A crippling tax on distilleries

Australia's lucrative alcohol industry is a tough market to crack for small start-ups, but the stakes are even higher when it comes to spirits, with heavy taxes crippling chances to succeed. Small Business Secrets met two rival distillers, who are united in their calls for government concessions.

Will Edwards doesn't just have the spirit - he bottles it. Gin, vodka and whiskey, to be specific, in his distillery business Archie Rose.

"So we're two years old. We started with just me, we've now got 13 full-time staff, we're hiring two more, so it will be 15 full-time staff," he says.

Will founded Archie Rose in 2015, leaving his career as a management consultant behind.

"The challenge with this industry is that this is the first independent distillery City of Sydney's seen for over 150-odd years. So, you know, I left Deloitte, I was 24, I had no commercial experience in distilling because you need federal licences to do it. And you can sort of imagine walking into a bank and saying, 'hey, I want to do this thing Sydney has never seen and hasn't really been done in Australia in this format before'. They are bit reluctant to back that."

Will Edwards founded Archie Rose Distilling Co. after quitting his job as a management consultant.
Will Edwards founded Archie Rose Distilling Co. after quitting his job as a management consultant.

So Will poured all he had into the business and sought out private backers.

"I did what most people do - I put everything you have into it. You go to family, you go to friends, you go to all the contacts you have, and it sort of broadens out there until you get the capital you need."

Will and his team searched across Australia for the best ingredients and suppliers. Today, his customers can also tailor their own spirits and customise unique flavours.

Tens of thousands of people go through his bar every month.

"Financially, yeah sure, it's lucrative. But our goal is not to set up a distillery, make some gin, and - I don't know - flip it. We're here for the long term, and whiskey I guess is the biggest commitment to the long-term. Everything we make and more is reinvested in plant equipment, whiskey production, and the team."

And Archie Rose isn't without its accolades - picking up key awards in Europe.

"For us, really, the plan is - don't compete, do things differently."

It's also a different set-up for rival distiller Ironbark - also founded in 2015.

The small start-up is based in Greater Western Sydney, and was launched by husband and wife duo Reg and Greta Papps. After more than 20 years as an industrial distiller for Shell Oil, Reg was made redundant.

"The learning curve was steep, and we had to learn on the run," he says.

The Papps have put half a million dollars into Ironbark, and have only just started to take a salary.

Ironbark Distillery founders, Reg and Greta Papps.
Ironbark Distillery founders, Reg and Greta Papps.

But their gin has proven priceless, picking up gongs in the US, China, and a finalist for world's best gin.

"To be recognised for what you love to do is an amazing feeling. It really is," Reg says.

But the road to becoming a distiller is long and very difficult. First, local council approval is required, then state government sanctioned liquor licenses, and, finally, the federal government's okay to operate.

The biggest barrier is excise duty: a crippling tax of 82 dollars per litre of alcohol bottled.

Will from Archie Rose says, "what that means is in a bottle of gin, 700mls, forty-ish per cent alcohol, you're looking at around the $23 mark in tax, which is by far and away the biggest cost."

"As an industry, we have lobbied the government for some relief," Reg says. "They've given us a small break, which if I believe correct will come into effect after the financial year this year. They would be better off overhauling the excise system completely, moving to possibly a volume-based system."

There are many disincentives for budding distillers to go for it and start their own business, but the payoff is in the final product. This is why they take a shot.

"If we didn't believe in chasing dreams we wouldn't be sitting here right now. It's as simple as that. I mean, it's not the kill it's the thrill of the chase as they say," Reg says with a chuckle.

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