The Troubling Success Of Tito's Handmade Vodka

IT'S A BLISTERING MORNING in June, 15 miles southeast of Austin, Tex., and Tito Beveridge is making a key point about the history of his craft vodka business. Dragging out a filthy, dog-eared copy of the ATF's federal regulations--on importing distilled spirits, wines and beer--he tells the story of talking nay-saying officials into giving him the first license for a distillery in Texas (and the only one-man booze business licensed by the feds). Out of the binding jumps a scorpion that launches its stinger into the palm of his hand. "S---," he mutters, and goes off to find Benadryl and baking soda.

Sometimes reality bites. That's proving to be a challenge for Fifth Generation, maker of Tito's Handmade Vodka. More precisely: how to maintain the fiction of being a small-batch brand that's actually expanding rapidly in the $5.5-billion-a-year U.S. market for the colorless liquor. Tito's has exploded from a 16-gallon pot still in 1997 to a 26-acre operation that produced 850,000 cases last year, up 46% from 2011, pulling in an estimated $85 million in revenue. One vodka basically tastes the same as any other. So, you need a shtick: a good price point ($20 a bottle, versus $30 for Grey Goose) and a legend.

"Tito's has been on a steady growth trajectory because its origins as a small-batch brand from Texas really strike a chord," says Donna Hood Crecca, who oversees Technomic's Fast 50 brands. But image requires cultivation. "When a story falls flat because it no longer rings true, a brand's growth can be derailed." No wonder Nicole Portwood, Tito's brand manager, directs a FORBES photographer away from massive buildings containing ten floor-to-ceiling stills and bottling 500 cases an hour and into the shack with the original still, cobbled from two Dr Pepper kegs and a turkey-frying rig to cook bushels of corn into booze.

A handsome bear of a man, Bert "Bertito" Beveridge (really), 51, has a good story, even without embellishment. He grew up comfortably enough, playing polo in San Antonio. "I wanted to train horses," he recalls. "But my parents got divorced around the time I went off to college, and all of a sudden money was an issue." At the University of Texas he majored in geology, geophysics and bad behavior, racking up arrests for DUI, assault and exposure by the time he graduated in 1984. All charges were dismissed.

Beveridge tried various ways into the oil business. He took jobs as a well-site geologist, a subsurface mapper and a seismic data processor, working for others as well as himself, traveling to South America, then back to Houston. For three years he evaluated Superfund sites.

"A friend of mine was killing it in the mortgage business, and I was sweating my ass off in a dump," Beveridge recalls. "He told me, 'You wear Italian suits, hang around a bunch of girls, and there's air-conditioning.'" The money was great; so were the parties. But then the real estate market collapsed. Beveridge was reduced to nursing drinks while watching late-night TV.

That's where he came across a motivational speaker whose cliched advice, he says, changed his life: Find the intersection of what you love to do and what you're good at. "I'd been working my whole life just so I could go to restaurants and hotels and resorts," he says. "And I'd been making infusions of cheap vodka as gifts." Salvation at the bottom of a bottle.

First he had to face down the law. The Texas Alcoholic Beverage Commission told him Texas had never licensed a distillery, since the laws wouldn't permit it. So Beveridge dug into the 3-inch-thick codebook and proved there was no such statute. The state deferred to the feds, who also said no; it could license only companies. Nope, Beveridge said, citing the reg, chapter and verse, to confirm that one-man shows were okay. "It was my bible for a while," he says.

Even apostles need cash. He squeezed $90,000 from 19 credit cards (the numbers change, depending on the telling) and bought nearly 13 acres in Travis County. "I talked the guy down to $33,000 and gave him a $3,000 credit card check," he laughs. The rest he financed over a decade with a $407-a-month credit card charge. "I'd write the balance and the due date on the back of all the cards. That way I'd always know when to transfer the balance to another."

It took less than a year to make hooch good enough to sell--corn and water from a local aquifer, distilled six times over. After a May 1997 Houston Chronicle story called it "a homegrown symphonic spirit," Beveridge used the clip and photos of himself, his still and his yellow Lab, Dogjo, as a sell sheet to peddle his first thousand cases.

Lean years followed as he navigated tricky shoals of states' distribution, each with its own rules. "I slept on floors, couches, you name it," he says. His mortgage-business friend threw him a job now and then to keep the lights on.

Finally, in 2001--a break. "We got a call that we'd be in the San Francisco World Spirits Competition," he says. "I was busy fixing a boiler on my third still and couldn't go but sent a couple bottles." Tito's Handmade won the double gold medal for best vodka over Grey Goose, Belvedere and 70 others. "Things moved quicker after that," he says. That year he notched his first real profit. Sales by volume have doubled each year. In March Tito's began supplying 50ml bottles of vodka to United Airlines domestic and international flights. This year it will double in capacity.

But success is starting to hurt his reputation. Tito's is far too big to be judged a craft spirit by Discus, the industry lobbyist whose cutoff is 40,000 cases. "How can one guy make something handcrafted when he's moving almost 12 million bottles a year?" asks a sales rep for one New York liquor distributor. "I've heard he's not even making it all in Texas anymore."

Beveridge insists it's all still produced in south Austin. A probe of his property records shows not a single acre outside Texas (besides a Wisconsin fishing retreat he visits once a year with his wife, Lori, and their three kids). "If someone tells me my brand isn't a craft-distilled spirit because it's too big, I just say, 'I make it the same way I've always made it. I just have a lot more stills." And a growing challenge to the legend of Tito's Handmade.