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Craft Confusion

When is the term ‘craft’ authentic and when is it marketing hype?

Craft StillThe spirits industry has seen amazing growth of craft distillers and brands. The Distilled Spirits Council of the US (DISCUS) has reported that there are nearly 730 “small” distilleries producing 3.5 million cases in 2014 (up from 700,000 in 2010) and with revenues of nearly half a billion dollars.

This craft spirits development is here to stay based on a number of factors including the interest in whiskies of all types; consumer trends regarding connoisseurship, craftsmanship and artisanal products in general; the focus on ingredients, process, and the distiller; and, attention to what’s in the bottle.

There are other forces at play here, particularly the rejection of mass-produced products in favor of small batches and hand crafted. A phenomenon affecting all consumer businesses from packaged goods to durables.

So it’s not surprising that the power of the words, “craft” “handmade” “small batch” would be adopted by large brands and used despite the intent of these words. When a brand sells hundreds of thousands or millions of cases, one needs to wonder whether the use of these words is marketing hype (as in “smooth”) or outright fraud. At the same time, there are also small distillers jumping on the bandwagon without the real credentials.

The lawsuits

The best and most succinct coverage of what is going on is to be found in the Feb 16, 2015 edition of Wine & Spirits Daily, under the headline, Truth Squad Discusses Transparency in Labeling Lawsuits. The “Truth Squad” is a panel of WSD readers (manufacturers and wholesalers) who express their professional views on a range of issues affecting the wine and spirits businesses.

There are a number of cases involving court action related to labeling:

  1. Templeton Rye was sued for claiming it was made in Templeton, Iowa when in fact it is made in a large multi-brand distillery. The implication was that the brand was a small batch product. They have since revised their label.
  2. Tito’s Vodka is being sued in California and Florida for the label claim that it is handmade as in, Tito’s Handmade Vodka. At roughly a million cases, how can you call yourself handmade? Unless, of course, you count turning on
    Tito's label
    Tito’s label

    the lights as part of the process.

  3. Maker’s Mark is also being sued for claims related to “handmade.” According to USA Today, “The lawsuit…accused the distillery of deceptive advertising and business practices with its “handmade” promotion on the labels of its bottles, known for their distinctive red-wax seal.” I know that they hand dip each bottle in the wax but can you totally hand make 1.3 million cases?
Maker's Mark
Maker’s Mark

Don’t get me wrong… I think these are outstanding, well-made products. I’m a fan of each of them but the words in question are not marketing hype words like “smooth” or “premium.” To many people, the misuse of these words appears to be deceitful.

Enter the Truth Squad

One member thinks too much is being made of this issue and suggests that the consumer doesn’t know or care. Maybe. But, how about the genuine small batch or craft distiller who has invested their life savings in a distillery and whose livelihood depends on it?

Another view was that it’s the lawyers “who make a fortune” with spurious lawsuits that are behind it all. Perhaps. People who are looking for the real deal deserve not to be cheated with misleading claims. And, if the regulatory people won’t deal with it, then the courts should.

A distributor executive put it nicely when he/she said,

“I think that the average consumer feels better about purchasing something with the perceived or real support to a small company, and dislike it when they find out it’s just part of a huge corporation. It would be…like someone buying… produce at a big box store, and then taking it to the Farmer’s Market on a Saturday wearing overalls, and making money on the perception that they are a farmer.”

What’s the answer?

Simply put, there needs to be a standard by which those using of the word ‘craft’ (and related phrases) are held accountable. Don’t expect the alcohol governing body (TTB) to do it. Even if they were so inclined, they don’t have the resources to police these types of label claims. For the same reasons, forget about the Federal Trade Commission.

I think the craft distillers associations like American Distilling Institute or American Craft Spirits Association should tackle this but, for whatever reason, seem to be disinclined to take a stand.

But, a fledgling craft organization seems more than willing to provide a solution.

Robert Lehrman, an alcohol industry attorney (Lehrman Beverage Law) together with a number of craft distillers has formed the Craft Beverage Association and its mission is to tackle this subject. This is from their (in development) website:

The Association was formed to try to find a way to set standards for the seemingly simple, yet hitherto amorphous and elusive — but fundamentally important term: craft.”

What they have in mind is analogous to the Good Housekeeping Seal of Approval or the Certified Organic Label. Their mission is: “To set craft standards for beer, wine and spirits, in a fair, modern, flexible, enforceable way, so the term can be filled with meaning and saved from abuse, for the benefit of consumers and craft beverage producers everywhere.

*     *     *

There’s a major shift occurring in the beer and spirits industries and it’s called craft and/or handmade and/or small batch. Large manufacturers have lots of options as to how to deal with this growing consumer interest. They can ignore it and present the merits of their brands as is. They can attack it, like Budweiser’s advertising. Or, they can buy legitimate craft-made brands, then screw it up, again like Budweiser. But to co-opt or misuse these terms is just plain wrong.

I prefer the industry to clean its own house but, until then, I guess we’ll continue to make the lawyers rich.

 

Handcrafted Sorel --  Jack From Brooklyn.
Handcrafted Sorel — Jack From Brooklyn.
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Craft Debate Revisited: Consumers and Lawyers

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Further thoughts on the craft subject

Last March, I wrote about Craft Confusion and this past week two interesting pieces of information have come to my attention.

The first was a webinar co-sponsored by the law firms of Locke Lord, experienced in defending consumer products companies in class action lawsuits and Lehrman Beverage Law, a law firm specializing in the alcohol industry labeling and regulation.

A day later Wine and Spirits Daily reported two surveys on the topic – among its readers (industry leaders) and among 2,000 consumers via a survey conducted by Nielsen.

Both of these have had an impact on my view of the topic.

The Lawyers

In a webinar entitled, Spirits Industry Under Fire, Tom Cunningham and Simon Fleischman of Locke Lord and Robert Lehrman of Lehrman Beverage Law discussed what the flood of class action lawsuits are about, why they are filed, who the targets are and why. (Here is the full discussion.)

My takeaway is as follows.

Blame the bottom feeding plaintiff attorneys. As you can see in the report from Locke Lord, the filing of one case creates a “herd mentality” with copycat suits following. It started with Skinny Girl, largely because the label used the phrase “all natural” and that ambiguity was enough to generate a lawsuit. From there it became an epidemic with more than a half dozen other suits including Tito’s, Templeton and others. Follow the money.

According to Locke Lord:

Plaintiffs’ class action attorneys by and large don’t care whether your product is truly “handmade” or made in “small batches” or is “craft.” They trade in what is essentially blackmail and terrorism. If they have a basis for alleging that your product is not what you claim it to be, even if you fervently believe that it is, they will sue you. Very few cases go to trial. Especially class action cases, which can easily kill a company. They have the power to put you out of business simply by making a claim. Therefore, you are likely to pay them to simply drop their claim, even if it’s bogus.

In other words these attorneys are hoping for a payday in a settlement that includes their fees. The best example of this shame is that they use “professional plaintiffs.” Thomas Zimmerman is a class action attorney in Chicago, often referred to as the city that is the home of “numerous notorious plaintiff’s’ class action attorneys.”

It turns out that Zimmerman represents Mario Aliano and Mr. Aliano’s restaurant, Due Fratelli. Aliano and his restaurant claim to have purchased a number of different brands of liquors – both for personal consumption as well as for resale in the restaurant. So the ambiguity or other issues regarding marketing and labeling was enough for these folks to sue Templeton, Whistlepig, Angel’s Envy and Tin Cup on behalf of Aliano and Due Fratelli.

Does this sound to you like consumers or retailers who need to seek redress because they were deceived?

According to Locke Lord,

“Mr. Aliano and his restaurants are what we call “serial plaintiffs;” they act as Zimmerman’s plaintiffs and class representatives in numerous class actions and generally receive an incentive award of a few thousand dollars in the resulting settlements. In terms of sheer number of cases, Zimmerman is the leader.”

Until the US adopts a legal system involving a “loser pays” rule, class action suits will hurt all businesses. That’s a rule in many countries whereby the party who loses in court pays the other party’s attorney’s fees. Read this recent article in the Wall Street Journal.

The other solution involves labeling

Robert Lehrman offers some explanations and sound advice.

First, the fact that the Alcohol and Tobacco Tax and Trade Bureau (TTB) approved the label at the Federal level is not a so-called “safe harbor.” The TTB has the tools necessary to control anything “misleading” but does not enforce it and “risks being a bystander and ceding much power to the courts and private litigants.”

My interpretation – the TTB needs to “man up” and either become an agency protecting consumers who drink alcohol products or fold the tent and let another government entity do it.

The other answers involve substantiation of claims, transparency, revisiting marketing and above all (in my view) certification. If I were running a small batch production brand I would want the American Distilling Institute or American Craft Spirits Association seal on my label. In that way I would expect to reassure my consumers and hopefully also use it as shark repellant.

The Consumer

Wine and Spirits Daily asked consumers (through a Nielsen survey) “Which of the following are the top 3 terms you associate with the word ‘craft’ as it relates to alcohol beverage products?” This was the list of choices:

  • produced locally
  • handcrafted
  • environmentally responsible
  • small, independent company
  • artisanal
  • higher priced
  • small batch production
  • superb quality
  • healthy alternative
  • highest ethical standards

The top five consumer results: 1) small, independent company 2) small batch production 3) handcrafted 4) produced locally 5) artisanal.

The same question was posed to their readers (industry professionals) who were asked to predict what terms they thought consumers would use. The answers were fairly close – 1) small batch production 2) artisanal 3) small, independent company 4) handcrafted 5) superb quality.

Even more interesting, Nielsen asked about the influence of craft. “Which of the following describes how you feel when you hear an alcoholic beverage described as Craft? More interested, less interested or doesn’t influence purchase decision.

A third of all consumers surveyed said hearing something described as craft does make them more interested. BUT, nearly 50% of millennial males (21 to 34 years old) felt the same way.

Putting these two pieces together…

The consumer is not stupid. The WSD survey tells me that some don’t care about craft alcohol products and, among those who do, they have a strong idea as to whether the use of the term is genuine, marketing hype, or even outright deception.

Above all, I don’t think we need to waste the time of the courts with serial lawsuits and bogus plaintiffs just so a few attorneys can get a payday.

Like I said, there are other solutions.

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Kim Brandi: The Rocky Road of an Innovator

A woman’s journey to succeed in the booze business

This is the story of an amazing and gifted woman who followed her dream to develop her own brand and start her own company. The ups and downs she confronted are important lessons about business in general, and the booze business in particular. It’s also a story about violated trust, duplicity, and outright thievery. Most people, faced with the difficulties Kim Brandi has endured, would close down and move on.

Not Kim Brandi. Her tenacity and resilience, coupled with a can-do attitude, sustains her continued innovation journey. Folks, she is among the most creative and outside-the-box thinker I’ve meet in very long time. If I were still at Seagram, I’d hire her in a heartbeat. But, she would turn me down in favor of the American Dream to own her own business.

There is a lot to this story so this will be one of a number of articles on Kim.

How I met Kim Brandi

A mutual friend, Ted McDonnell, introduced us under some interesting circumstances. Ted, owner of the Liberty Lighthouse Group, a sales and marketing agency, called and asked if I could assist Kim in a pending lawsuit by helping to ‘value’ her brand. Ted is a great guy and I was only too happy to follow up.

The brand? KAH tequila.

The circumstances? Well, that’s a long and complicated story.

KAH Tequila

In her own words:

Inspired by the spiritual meaning of Dia de los Muertos and the calaveras—the ornate decorated sugar skulls used in the rituals of Mexico’s Day of the Dead celebrations—I began to research and develop my own tequila brand. I came up with the new concept of marketing a quality tequila that would be sold in unique hand-painted, calavera skull–shaped bottles.

She named the brand KAH which translates to “life” in Mayan. In 2009, Kim formed Elements Spirits to import and market the brand. The manufacturer she found produced a very premium tequila and the relationship between Kim and the owners was warm and friendly. Or so she thought.

By 2010, consumer demand exceeded Kim’s expectations and she put expansion plans in place. No sooner did she do that when the folks from Crystal Head vodka sued her claiming that the KAH Tequila bottle, with its hand-painted calaveras skull, was somehow confusingly similar to the clear glass bottles used by the company Dan Aykroyd owns to sell Crystal Head vodka. Seriously? I don’t understand how a consumer would be confused by the two packages.

(Just to fast-forward for a moment… the Crystal Head lawsuit was first dismissed in 2010 by the United States District Court based upon the Judge’s determination that there was no likelihood of confusion; Crystal Head appealed and insisted it should be allowed to present its case to a jury; an appeals court agreed and sent the case back for trial; in 2013, a unanimous jury also found there was no likelihood of confusion ; an appeals court reversed the jury verdict on a technicality, and now the case is again set for another jury trial in March of this year.  In short: the lawyers are making a bundle.)

But that was only part of the problem. Kim partnered with the owners of the distillery in Mexico that produced the tequila for the KAH brand, who turned out to be less than trustworthy. Based on what I know about evil human inclinations—I believe they looked at her being “a woman of color” as an easy target. They were wrong; Kim is as tough as can be.

How KAH was lost

This is the long, somewhat difficult and potentially litigious narrative, so I’ll tread softly and succinctly.

  • The owner of the Mexican contract bottler brought an investor to the table. Elements Spirits (Owned by Kim) entered into a Stock Purchase Agreement with WXYZ
  • Before she knew it, WXYZ assumed a majority interest in Elements and took control.
  • A series of unpleasant events and attacks on Kim’s role in the business followed. Lawsuit after lawsuit ensued and the cost to Kim to defend them rose and rose.
  • The worst part was that the new owners began attempting to remove Kim from the KAH history and claimed others had created the brand.
  • To protect herself, she filed copyright registration in 2011 for all parts of the KAH brand and package and all applications were approved.
  • In the fall of 2013, Brandi and Elements (now controlled by WXYZ) attended a court-ordered mediation in the Crystal Head litigation in order to work out a resolution of various disputes. They needed peace, so they could fight the Crystal Head suit.
  • The binding agreement called for acknowledgement that Kim was a shareholder of WXYZ (they had previously cut her out) and also acknowledged her ownership and copyright rights.
  • The agreement was ultimately breached and WXYZ and the Mexican co-packer began a series of actions to infringe on the copyright owned by Kim. Assorted other deceptions and outright illegalities followed. A vicious fight in the U.S. and in Mexico ensued. In the end, the U.S. court acknowledged, Kim’s rights to the intellectual property ownership of the calavera shaped bottle. She won the battle but not the war.
  • Meanwhile, WXYZ continued to sell KAH with no royalties or proceeds going to Kim. She was forced, therefore, to file suit to block the KAH importation and to notify U.S. distributors to cease selling the brand.

In sum, for six years, Kim Brandi was embroiled in a fight for her intellectual property rights. Finally looking forward to ending the pillaging of her life’s work and livelihood, a trial was scheduled for December 8, 2016.

Seeing the handwriting on the wall, WXYZ and the Mexican co-packer sold KAH Tequila to the Amber Beverage Group (a division of the Stoli Group) for an undisclosed amount.

That’s Where I Come in

Kim and her attorney, Jon Miller (Miller Johnson Law), asked me to appear as an expert consultant to assist at a mediation session. My role was to address the value of the KAH brand and help explain what the spirits industry was all about—in terms of operations, finance, sales, and other matters.

The valuation of KAH was difficult, since Kim Brandi was kept in the dark. The records and information about sales were not easy to come by. A friend provided some public data and Kim’s ingenuity located some import sales data, so we knew the number of cases sold.

On November 2, 2016, Amber Beverage – the new owners of Fabrica de Tequila Finos, S.A. de C.V. (producers of tequila for the KAH brand) and Kim Brandi settled their disputes over the ownership, sale and distribution of tequila using the unique calavera bottle design. The intellectual property related to KAH (calavera-shaped bottle, trademark, various artwork) was transferred for consideration and is now under the control of Amber Beverage.

I can’t go into the details, but suffice to say that—for better or worse—the matter was settled.

Lessons learned

  1. Be careful with whom you do business. That smiling friendly face across the table can easily become evil when money is around. Of course, you never really know at the outset, so protect yourself with all the paperwork you can (or that makes sense) right at the beginning.
  2. Surround yourself with knowledgeable, experienced booze business people and take their advice.
  3. With all due respect to my lawyer friends, don’t assume the courts and the legal process will come to your aid. Even when you win, if the other side has deeper pockets, the system allows them to keep going at your expense. (Although if you end up in court, try to find someone like Jon Miller to represent your interests.)

What is Kim doing now?

Tenacity is a word that gets bandied about a lot. It’s defined as the quality or fact of being very determined. In Kim’s case, I’d have to say that she is beyond tenacious. She gets going and is fueled by her creativity, passion, and desire for innovation. When she lost KAH, she created a new vision for the Sangre de Vida (Blood of Life) brand, to be released this Spring, which I’m sure will be no less than amazing. I’ll show it to you when it’s released.

Her other tequila is called Apocalypto Tequila, an award-winning product, it is handcrafted in packaging made from artisanal glass.

The most interesting product, Deadhead Rum, is produced by a special slow process and aging that makes the product unique in taste and complexity. There is also a Deadhead Dark Chocolate rum, coming this spring. I have not tried it as yet but the back story is incredible and from what Kim has told me, the taste is extraordinary. And, so is the package.

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The Booze Business needs people like Kim Brandi. If you haven’t figured out why as yet, stay tuned, I’ll be telling more of her story in the future.

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