Liquor titan Phillips Distilling aims top shelf with organic vodka

The Minnesota company wants you to think globally, drink locally

If you recognize the name Phillips Distilling, it's probably because you've seen its dusty bottles of schnapps lining the lower shelves of local liquor stores, or its workhorse gins and bourbons that typically rest somewhere below eye level. And if you've ever burned your throat on a basic Phillips 80-proof vodka—a substance that smells like rubbing alcohol and comes in a plastic bottle—you'll probably be as surprised as I was to find the company's newest offering, Prairie Organic Vodka, perched on the top shelf, next to the Grey Goose and Ketel One.

Minnesota-based Phillips has long been a utilitarian brand, more likely to be found in grandpa's tackle box than in any trendy nightclub. The family-owned company has been around for nearly 100 years, first as a wholesaler of magazines, newspapers, and candy, and after Prohibition as a distributor of spirits. In 1935, when a Phillips salesman got the idea to make peppermint schnapps (he had noticed saloon customers dropping peppermint candies into their glasses to soothe harsh-tasting whiskey), founder Ed Phillips got into the business of distilling, and created what's thought to be the first American schnapps brand. Since then, Phillips has produced all sorts of spirits, importing everything from Mexican tequila to Caribbean rum, then blending, aging, and bottling the spirits in Princeton, Minnesota, without attracting too much notice. But with Ed's 39-year-old great-great-grandson, Dean, at the company's helm since 2001, Phillips products are starting to gather a larger national presence, showing up on the pages of glossy magazines and at the Cannes Film Festival—being glugged straight from the bottle by bad-boy Kid Rock.

Dean Phillips has a more casual demeanor than a typical CEO: His hair is long enough to cover his ears and, today, he's wearing his dress shirt untucked. He repeatedly emphasizes fun and philanthropy when talking about the spirits business, and he says he personally responds to every email inquiry sent to the Prairie Organic website, sometimes while lounging in bed with a laptop. With his affable yet thoughtful personality, he seems like the sort of person who is frequently solicited for advice. (In fact, when he was younger, Dean's grandmother, Pauline Phillips, original author of the Dear Abby column [and better known by her pen-name, Abigail Van Buren], used to ask for his thoughts on how to respond to letters from other teenagers.)

Spirits from the past: Dean Phillips
Darin Back
Spirits from the past: Dean Phillips

Sitting in his Minneapolis office, Dean opens up a 60-some-year-old price book and scans the typed list of spirits in Phillips's portfolio—gin, rum, schnapps—and notes that there's no vodka. A spirit that's now the world's best-selling, which accounts for nearly a third of the industry's sales volume, was virtually unheard of in the U.S. back then. Dean says the book reminds him how the liquor business can be as fickle as fashion, and that, for a small company like Phillips, innovation is everything.

Dean walks me through a little room that looks like a work station in a high school chemistry lab, except for its archive of Phillips liquor bottles. There's everything from Sno Shoe Grog, a mix of brandy and peppermint schnapps, to Rock and Rye, which is made with rye whiskey and rock candy. Absolut and Stoli may take credit for the flavored vodka craze that launched in the 1980s, but judging from the aging bottle of Minty Vodka, Phillips was there decades before. Dean pulls down a bottle of Ginka, which is decorated with Jetsons-era futuristic graphics. It's described on the label as "a happy mix of gin and vodka," and Dean explains it as "vodka with training wheels" from the days when gin was more popular than vodka. Dean jokes that perhaps they should reintroduce it—maybe this time as Vodin?—to reacquaint vodka drinkers with gin.

The lab's counters are stacked with canisters of beet and cane sugar and bottles of natural flavoring, including acai, lychee, and clementine. Dean says the company doesn't conduct full-blown consumer research for new products, and assesses samples mostly within the office. He lets me taste the finalists for a new butterscotch schnapps, and I sip each glass like Goldilocks—the first is too harsh, the next too floral, the third too flat, but the fourth is as creamy and sweet as a liquid Werther's. While Phillips's annual retail sales are dwarfed by the tens of billions raked in by the industry leader, Diageo, which owns brands like Smirnoff, Johnnie Walker, and Guinness, Dean says his company's nimble size allows his team to jump on new ideas quickly. They can take an idea to market in as little as 13 weeks.

Today, Phillips makes about 70 products, and in recent years the company has launched several innovative brands with the help of the hip local ad shop Olson & Company. One of those products is Union Whiskey, a bourbon-whiskey blend available with hints of cherry or vanilla, which is intended to expand the market beyond the stereotypical whiskey drinker, or, as Dean says, "old white bald guys." Phillips's most successful new launch has been its line of UV flavored vodkas, candy-colored spirits marketed toward a group Dean calls "the Facebook generation." (In fact, he notes, UV fans created a MySpace page for the brand.) With liter-size bottles priced just over $10, UV has the same cheap chic image as Target or Ikea, which has helped make its probably-too-drinkable blue raspberry version (which is commonly mixed with lemonade or lemon-lime soda) the best-selling flavored vodka in seven states.

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