted to find another business in which to invest. They were intrigued by the booming craft beer industry, but the market was becoming pretty saturated. Why hadn't there been a similar revolution in craft spirits, they wondered?

At the time, there wasn't a distillery of note in the Tampa Bay area and not many more nationwide. Even now there are just 20 craft distillers registered in Florida, and only a handful have recognized names in the state, such as St. Augustine, Siesta Key or Wicked Dolphin. “There was no Cigar City of spirits,” says John Wisely, St. Petersburg Distillery's vice president of sales and marketing, referring to the popular Tampa craft beer brand.

On a national scale, today there are more than 1,400 craft distilleries, according to Margie Lehrman, executive director of the American Craft Spirits Association. There were 210 in 2010.

The Iafrates predicted it was only a matter of time before people would start to think about liquor the same way they'd started thinking about food and other beverages — wanting a more personalized, organic experience and something local to the area where they were drinking it.

That was the starting point for Dominic Iafrate Sr. and his two sons, Dominic Jr. and Steve, behind St. Petersburg Distillery. Now they want more: They want to be the leading Florida distillery.

They will get there, the Iafrates say, by hiring top talent in the industry and finding innovative ways to differentiate. But they've also learned that being in the industry poses a number of challenges.

St. Petersburg Distillery makes a number of craft spirits including vodka, gin, whiskey, rum and liqueurs. It's on track to produce 20,000 cases this year. In 2015, the company won five awards from Wine and Spirits Wholesalers of America.

In 2016, the distillery's Banyon Reserve Vodka was rated best vodka in the south by Southern Living and received a 91-point rating from the Beverage Tasting Institute.

Defining distribution

Distributed through Republic National Distributing Co., St. Petersburg Distillery's brands are in more than 1,000 stores in Florida. Its products have shelf space in all of the major retailers, including Publix, Winn-Dixie, Total Wine, ABC Fine Wine and Spirits and a number of independent retailers. About 50% of the company's distribution is along the I-4 corridor in Central Florida, but other business comes in throughout the state with a boost from its authorization to distribute to all Publix stores.

This year the goal is to concentrate on saturating the state outside Central Florida. There's a lot of business to be had just in the Sunshine State, according to Wisely. It's one of the top three alcoholic beverage-consuming states in the country. “We're a Florida brand. We want to grow in Florida,” Iafrate says.

Expanding to a second state can be a big hurdle for a craft distillery, according to Lehrman. The state regulations are so complex that craft spirit producers need to learn a whole different business system and approval process. “There are 50 different sets of laws you must comply with,” Lehrman says.

Changing regulations

Craft spirit producers are also restricted on what they can sell directly to consumers. Unlike visiting a vineyard, when you go to a distillery, there is a restriction on the number of bottle sales. There are also restrictions on the ounces you can pour and the number you can taste, Lehrman says.

Distilleries must keep a registry of everyone who purchases bottles. “Right now in the state of Florida, all I can do is small sampling, and I'm limited to two bottles per citizen in a calendar year,” Wisely says.

Distribution is not the only barrier to entry. There is a $13.50 federal excise tax on every proof gallon of spirits, which amounts to 54% of the bottle going to taxes, Lehrman says. Wine and beer have both received tax reductions. Spirits “haven't received any reductions since Prohibition,” Lehrman says. “It's like the Cinderella step sister that still doesn't have the exact same treatment.”

Because the industry is relatively young, it hasn't had much representation by lobbyists — at least not as much as the beer and wine industries. The American Craft Spirits Association is one of the leading advocacy voices.

Relief could be forthcoming. A bill in the state Legislature calls for relaxing the limits on bottle sales and production. “The revenue or profit would go right back into marketing our product,” Wisely says. Spirits are also included in the federal Craft Beverage Modernization and Tax Reform Act, which looks to reform the excise tax for smaller production operations for beer, wine and liquor.

Find the best

The Iafrates have barreled their way through the obstacles. “We're starting to grow out of our facility,” Dominic Iafrate Jr. says. This year the company hopes to expand its current 30,000-square-foot facility to make room for a full retail and tasting facility.

Beyond regulations, the craft distillery isn't for the faint of heart. A distillery costs between $1 million and $3 million to launch; lending is hard to secure; and the time required for liquors to age makes for a long wait for a return on investment.

But the Iafrates say the key to success is the same as any industry.

“With any of our businesses, we learned from our grandfather and dad, you have to attract the best talent and surround yourself with the best people,” Dominic Iafrate Jr. says. “We looked to hire the most respected individuals in the industry.”

One recent hire, the new director of marketing, is Carolyn Ruby, a former business development manager at Tech Data and a current board member of the Pinellas Economic Development Council.

In the early stages of business, the family hired Frank Dibling, who has 25 years of spirit production experience, to lead the production team. Dibling had been with Florida Caribbean Distillers, which distills a variety of rums, but also offers bottling and barreling services.

Dibling convinced the Iafrates that it was a good model to offer their production facilities to other companies, due to the sheer size of Florida and amount of consumption in the state. “There are not many places to get liquor products bottled and produced in Florida,” Iafrate adds.

The distillery currently has at least eight brands that it's doing contract bottling for, including Toast Vodka, Big 5 Rum, and GTV vodka.

Wisely was another key hire. He had been with Premier Beverage (now Breakthrough Beverage), a leading spirit distributor. Wisely worked his way up there, from entry-level sales rep to director of a national retail account, which included managing sales at Winn-Dixie.

“Now I get to take all of the experience of selling everyone else's products — what worked for them and what didn't — and take that and apply it to what I'm doing here with our brands,” Wisely says.

The company plans to invest more in large-scale traditional marketing campaigns, now that the distillery is in a place where it's ready for quick growth. With its current production set-up, it has five copper pot stills and an automated bottling line. “Our onus is growing our sales, it isn't producing enough,” Wisely says. “We are not bound to how much we can produce.”

Also up next: steal market share from big players like Tito's and Bacardi.

“There's not been a whole lot of evolution in people's vodka or whiskey or rum choices, the leaders have held market share for a long time,” Wisely says. “We're aspiring to be the leading Florida craft distillery.”