Craft spirits revenue plunges $700M as pandemic curtails on-premise operations - Food Dive

Dive Brief:

• Craft distillers lost 41% of their sales, or $700 million in revenue, due to the coronavirus pandemic, according to a new study from the Distilled Spirits Council of the United States (DISCUS). In addition to sales losses, 4,600 people that make up nearly 31% of the industry’s employee base have been furloughed.
• The drop in sales is attributable to the shutdown of on-premise sales and tasting rooms. The group said more than 40% of craft distillers derive more than 50% of their business from tasting rooms sales. At the same time, more than 40% of craft distillers reported their wholesale business was down at least 25%, and 11% of distillers have lost the wholesale business entirely.
• This study was based on data from a June 2020 survey conducted by the American Distilling Institute, a trade association for craft distillers. The survey included nearly 300 distilleries out of more than 2,000 that operate in the U.S.

Dive Insight:

Similar to the way craft beer flourished by offering an immersive experience complete with novel and boundary-pushing flavors at taprooms, craft distillers have thrived thanks to alcohol tourism and the experience it brings for consumers. Last year, U.S. craft distilleries generated $3.2 billion in retail sales, according to DISCUS. Of those sales, the group said $919 million came directly from on-site operations, making the closure of taprooms across the county particularly devastating.

After almost a decade of growth — data from the American Craft Spirits Association reported by Barron’s showed craft sprit’s share of the total distilling market was 4.6% of the total value in 2017, up from 1.4% in 2012 — this year is shaping to be a challenging one. "Some distillers went months with no income from their spirits," Erik Owens, president of the American Distilling Institute, told Fortune. "This will be the first year in over a decade we will end with fewer craft distilleries than we started with.”

This sobering prediction brings into focus the dependence this industry has on foot traffic and visitors.

According to DISCUS, 45% of craft distillers operate in just one state and 60% sell fewer than 2,500 cases per year, making these operations a local affair, often familiar to consumers only at a regional level. While this local approach, coupled with trendy ingredients and flavors, once helped these distilleries thrive, it is now contributing to the industry’s sales woes.

Craft spirits are not alone in this predicament. Nathan Greene, an analyst at the Beverage Marketing Corporation, previously told Food Dive the pandemic has shifted consumption patterns away from unexpected, inventive alcoholic beverages to brands consumers know or have been loyal to for years. The result of this shift is that even craft beverages on supermarket shelves have suffered and compounded the sales struggles of the craft industry. During the six-week period ended April 11, Nielsen said there were about 1,900 fewer beer, flavored malt beverages and cider items for sale across the category.

Craft beer, which comprises 25% of the $116 billion U.S. beer market, according to the Brewers Association, has suffered after more than a decade of growth. However, unlike spirits that are predominantly sold at distilleries, craft brewers get about 45% of their sales on premise and 55% offsite, Bart Watson, chief economist with the Brewers Association, told Food Dive.

Having already established an off-site revenue stream may prove to be a saving grace for some craft beer operators. During the coronavirus, brewers also turned to e-commerce, food and growlers to-go, setting up mini-grocery stores to sell food items along with beer and leaning on merchandise and gift card sales — practices that collectively generate only a small fraction of what they made before.  

For their part, craft distillers saw instances of entrepreneurs repurposing distillation equipment to create hand sanitizer for first responders and consumers. There also is the possibility of bringing products to consumers by shipping the taproom experience directly to the consumer. Eight states permit distillers to ship products directly to in-state consumers, according to Fortune. Dozens of other states authorized the sale of to-go cocktails as a temporary economic relief measure. Even after the pandemic dissipates, craft players of all kinds will need to look for ways to diversify their revenue streams rather than being overly dependent on one channel.

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August 24, 2020 at 10:23PM
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Craft spirits revenue plunges $700M as pandemic curtails on-premise operations - Food Dive
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