Can Kiki Vodka survive in Pa.’s crowded craft spirits market?

Talk about needing a drink.

John Jameson had just decided to enter Pennsylvania's rapidly growing craft spirits industry when the double whammy hit.

"I signed my SBA loan the same week I found out I was going to have a child," recalled Jameson, 38, now the father of a 2-year-old daughter, admitting that his decision to press on with a plan to start a vodka distillery left him thinking, "I must be nuts."

Time will tell how crazy — or not — an idea it was.

On the Friday leading into Memorial Day weekend, his company's Kiki Vodka debuted in 10 state stores as part of the Liquor Control Board's (LCB) program to promote wines and spirits produced in Pennsylvania. It was Kiki's first direct-to-consumer sales opportunity since the Hatfield-based start-up began producing vodka in June 2016. Prior to placement in state stores, sales were limited to bars and restaurants.

Acknowledging he has entered a world where Tito's is king, Jameson said he thinks the consumer movement for locally sourced products provides an opportunity for a regional distillery to "steal some shares" from such a global player as long as it has a product that is "different or unique."

The result of months of trial and error, Kiki (the nickname of a Jameson friend) is a gluten- and GMO-free vodka, six-times distilled, and refined through a three-stage silver and platinum activated carbon filtration system. The result is a smooth spirit with a bit more body than a typical vodka.

"I was just passionate about doing something ourselves," Jameson said of his motivation.

So, apparently, were others.

As of June 18, Pennsylvania had 85 active limited distilleries, according to the LCB website. That is up from seven in 2012, the first year limited distillery licenses were available in Pennsylvania, and 21 in 2014.

The LCB does not track what each distillery makes, so it could not be determined how many are producing vodka. A limited distillery license allows the production of as much as 100,000 gallons of distilled liquor a year by an individual operator. Privileges were expanded in 2016, allowing each distillery to have as many as five LCB-approved locations and to offer tastings at all of them.

Largely credited with pioneering the state's modern-day craft spirits industry is Andrew Auwerda, president and cofounder of Philadelphia Distilling, makers of Bluecoat Gin and the first craft distillery to open in Pennsylvania since Prohibition. Started in Northeast Philadelphia in 2005, Philadelphia Distilling built a $4.5 million distillery, tasting, and retail complex in Fishtown that opened on Presidents' Day 2017, a testament to its success and Auwerda's ambition to be the "number-one premium selling gin in America," he said Monday. Bluecoat is sold in 42 states and is exported to six countries.

"We want to be the Tito's of gin," Auwerda said, crediting his company's growth — he would not provide actual sales figures — to not only a high-quality product but to getting a head start in an industry in Pennsylvania that Auwerda contends is "becoming saturated."

When Bluecoat Gin was first available for purchase in 2006, it was the only Pennsylvania-made premium gin on the market, Auwerda said. Now, he said, some of the top state stores "have 15 gins from Pennsylvania, let alone 20 other craft gins from around the country and around the world, plus legacies" such as Bombay Sapphire and Tanqueray. The craft vodka and whiskey market is "not far behind," Auwerda said.

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He said Kiki's principals need to have relatively modest expectations.

"If someone wants to start a distillery in a place like Hatfield and they have aspirations of making a living and paying a few other people, that's doable," Auwerda said. "When they start to have greater goals — statewide, or out of state, or nationally — it's a completely different ballgame in terms of the hurdles and challenges. … It's just a huge hurdle to get an out-of-state distributor interested in your product."

Contributing to that is consolidation of distributors, a trend that began about 2½ years ago, said Herman Mihalich, cofounder of Mountain Laurel Spirits distillery, the Bristol-based maker of Dad's Hat Rye. In business since 2011, it now is selling its whiskey in 20 states and overseas.

"The big distribution companies are gobbling up the smaller ones," Mihalich said. Getting their attention depends on uniqueness, he said.

"You'd better have a hook. You'd better have something that differentiates you, either through some special ingredients or process," he said.

More achievable, Mihalich said, is a business plan that is locally focused selling to bars and restaurants, as Kiki's has been doing, and straight to consumers from distillery sites that double as pubs, "where you can sell out the door your bottle and can make cocktails."

At Kiki, Jameson would not disclose sales figures or details on financing. Among the company's investors is Steven Melick, executive director of the La Salle Center for Entrepreneurship at La Salle University and a serial entrepreneur, who is serving as Kiki's chief operating officer. With some local brand traction, the company now needs "some structure" and capital, he said. Melick said Kiki soon expects to seek about $300,000 in capital from angel investors for expansion, sales, and marketing.

A five-year business plan includes a couple scenarios, he said — one with organic growth, the other a more robust expansion enabled by catching "a really strong wind."

"If we get this capital, we're fairly confident we're going to catch that wind," Melick said, citing research that 213 million cases of spirits are sold each year in the U.S., nearly 34 percent of it vodka, with the market having a compound annual growth rate of 1.5 percent to 2 percent. "We think there is a lot of room to play in this market with a strong brand and quality product."

Asked what that would look like, Jameson said the sale of several thousand cases of vodka a month. Currently, the company is averaging 200 to 240 cases a month, he said. A case contains six one-liter bottles. The bottles in state stores are 750 milliliters.

Plans include an expansion, possibly by July, to the Pottstown Farmers Market, purchased by a group of investors who recently reopened it. Among them is Elliot Menkowitz, a retired orthopedic surgeon and serial entrepreneur who has invested in Kiki.

He said what appealed to him is Jameson, who, like Menkowitz, went to La Salle, the quality of the vodka (it was the silver winner last year at both the San Francisco World Spirits and the New York International Spirits competitions), and the reliability of the spirits market.

"People drink," Menkowitz said, "when they're happy and sad."

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