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Contract Distilling vs Building Your Own Distillery: Which Route Is Right?
There are two ways to get a spirit brand to market in the UK: pay an existing distillery to make it for you, or build a distillery of your own. Both are legitimate, and neither is universally better. The right choice depends on your budget, how much control you want, how fast you need to launch, and how much risk you can carry.
This guide compares contract distilling and building your own distillery across the factors that actually decide it, sets out the licensing facts for each, and helps you work out which route fits where your brand is today.
What is contract distilling?
Contract distilling is an arrangement where a brand owner hires an existing licensed distillery to make their spirit. It is not the same as owning a distillery, because the brand does not run the still or hold the production approvals.
According to Distiller Magazine, published by the American Distilling Institute, “contract distilling is, at its core, a simple arrangement: a brand hires an existing distillery to produce, bottle, and sometimes even store” its product, and “contract brands may never touch a still at all.” You own the recipe, the label and the customer relationship; the distillery owns the equipment and carries the licence.
Building your own distillery is the opposite trade. You take on the still, the premises, the HMRC approvals and the day-to-day production, and in exchange you keep full control and the underlying asset. Most first-time founders assume they have to build. In reality, a large share of successful UK spirit brands started on a contract basis and only built later, once demand was proven.
Contract distilling vs building your own: a direct comparison
The two routes pull in opposite directions on almost every factor. Contract distilling trades control for speed and low upfront cost. Building your own trades upfront cost and effort for control, margin and an asset you own.
| Factor | Contract distilling | Building your own distillery |
| Upfront cost | Low, no still or fit-out to buy | High, equipment, premises and approvals |
| Cost per bottle | Higher per batch | Lower at volume once established |
| Speed to market | Fast, production capacity already exists | Slower, build and approval take months |
| Control over process | Limited, shared with the distillery | Full control over recipe and cuts |
| Licensing burden | Distillery holds production approvals | You obtain producer approval yourself |
| Risk | Lower capital at risk | Higher capital, higher potential reward |
| Ownership of assets | None, you rent capacity | You own the distillery and its value |
| Brand story | “Made at a partner distillery” | “Distilled by us” |
Neither column is the winner. The winner is the column that matches your stage. A brand testing whether its gin will sell has very different needs from an established name ready to bring production in-house. Read the table as a description of trade-offs, not a scoreboard.
When contract distilling is the right route
Contract distilling suits you when proving the market matters more than owning the means of production. If you are launching a new brand, unsure of volumes, or working with limited capital, it lets you get a real product into real customers’ hands without a six-figure build.
It is also the sensible route when speed is the priority. An established distillery already has the still, the approvals and the process, so you can move from recipe to shelf far faster than you could building from scratch. For a brand chasing a seasonal window or a retail listing, that head start can be the difference between catching the opportunity and missing it.
The trade-off is control and margin. You share the process with the distillery, you are subject to their minimum order quantities and schedule, and your cost per bottle is higher than it would be at scale in your own plant. The single most important safeguard is the contract itself. A contract distilling agreement is a commercial and legal document. It is not a formality. Make sure recipe ownership, confidentiality, minimum orders, lead times and exit terms are all in writing before anything is produced.
Even on a contract basis, it pays to understand production well enough to brief your partner and protect your interests. Independent input from a consultancy that has helped brands launch and scale spirits can help you negotiate a fair agreement and keep your options open for the future.
When building your own distillery makes sense
Building your own distillery makes sense once demand is proven and control becomes worth paying for. If you have consistent orders, a recipe you are confident in, and the capital to invest, owning production lets you protect margin, control quality directly, and build an asset with real value.
There is also a brand dimension. A physical distillery you can name as your own, and ideally open to visitors, is a powerful marketing and revenue channel in its own right. Cellar door sales, tours and experiences carry high margins and deepen customer loyalty in a way that a contract arrangement simply cannot replicate.
The commitment is real, though. You take on the still, the premises, the utilities and the HMRC approvals, and you carry the fixed costs whether or not you are producing. That is why building too early, before demand justifies it, is one of the most expensive mistakes in the sector. Getting the layout and equipment specification right the first time avoids costly retrofits, which is where distillery setup and equipment consultancy earns its keep, by sizing the build to your actual production plan rather than a generic template.
Licensing and cost: what changes between the two
The biggest legal difference between the routes is who holds the production approvals. A contract distillery holds the HMRC production licence and approvals. It is not the brand owner who holds them in that arrangement.
According to HMRC’s internal spirits manual, no distiller may begin to manufacture spirits until HMRC has approved the plant and processes. When you contract distil, your partner has already cleared that bar, which is a large part of why the route is faster and cheaper to start. If you build your own distillery, you must obtain that approval yourself. Since 1 February 2025, new UK producers apply for an Alcoholic Products Producer Approval (APPA), and the GOV.UK alcoholic products technical guide sets out the information you must provide to be approved as a producer.
Either way, as the brand owner you still have obligations. You must account for alcohol duty and hold the right licences to sell to your customers. What changes is the production licence, not your responsibility for the finished product.
| Requirement | Contract distilling | Own distillery |
| Producer approval (APPA) | Held by the distillery | You must obtain it |
| Plant and process approval | Held by the distillery | You must obtain it |
| Alcohol duty accounting | Your responsibility as brand owner | Your responsibility |
| Sales licences | Your responsibility | Your responsibility |
| Upfront capital | Low | High |
On cost, treat the two as different shapes rather than different sizes. Contract distilling is a lower fixed cost and a higher variable cost per bottle. Building your own is a high fixed cost and a lower variable cost at volume. The crossover point, where owning becomes cheaper per bottle than contracting, depends on your volumes and margins, and modelling it honestly is the clearest way to decide when to make the move.
Frequently Asked Questions
What is contract distilling?
Contract distilling is an arrangement where a brand owner hires an existing licensed distillery to produce, and often bottle and store, their spirit. The brand owns the recipe and label while the distillery owns the still and holds the HMRC approvals. Many contract brands never operate a still themselves.
Is contract distilling cheaper than building your own distillery?
It has far lower upfront cost, because you avoid buying a still, fitting out premises and obtaining production approvals, and pay per batch instead. Building your own distillery costs more upfront but can be cheaper per bottle at volume, and you keep the margin and own the asset.
Do you need a licence for contract distilling in the UK?
If a contract distillery makes the spirit, they hold the HMRC production approvals and the distiller’s licence. As the brand owner you still account for duty and hold the licences needed to sell alcohol. If you build your own distillery, you must obtain producer approval yourself.
Can you switch from contract distilling to your own distillery later?
Yes, and many brands do. Contract distilling lets you prove demand and refine a recipe with low risk, then build your own distillery once volumes justify the investment. Planning the transition early, including recipe transfer and equipment sizing, makes the move far smoother.
Who owns the recipe in a contract distilling arrangement?
It depends entirely on your contract. A well-drafted agreement keeps your recipe, brand and intellectual property with you, and sets out confidentiality, minimum orders and exit terms. Put recipe ownership and exit terms in writing before production starts rather than relying on a handshake.
