Phillips Distilling is diversifying its liquor cabinet after years of declining sales from its most popular vodka brand, UV.
The 105-year-old Minneapolis-based distilling company is taking on a new strategy of cracking into the “craft spirits” market.
Since Mike Duggan took over as chief executive of Phillips Distilling in 2015, the company has moved from focusing solely on Vodka to include mescals, whiskey, rum and tequila by partnering with a variety of international brands, which he said has increased sales this year by 30 percent.
For years, Duggan said, the strategy at Phillips Distilling was simply to create a new flavor of the company’s flagship brand, UV, and market it. But sales for the vodka’s 19 different flavors have tanked in recent years.
He decided to just focus on the flavors that were selling and cut the ones that weren’t. Duggan said his company was hit by an industry-wide decline in flavored vodka, and a rise in alternative categories such as bourbon, scotch, tequila and rum.
“Our UV brand, much like many other flavor-first vodka brands, fell victim to this consumer trend,” he said. “I recognized that there were other categories where there was growth potential.”
Over the past year, Duggan has created partnerships, by taking over distribution rights in the U.S. and Canada, with smaller international liquor brands, or “craft brands.” Phillips added Classico by Centinela Tequila, La Hechicera rum, Marca Negra Mezcals from Mexico and Tomatin Single Malt Scotch whisky, which won a double gold medal and was named Best Scotch at the San Francisco World Spirit Competition earlier this year.
Phillips Distilling’s new strategy is comparable to the craft beer market, Duggan said, where larger breweries are sweeping up smaller, locally owned ones. He said the craft brands have contributed a 30 percent increase in revenue this year.
“It gets us into new segments in the industry that we weren’t currently in, such as premium rum and mescal,” said Scott Meek, vice president of marketing for Phillips Distilling. “We can now provide a brand for everyone.”
Besides just adding international liquors to their portfolio, Duggan wants to refocus marketing efforts on its craft, locally grown Prairie Organic Vodka and Gin. The brand sold about 12,000 cases a few years ago, but this year Duggan said Phillips Distilling is estimating sales for its organic liquor to hit 200,000 cases after several straight years of double-digit growth.
Prairie Organic, which is bottled in Princeton, Minn., is part of his company’s effort to target local liquor distributors.
“If you walk into national grocery store chains, 30 to 40 percent of the produce section is organic,” he said. “People are drinking more quality and authentic brands.”
Phillips Distilling was established in 1912 and moved to Minneapolis in 1939 from Wisconsin. It made a name for itself as a national brand by being one of the first companies to start flavoring vodka in the 1950s and is credited with inventing schnapps, according to its website. Duggan said it was one of the first to start flavoring whiskey in the early 2000s.
After more than a year without a CEO, Phillips hired Duggan in early 2015. A Boston native with an MBA from the University of Minnesota, Duggan got his start in the spirits business as a merchandiser setting up store window displays.
“There was never a time when I was setting up displays going in and our of stores that I wasn’t proud of the brands I was representing. I knew I wanted to stay in the spirits business,” he said.
Duggan worked his way up into marketing and sales in the food and liquor business. Before Phillips Distilling, he worked at Conagra Brands, a packaged food company in Chicago, for five years and spent 15 years at Diageo, one of the world’s largest liquor distillers, based in London.