PICKING YOUR POISON has never been harder.

Although household names like Jack Daniels, Jim Beam and Johnnie Walker remain staples in the American liquor cabinet, now liquor connoisseurs have a much wider pool of spirits to choose from.

Today, there are more than 200 distilleries in the U.S. pumping out boutique booze and artisanal spirits, and they’re growing at a rate of about 25 to 30 a year, according to the American Distilling Institute, an industry group in Hayward, Calif.

Small, neighborhood distilleries are thriving for a couple of reasons. First, they’re capitalizing off the same consumer shift toward local drinking as craft-beer brewers and small-scale vintners. Second, various state laws have helped small players in the industry. A number of states have recently legalized liquor tastings at manufacturing facilities and retail outlets. Some states have even relaxed certain alcohol-sales prohibitions, such as selling liquor on Sundays.

Although such victories were hard-fought, small distillery owners like Ralph Erenzo are now reaping the benefits. In July, Erenzo opened up tours and a shop at Tuthilltown Spirits, a micro-distillery that he co-owns in Gardiner, N.Y. And despite being sold at fine-dining locations and elegant bars around the world, his distillery’s store is the company’s second-largest customer – raking in over $150,000 in its first five months. In total, the company’s sales amounted to roughly $500,000 in 2010, up from just $60,000 in 2006. By the end of 2010, Tuthilltown, which makes Hudson-brand whiskeys, expects to break $1 million in sales. And although the company isn’t yet profitable, Erenzo expects it to be within the next two years.

SmartMoney asked Erenzo a few questions about the ups and downs at his seven-year-old company. Here are his condensed answers.

Name: Ralph Erenzo
Business: Tuthilltown Spirits, a micro-distillery.
Industry: Alcohol
Location: Gardiner, N.Y.
Year founded: 2003
Number of employees: 10
Web address: www.tuthilltown.comIn the grand tradition of grain alcohol, age is a key ingredient. However, many of your whiskeys are short-aged -- that is, they’ve been distilling for just months, not years. How are you able to produce a quality product in less time?

We just started with the legal definition of the liquors we aimed to make, which now include vodkas, whiskeys, rum, eau de vie and brandy. To make bourbon, for instance, federal law says a grain mixture made up of at least 51% corn (ours has 100%) must be stored in new, charred oak aging barrels. But it doesn’t say anything about how long that mixture should rest in the barrels. So, we decided to make it to taste. We also use three-gallon and, more recently, 12-gallon barrels, which allow more of the alcohol to interact with the oak in a faster span of time. By contrast, big alcohol companies, which often use much larger barrels, typically let their whiskeys age for longer. They can also afford to keep their products tied up in production for longer periods.

What do you do if a batch doesn’t taste right?

Since we don’t allow our spirits to age for several years, which tends to cull out impurities, we manage each of our batches. If we make a batch in the summer, we know that it’ll likely take less time to mature than batches made during the winter. Higher temperatures tend to speed up how the liquid interacts with the wood. Basically, if one of our spirits doesn’t taste right, we might keep it in the barrel longer or shift the contents from one barrel to another. There are so many variables in the process and we do our best to keep them under control.

Does making alcohol faster help you from a business perspective?

We would never ship liquor that wasn’t up to our stiff internal standards, but being able to go to market with our products faster is a big help. As a small shop, we don’t have the capital required to cover our expenses over years-long production cycles. It also helps that we make vodka too. Since vodka, which we make with 100% locally pressed fresh apple cider, doesn’t need to be aged, it can also go to market quicker.

How do you compete with big companies like Brown-Forman and Diageo -- the makers of Jack Daniels and Johnnie Walker?

Initially, U.S. distributors wouldn’t give us the time of day. So we went directly to those who have a hand in serving up America’s drinks: bartenders, mixologists, chefs and bar owners. I’d walk right up to the owner and put my bottle on the bar and say ‘Here’s the first whiskey made in New York since Prohibition, as well as the first bourbon whiskey distilled in New York.’ Nobody ever gets to meet the distiller; they only meet the liquor distributors. They’d always let me in. Today, we’re in a minimum 250 locations across the country -- with a heavy concentration in New York, Los Angeles and San Francisco.

But what really helped us land wider-spread distribution in the U.S. was having already made a splash in Europe. Through a friend, I met one of the top whiskey distributors in Paris. After a short trip abroad, we inked orders from some of the most prominent havens in the city. When I came back, I could then walk into the Four Seasons and say ‘This is the same whiskey that’s on the top shelf at Door 74 in Amsterdam and the Regina in Paris.’ Suffice it to say, we had a lot more credibility in the U.S.

You say becoming a licensed distillery in New York took years. But have some of the legal restrictions become more lax in recent years?

Regulatory issues of alcohol are ridiculously arcane and unreasonable. I liken it to building a car in 1930 and never building a new car since. The 1930 engine is still running but it’s been duct-taped together. With such gaping budget deficits, you would think they’d be more supportive of an industry that is bringing in added tax revenue. Still, states are changing the laws. They’re starting to see distilleries as legitimate businesses that are also substantial tax generators in rural areas. We’re also helping local farmers. We have contracts with farms all around us. I think regulators see that; we put the money in the farmer's pocket, not some commodities broker in Chicago.

A lot of alcohol makers have complained about slumping sales during the downturn. How has your company fared?

The downturn hasn’t really affected our sales; it’s just shifted them. Our on-premise sales may have dropped, but the off-premise sales were higher, as more people opted to buy their favorite spirit to drink at home. We’ve also been helped out by our private label clients. We make an absinthe under the brand name Edward III. We’re now making a brand of vodka called Bootlegger Vodka.

What is your best advice for future distillers?

When you’re trying to establish credibility, go hunting with a rifle rather than a shotgun. In other words, go to the important markets then be selective choosing your targets. These establishments are where the stamp of legitimacy is made.

 
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