Urban distilleries, aka legal moonshiners, are popping up in the achingly cool suburbs of Sydney and Melbourne—bars offering house-distilled spirits, such as gin and vodka. It’s trendy, but will it fit into your business model? By Ben Canaider

Forget BYO. That’s dead and buried. Nowadays, it’s DYO: Distill Your Own. Bars either devoted to or featuring in-house distillations. As the growth in the spirits category has soared over the last decade, and with high-end whisky bars offering hitherto unprocurable single malts, the premiumisation of spirits in Australia continues apace. And the latest manifestation of this trend is the in-house distillery.

Twenty years ago, ‘gastropubs’ were investing in on-site micro breweries, so the clientele could see the bits of copper and brass and stainless steel whence the Jolly Jumbuck Ale and Convict Cove Lager was made and pumped.

Ten years ago, cocktail bars took up in-house infusions, so the clientele could see the Kilner jars and demijohns of green glass whence the aromatics and bitters of the said in-house infusions came from, before they were painstakingly added to the cocktail being built in front of the clientele’s very eyes.

But once that’s, well, been Instagrammed and mainstreamed-totes-whatevs, where does a liquor licensee go? What next to satisfy the locavorian, authenticorian, me-me-me-avorian demands of the customer?

Your own still. Distilling your own spirits.

So here are the pros and cons. The cons kick off, because there’s a really big con right at the top of the con list: distillation licence and excise.

Part of the reason Australia does not support a bigger and more dynamic spirit-manufacturing base is all down to taxation. Australia is one of the highest taxed spirits producers in the world. The Australian government, via excise, takes three times as much revenue from a locally made bottle of gin than the local gin makers does. Every time an Australian connoisseur buys a shot over the bar, $1 goes to tax in Australia; whereas the same connoisseur in the USA adds only 10c to the tax collected by the IRS.

Currently, in Australia, excise on spirits is calculated at $82.27 per litre of pure alcohol. The equation works out thusly: If you make a 40 per cent ABV spirit and sell it in a 700ml bottle, that bottle of spirit attracts $23.04 in excise. Twenty-three bucks straight to the government and simply because you are engaged in the time-honoured pursuit of distilling pure ingredients to make a pure beverage.

It’s no wonder, then, that Australian spirits manufacture constitutes but two per cent of this country’s spirits market. In fact, the excise and taxation system burdening spirits sales in this country is so bad that a major importer of American whiskey, Brown Forman, (importers also have to pay the excise) is questioning how they can continue to operate in a country with excise and taxation levels so unattractive to long-term investment and trade. This excise disincentive is no doubt part of the reason Australia has not, until very recently, delved deeper into the world of locally made spirits.

For a long time now, Bill Lark has been the rara avis. He established his whisky distillery in Tasmania in 1992. It had been 150 years since Tasmania had one.

The other challenge for local spirits makers is distribution—much of which is controlled by the bigger conglomerates. So if you make a gin or a whisky or vodka, how do you get it to market?

One shortcut is to be the market yourself; hence, house-distilled spirits.

Distilling your own spirit does makes some sort of consumer-demand sense. If your restaurant has an open kitchen and your customers can see the chefs sous-vide-ing the organic celery that your kitchen garden has grown using the coffee compost your barista has re-purposed from the fair trade coffee beans that the customer has seen being ground in front of their very eyes, then it makes sense that the spirits you serve to the very same customer at 9pm that night are house-distilled in the small-batch, 20-litre copper pot you’ve had hand-made in Holland for the purpose of creating a unique Australian gin using Native Australian botanicals such as wattle and sea cucumber. If you do everything else in-house —pasta, bread, micro-herbs and infusions, labna—then why not spirits?

Indeed, distill your own and you’ll be in the lifestyle pages and lift-outs of the one or two newspapers left, and you’ll have every food blogger ‘liking’ you before they hit you up for a free dinner for a contra online review.

The economics of the process still puzzle me. Besides paying the twice-yearly excise on any spirit you produce, you also have to stump up a fee for a manufacturer’s licence; then there’s the cost of the still and the cost of manufacture; the labour cost of a distiller, and all the risk this poses against the vagaries of the market and what the customer will indubitably want next.

I take my hat off to hospitality players who are giving distillerys a go. The bright side to all of this is that as more locally distilled spirits are sold, the sooner some sort of sense may come to Australia’s crazy spirit excise and taxation system. Just don’t hold your breath.

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