McCormick Distilling Co., Inc.

Source: Food and Drink Digital

Date :26/07/2007 16:53:36

McCormick Distilling is using innovation, a compelling company history, and its flexibility to grow sales and product volume

Written and produced by James Buchanan & Michael Magno

Size does matter, but it can cut both ways.

Large companies portray their relative size as an advantage when it comes to marketing and achieving certain operational efficiencies. You know - economies of scale, and all that.

However, on the other side of the scale, smaller companies can claim an advantage when it comes to flexibility and being able to quickly move new products to market.

For McCormick Distilling Co., Inc., based in Weston, Mo., the latter of these two scenarios has helped them achieve considerable growth in a relatively short amount of time.

“In 1993, when the current owners purchased the company, our payroll was less than $1 million and that has grown to more than $6 million,” says Jim Zargo, president of McCormick Distilling. “In that same amount of time we were producing around 1.5 million cases and now we are producing almost 4 million - so our volume has almost tripled as well as our sales volume.”

Zargo adds that the company’s growth is due in part to unleashing the self-imposed constraints of the company’s former owner.

“Since Midwest Grain was primarily selling bulk alcohol with just a very little bit of bottled goods, there were certain markets that they just didn’t want to go into; certain regional markets,” he says. “When we bought the company we just started expanding our distribution, and probably the biggest success we had - the one that got us off the ground - was the introduction of our premium brand Tequila Rose.”

In the intervening years, says Zargo, the company has worked to grow its brands while also expanding the company’s portfolio. The result is that the company has grown financially, but also distributes its products nationally and in 37 countries.

“We have some contract production done for us in Holland, and in Canada for Tequila Rose, and a couple of our other products,” says Zargo. “Our biggest dollar export is Tequila Rose.”

Though the company is not as large as some of the heavy hitters in the distilled spirits market, it has a rich history that includes being the oldest continuously operating distillery west of the Mississippi.

The business was originally founded at its current location in 1856 by Ben Holladay, who wanted to take advantage of nearby limestone springs previously discovered by Louis and Clark. Holladay believed that the water would be good for making whiskey and the location would be a popular stop for the wagon trains heading west.

Holladay was a busy man, as he played a role in a number of other endeavors including the founding of the Pony Express. By 1860, he decided to focus on other projects and turned the distillery over to his brother, Maj. David Holladay.

The distillery remained with the family until 1895 and over the next 55 years ownership would change hands three times.

During Prohibition the company remained in business as a pharmaceutical company, producing whiskey for medicinal purposes.

Then in 1950, the company – operating under the name McCormick Distilleries – was acquired by Midwest Grain Products. McCormick would remain with Midwest until 1993, when the distillery was purchased by Ed Pechar and Mike Griesser.

Since then the company has grown and gone through a few changes, all the while operating under the motto, “It always comes down to quality in the bottle.”

Zargo adds that the company seeks out only the best products that meet its strict standards. In some cases, the company has particular specifications that a supplier must meet.

The company also sources products throughout the world. For example, McCormick purchases rum from the Virgin Islands, special tequila formulations from Mexico, gin and neutral grain spirits from MGP Ingredients in Atchison, Kansas, and whiskey and bourbon from Barton Brands in Kentucky.

Asked what has facilitated the company’s growth, Zargo says it’s a combination of innovation and knowing the niche the company fills.

“We feel that we’re a small organization that is able to compete in the wider spirits market because we’re very aggressive; we understand our role in the market in that we aren’t trying to compete against the bigger companies such as Bacardi or Diageo; and we are able to produce specialty products and get them to market very quickly,” he says. “Our Tarantula Azul tequila, Tequila Rose, and our new 360 Vodka are all examples of that.”

The latest of the company’s products to hit the market is its 360 Vodka, which is being marketed as a “green” vodka, in that it is produced and distributed in an environmentally - friendly way.

The labels for the vodka are made from 100 percent post-consumer waste paper, distilled in an environmentally - efficient manner. The bottles are made from 85 percent recycled glass. The cardboard packaging is made of 100 percent recycled paper, and the distilling equipment used to produce the vodka meets or exceeds EPA air and water quality standards.

Further, the vodka is marketed as being “The Evolution of Vodka,” which aptly captures the thinking of the company as it seeks to provide customers with new offerings.

“Product development for us really is a collective process where sales and marketing identify specialty avenues — whether its expanding into flavored vodkas or tequilas — to find something that is different and unique,” Says Zargo. “We understand our role isn’t to compete against Bacardi or Diageo, and so we look for what I suppose you could call niches, where we can develop products that meet an as - yet identified trend or need in the market.”

And the company can move on these impulses rather quickly. The total time from conception, to production, to shipping for the 360 Vodka was only six months, he says.

However, one of the challenges the company must constantly deal with, especially when it comes to marketing its products, is the varied and state-by-state nature of laws and regulations governing the manufacture and distribution of alcohol. The company must tailor its marketing efforts to each state to conform to its relative requirements.

The main difference among states, Zargo notes, is that some states are controlled — where the state is the retailer selling the alcohol through state - owned venues — to where others allow the company to work directly through distributors to market the product.

“In controlled states we have to work through a broker, which is the medium that we must work through with the state on any promotional efforts,” he says. “It’s a lot more restrictive.”

The reason they are able to work within all of these different regulatory environments successfully, says Zargo, is the company’s “aggressiveness, hands-on management and our flat organization that allows us to turn on a dime.”

Speaking to the company’s flat organization, Zargo says the company is not overly structured as far as its decision-making process. He and others in the company have worked in large corporations where decisions could be delayed by endless committees, he says.

McCormick wants to remain fast on its feet and flexible enough to move quickly, which Zargo says requires a relatively fluid management structure. Being smaller enables the company to operate in this manner.

“It may seem like there isn’t any structure, but there is structure,” he says. “We can meet or have a phone call and make a decision on how to proceed with an initiative very quickly.”

Looking to the future, Zargo says the company has given some thought to getting into micro-distilling, which is a recent phenomenon similar to micro-brewing.

Also, the company will look to continue to grow organically.

“We want to develop our internal products by being innovative,” he says, “and the 360 brand is a good example of that.”

There is also the company’s ability to innovate - the latest of which is adding a handle to the side of its 1.75 liter PET bottle.

“You can’t blow PET plastic into a handle,” says Zargo. “Instead, the handle is implanted into the mold and the bottle is blown around it. It’s really unique; there isn’t anybody in the industry doing that.”