The U.S. craft spirits industry is booming. An increase in consumer taste for experimentation and premium products has fueled a modern craft movement. Naturally, it’s useful to measure and define this trend.
The inaugural Craft Spirits Economic Briefing broke down this movement into numbers and definitions. Held yesterday at the Nomad Hotel in New York, the briefing presented findings from the Craft Spirits Data Project (the Project), a yearlong study conducted by the American Craft Spirits Association, International Wine and Spirits Research, and alcohol-brand services provider Park Street.
The goal was to quantify the number, size and impact of craft spirits producers in the U.S. Here were major takeaways:
1) U.S. Craft Spirits Continue To Boom
Sales continue to climb exponentially for craft spirits. Numbers from the past five years alone are eye-opening.
The U.S. craft spirits market reached 4.9 million cases and $2.4 billion in retail volume in 2015. That’s up from 1.47 million cases and $700,000 in retail volume in 2010, for gains of 27.4% and 27.9%, respectively.
During this current boom, the market share of craft spirits reached 2.2% in volume and 3.0% in value, up from 0.8% and 1.1% in 2010, respectively.
2) Craft Distilleries Are Growing In Number
As product volume and sales continue to grow, it makes sense that producers too are increasing in number.
The amount of operational U.S. craft spirits distillers totaled 1,315 as of August 2016. And there are more than 2,000 approved permits for distilleries in the U.S.
Recent growth has been rapid. There were only 204 craft spirits distilleries open in America in 2010. Given the current growth rate, that total is on track to reach 2,800 by 2020.
However, such an amount is unlikely. Market saturation and other economic factors (taxes, competition) will likely slow the growth distilleries, explained Harry Kohlmann, Ph.D., co-founder of Park Street, during the presentation. Instead, Kohlmann foresees 2,500 as a more realistic number of U.S. distilleries in operation by 2020.
3) Consumers Are Unsure About The Meaning Of ‘Craft’
While the craft movement has given rise to new flavors, unique products, and consumer experimentation, it has also caused some confusion. Consumers may now wonder: what exactly are ‘craft spirits’? It’s an ambiguous term, sometimes thrown around loosely.
The Project polled consumers and found that terms they most associated with craft spirits were “distinct and unique,” “small batch” and “locally produced.” Nevertheless, ¼ of those same consumers when quizzed on the matter incorrectly identified big brands (i.e. Bulleit Bourbon, Tito’s Vodka, etc) as being craft spirits.
Marketing plays a big role here. There are no rules about which brands can label or position themselves as craft. Large brands have wisely portrayed themselves as being craft in order to tap into this current hot trend.
Of course, this whole issue depends on your definition of craft spirits.
4) Forming A Definition Of ‘Craft Spirits’
The Project required a specific definition for what constituted U.S. craft spirits. (Otherwise, how would they know what data was relevant?)
In defining this term, researchers considered state classifications for craft distillers, and those from distillery organizations. The Project came up with this: U.S. craft spirits are made in America by licensed producers that have not removed more than 750,000 gallons from bond (or 394,317 9-liter cases), market themselves as craft and are not controlled by a large supplier like Diageo or Constellation Brands.
5) Craft Distilleries Operate Like Local Businesses
About 14% of craft distillery sales in 2015 were direct-to-consumer (i.e. tasting rooms) while another 40% came from home-state sales. In other words, more than half of their product, 54%, is sold in the state where it’s made.
This is particularly true for small craft distillers (defined by the Project as those removing 0 to 100,000 gallons from bond annually). For these producers, direct-to-consumer comprised 25% of all sales, and home state sales (which include direct-to-consumer) totaled 67%.
Local and in-state sales are the backbone of small, growing distilleries. They allow these businesses to survive the early difficult years of getting off the ground. In states that limit what distilleries can sell onsite — or whether they can self-distribute — these businesses are being legislatively blocked from growth, said Maggie Lehman, associate director, American Craft Spirits Association.
6) Outdated Laws Hold Back The Industry
Wineries and craft breweries also operate like local businesses, and sell a great deal onsite and throughout their home states. These producers are helped by pro-business laws that encourage them to operate this way.
However, not all states, towns and counties have laws permitting similar activity for distilleries. In some places distilleries cannot sell spirits, bottles, or cocktails onsite, or cannot self-distribute. This legislation, a business roadblock, typically dates back to right after Prohibition, explained Lehman, when states feared distilleries selling their own product would lead to more crime.
Politicians back then could not have foreseen the 21st-century craft boom. Distilleries today are no longer shady operations or gangster hideouts, but community gathering spots and places of craftsmanship — just like microbreweries and wineries.
“We just ask that lawmakers give us parity with what they already have in wine and beer,” said Lehman.
Taxes are another issue. Those levied on distilled spirits are among the nation’s highest. Taxes comprise 54% of the typical spirit product’s purchase price.
Of U.S. craft spirits producers polled in the Project, 61% were displeased with federal legislative efforts for their industry, while 54% were unhappy with laws on the state level.
7) Craft Distillery Employees Have Doubled In Two Years
With this growth in the craft spirits industry comes more opportunity for employment. In 2014 there were 5,708 people who worked full-time at U.S. craft distilleries. In 2016 this number is 12,034.
So too has the average staff size gone up. A U.S. craft distillery employed about 6.3 people in 2014. Today, that average is 9.2.
Employing more people naturally increases the rate at which this industry can expand. A distillery that once counted 4-7 full-timers — and was forced to put production staff also on marketing, distribution, hospitality, etcetera — now can afford for people to fill more-specific roles. This improves both the quality and production of the distillery.
8) On/Off-Premise Accounts Want More Education, Fewer Products
The Project polled on- and off-premise operators. More than 90% in both camps thought U.S. craft distilleries should invest more in consumer education. This includes additional in-store tastings, and more educational content on bottle labels.
Both camps also resoundingly believed that producers should make fewer spirits, and of better quality, rather than be too quick to expand product lines.
Kyle Swartz is associate editor of State Ways Magazine. Reach him at kswartz@epgacceleration.com
