Empowering the Industry via Variable Pricing!

The issue

Corona has left the building. Congrats to y'all! Everything will be better now. Oh, wait, there's the Russo-Ukrainian war, resulting in higher grain and energy prices. And how about the FED constantly upping the interest rates?

Even though the craft distilling industry was expected to grow at a steady rate, macro-economic, global, and social events have put the handbrake on that growth. It results in a demand reservoir, but when will that reservoir pop and empty? Easy, whenever the costs of grains, energy, or financing drop. When will they drop? Your guess is as good as mine.

And that's not good enough. iStill aims to empower the craft distilling industry and to help turn it into the vibrant industry it deserves to be. Are outside constraints holding that back? Well, let's find ways to kick those constraints where it hurts!

An example

Here's an example. Imagine it being 2020 and interest rates are 2%. You want to start a craft distillery and need EUR 500.000,- in financing. Your yearly interest payment starts at 2% of EUR 500.000,- is EUR 10.000,-. That's EUR 833,- per month.

Now imagine it being 2023 and interest rates are 5%. You still want to start that distillery and you still need EUR 500.000,- in financing. You now pay EUR 25.000,- per year or EUR 2.083,- per month. Not only did your monthly finance costs go up, also the costs of energy and grains went up, resulting a worse business case, that might entice you to not start-up your distillery just yet.

The solution

"How can we help empower a craft distilling industry that faces triple cost increases?" has been the central question at many of our management meetings, recently. And you know what? We think we found a solution!

The solution is a more variable pricing strategy, where we use our growing market share to help craft distillers lower their initial investment costs to counter the higher processing costs mentioned above. Here is how it works:

1. As iStill grows, we generate more economies of scale;
2. As we generate more economies of scale, iStill generates higher profits;
3. A higher profit allows us to lower the prices;
4. The lower prices increase demand;
5. The increase in demand results in more orders and bigger economies of scale;
6. These bigger economies of scale help us maintain adequate profitability.

Another example

Here's another example, based on our variable pricing strategy. Imagine that you now only need to finance EUR 400.000,- instead of EUR 500.000,-. Your monthly finance costs drop by 20% immediately. You might even be eligible for a lower interest rate of 4% instead of 5% because you are less leveraged than before. You could also maybe still finance EUR 500.000,-, and have the additional EUR 100.000,- available to cover the other rising input costs, like grain and energy.

In short? We can help offset higher interest rates by lowering our prices. We finance those lower prices out of the economies of scale our growth gives us. You, the future craft distiller, improve your business case. Where you couldn't become a craft distiller before, now you can. Empowering the industry? Very much so! Especially as this variable pricing strategy will further grow our market share, resulting in more happy and future-proof craft distillers.

Implementation

Implementation will see two phases. First, we variabilize the prices of our nextgen hybrid iStills. At least the ones where we see customers struggle to get their business case in order. We have implemented this first step already last week. For now it means lower prices for quite a few of the hybrid models, but be aware that variable pricing also means that prices can go up, especially as macro-economic challenges become less severe or demand for a certain model grows faster than we planned for.

Secondly, we will be implementing time dependent pricing. What this means? That early orders get a discount, where late order will see a surcharge. Those that put in orders 9 months ahead of out-of-factory delivery, will get a discount. Those that put in their order 6 months ahead, will pay the list price. Distillers that want their iStill as quickly as possible, say in three months, will pay a surcharge. Expect this innovation to role out by the start of 2024.

Variable pricing for empowered distillers ...

https://istill.com/hybrid