Quechee
The 11th-hour settlement, in which the parties said Vermont Spirits had come up with the money to pay for 10 months of back rent, will allow the company to continue to operate at Quechee Gorge Village, where it distills spirits and operates a retail store to sell its line of vodkas and other spirits.
Neil Enterprises Inc., the owner of retail, craft and antique market Quechee Gorge Village, sued tenant Vermont Spirits in Vermont Superior Court in Woodstock in May, alleging that the distiller owed more than $47,000 for unpaid rent since the prior summer. The landlord was seeking the back rent plus about $5,600 in other fees “while the ejectment proceeding is pending,” according to the suit.
But as soon as the eviction hearing got underway at the Windsor Civil Divsion courthouse before presiding Judge Mary Miles Teachout on Wednesday morning, the attorney for Neil Enterprises told the judge a settlement had been reached and requested the lawsuit be dismissed.
Gary Neil, owner of Quechee Gorge Village, expressed satisfaction with the outcome. “Today was a good day,” Neil said. “Vermont Spirits is important to me and they bring a lot of traffic here. They are a part of the see-it-made basis for which we hope to grow our business.”
Quechee Gorge Village, located near the gorge on Route 4, is a popular roadside tourist destination with a complex of shops that sell Vermont crafts and products, features an antique mall and toy museum and offers Segway tours and alpaca walks. Vermont Spirits relocated to Quechee from St. Johnsbury in 2011 to take advantage of the high-traffic location and expand its distilling operation.
Vodkas are traditionally made from potatoes and grain, but Vermont Spirits is perhaps best known for its first product and still top seller, Vermont Gold, which is distilled from maple syrup sugar. Another vodka, Vermont White, is made from whey. Both have won numerous awards in spirits competitions. But despite praise for its high-end vodkas, which can retail for up to $43, the company has grappled with paying vendors on time and was previously sued by its former law firm over failure to pay $115,000 in legal expenses, court records show.
Burlington law firm Hinckley Allen & Snyder obtained a consent judgment against Vermont Spirits for the unpaid legal bill in U.S. District Court in Vermont in 2014, but then had to return to court in 2015 after the distiller repaid only $40,000 and ceased making further payments. The law firm then obtained a court order for a lien on Vermont’s Spirit’s bank accounts frozen at Ledyard National Bank, although the accounts held a total of only about $828 as of January, court filings show.
In a telephone interview, Steve Johnson, president of Vermont Spirits, said he is working to repay the balance of the unpaid legal bill. An attorney for the law firm did not respond to messages seeking comment.
Following last week’s settlement with Neil, Johnson said a combination of poor controls, employee turnover, loss of a major distributor, cash flow problems due to slow sales and the distraction of a medical operation contributed to him falling behind on payments that led to the lawsuits. He also acknowledged there have been problems meeting payroll, which he partly attributed to unexpectedly large reimbursements for work-related expenses, although he said there are no outstanding payments owed current or former employees.
“Everyone has been paid,” Johnson said.
Nonetheless, Vermont Spirits lost three key employees over the past year — master distiller Joe Buswell, who was frequently depicted in stories and marketing materials about the company; general manager Mimi Buttenheim, now president of Mad River Distillers in Warren, Vt.; and a production manager.
Buswell, reached by telephone, said he was “square” with the company and declined further comment.
Buttenheim credited Vermont Spirits with having a “great team and product,” but said most employees were “in the dark” about the financial side of the business.
Johnson said he now has “three to four” full-time employees, including long-time distiller Harry Gorman and retail store manager Jeremy Herrell, along with three part-time hourly employees. He said he is looking to hire another employee. Now, Johnson said, after undertaking “a little soul searching” about the business over the past year, he believes Vermont Spirits is turning around and is on track to post its best year in sales.
Although Johnson declined to be more specific than to say the company produces between “5,000 to 10,000” six-bottle cases of spirits annually — it also bottles a maple-infused bourbon and makes an apple brandy — he noted a cruise line has just been added as a customer and he expects to have a distributor for Japan in place by the end of the month for its first overseas market.
At present, Vermont Spirits’ vodkas are available in seven “control” states (where the state controls the sale of alcohol), including Vermont, New Hampshire, Maine, Oregon, Idaho, Wyoming and Maryland, plus 10 more “license” states, where wholesale distributors get the product onto store shelves.
Still, the vodka market is extremely competitive, as brands have proliferated in recent years modeling themselves on the craft beer movement. In Vermont “there are now at least a dozen” vodka distillers, said Patrick Delaney, commissioner of the Vermont Department of Liquor Control. “We get inquiries every week from someone wanting to start up.”
Indeed, the craft vodka market is saturated, making it very difficult for any particular brand to stand out, said Marlon Paltoo, spirits buyer at Park Avenue Liquor Shop in New York, which offers 137 varieties of vodka. “Most of the people who buy Vermont Spirits have read about it in a write-up or it’s someone coming back from seeing the distillery in Vermont,” he said.
Typically, however, craft vodkas can cost anywhere from $10 to $20 more per bottle than standard vodkas, limiting sales to vodka aficionados. Delaney said Vermonters have shown themselves willing to pay more to support local business, but in general the business model “requires a certain level of price insensitivity.”
Vermont Spirits was founded in 1999 by Duncan Holaday. Johnson initially became involved with the distiller in 2006, when he learned the company was looking for investors “through a friend of a friend.” Previously, the Vancouver, Canada-born and raised Johnson had worked at a telematics device maker, in banking and as a writer and editor at Forbes magazine in New York.
Nor was he a particularly big vodka drinker.
“I’m from Canada,” he said. “I like beer.”
Gradually, Johnson assumed a more hands-on role, Holaday left, and Johnson became president in 2008. But operating only two stills out of a property in St. Johnsbury offered a limited ability to ramp up production, so Johnson scouted moving to other locations.
After initially weighing a move to Windsor, Johnson settled on Quechee Gorge Village because it would be an ideal location to open a retail store and offer on-site tours to the tourists passing along Route 4 or coming to the complex to shop and browse the antique mall.
At a cost of about $400,000, the stills and building were taken apart in St. Johnsbury, moved and reassembled at the east end of the village. Two stills were added, bringing the total to four. At one time the company had “nearly $1 million” in bank debt, Johnson said, but “it has been paid off.”
Although Vermont Spirits has managed to show a profit in some months, on an annual basis the company has yet to earn a profit and Johnson — who lives in Greenwich, Conn., and commutes and spends about two days a week in Quechee — said he has been funding the losses out of his own pocket or when he his able to raise additional funding.
He said in the past eight years he has raised under $1 million from outside investors.
As to when the business might show a sustained profit, Johnson said, that is not the primary focus at the moment. “I’m not super worried about that. We’re in a growth mode,” although he said he’s cautious about expanding too quickly and running the risk of having excess production capacity and overhead.
Johnson said he is looking to Quechee Gorge Village owner Neil for guidance, and each claims they have a working relationship with the other in spite of Vermont Spirits having been in arrears on rent for nearly a year.
“With Gary’s help we’re doing a kind of reset. He has a great eye for retail and strategy,” he said.
Neil said he understands the struggle Vermont Spirits has faced.
“It’s a small business and I understand sometimes you go through challenges,” he said. “As long as you conduct yourself properly and come out the other side with stronger convictions and funding to carry your vision, all you need is people and a little bit of luck and you’ll be good. I hope that happens in this case.”
John Lippman can be reached at jlippman@vnews.com or 603-727-3219.
