Unpacking Findings From the Craft Spirits Data Project

By: Becky Garrison

craft spirits tray

While Jason Parker, co-founder and President of Copperworks Distilling Company, reported an 80% drop in revenue in 2020 due to Covid-19 closures and restrictions, in 2021, Copperworks actually expanded their operations. After the furniture store directly next to their Seattle water-front property closed, they plan to lease this establishment with plans to turn this facility into a cocktail bar and event space.

  In January 2022, Copperworks signed a lease to build in the former Nine Yards Brewing facility in Kenmore, Washington. They raised $2 million for this expansion, which will allow them to distill ten times more spirits since their partner breweries, Pike Brewing Company, Elysian Brewing and Fremont Brewing, cannot produce enough product to meet the growing demand.

  Copperworks’ ability to grow during this global pandemic was emblematic of other craft distiller-ies, evidenced by the 2021 Craft Spirits Data Project report. The report was presented on De-cember 7, 2021, by the American Craft Spirits Association and Park Street Companies at the Annual Craft Spirits Economic Briefing during ACSA’s Annual Distillers’ Convention & Vendor Trade Show in Louisville, Kentucky.

  Since its inception in 2016, the Project has been a research initiative designed to quantify the number, size and impact of craft spirits producers in the U.S. Among the industry groups who participated in this project include the Alcohol and Tobacco Tax and Trade Bureau and the Na-tional Alcohol Beverage Control Association.

Assessing the Growth of Craft Distilleries

  Despite the global pandemic, the U.S. craft spirits category as a whole did grow in both volume and value in 2020, albeit at a slower rate than in previous years. Park Street CEO Harry Kohlmann attributed the slower growth rate to the early period of the pandemic when on-premise sales were shut down in a significant portion of states and consumers were “pantry loading” the brands that were available at off-premise locations. Pre-pandemic, craft spirits brands often prioritized onpremise to brand build, so it stands to reason this period was detrimental to the category.

  However, as Copperworks’ story illuminated, craft spirits companies are nimble and innovative. Kohlmann noted that the majority of them were able to transition to a market strategy that relied more on e-commerce and off-premise sales. Also, Kohlmann pointed to a 2020 trend that partial-ly made up for the drop in sales early in the pandemic regarding consumer buying habits. “Consumers went from purchasing big staple brands early on in the pandemic to more premium ex-pensive products like craft spirits when the pandemic panic subsided.”

Craft Distillers by Size

  In compiling this report, the Project team utilized data from surveys, regulatory agencies, nation-al and regional industry data sources, survey data, interviews and team assessments. The report defined a craft distillery as a “licensed U.S. distilled spirits producers that removed 750,000 proof gallons (or 394,317 9-liter cases) or less from bond, market themselves as craft, are not openly controlled by a large supplier, and have no proven violation of the ACSA Code of Ethics.”

  The survey delineated between small, medium and large craft distillers by a range of gallons and 9L cases removed from bond annually. A large craft distiller produces 100,001 to 750,00 gallons (52,577-394-317 9L cases), a medium craft distiller produces 10,001-100,000 gallons (5,259-52,576 9L cases), and a small craft distiller produces 1-10,000 gallons (1-5,258 9L cases).

  Small producers make up 90.1% of all U.S. craft producers though they are responsible for just 10.3% of annual case sales. While larger producers only make up 1.6% of the total number of craft producers, they are responsible for 56.6% of cases sold.

  As of August 2021, the number of active craft distillers in the U.S. grew by 1.1% over 2020 to 2,290. To put this growth into perspective, Park Street charted the growth in distillery numbers from 2015 to 2020. During this time, large craft distillers grew from 23 in 2015 to 37 in 2020, a 61% increase.

  Also, the number of medium craft distillers more than doubled from 73 in 2015 to 188 in 2020, while small craft distillers nearly doubled from 1,067 to 2,054.

Sales of Distilled Spirits

  The survey compared results from 2020 sales compared to sales in 2015. These statistics were not broken down by ecommerce versus brick and mortar sales. Nor did this Project address the impact of grassroots marketing strategies employed by some distillers during Covid-19, such as pairing with restaurants and bars to offer cocktail-to-go kits or forming collaborative local alcohol delivery services.

  The number of cases produced by medium craft distillers has grown from 1.3 million 9L cases to over 3.9 million 9L cases. On average, the number of cases produced by a medium-size craft distillery rose from 18,000 9L cases to 21,000 9L cases. Small distilleries grew from 597,000 9L cases to over 2 million 9L cases, with the average number of cases increasing from 559 9L to 663 9L cases.

  Overall, the U.S. craft spirits market volume reached over 12 million 9L cases in retail sales in 2020, at an annual growth rate of 7.3%. In value terms, the market reached $6.7 billion in sales, with an annual growth rate of 9.8%. U.S. craft spirits market share of total U.S. spirits reached 4.7% in volume and 7.1% by value in 2020, up from 2.2% in volume and 3% in value in 2015 and 4.6% in volume and 6.9% in value in 2019.

  In terms of distribution, large producers are often nationally distributed, medium producers are usually distributed regionally, and small craft distillers tend to be only available locally. In 2021,  46% of the total U.S. craft business occurred in the craft distiller’s home state. This local distribution accounted for 59.6% of sales by medium producers. For large producers, out-of-state business sales remain key, accounting for 70.9% of the total business.

  While direct sales at the distillery are key for all craft distillers, they are particularly important for small craft producers, with over 47% of their total business coming from this sales channel. Along those lines, less than 8% of the total business for small craft distilleries comes from outside their home state, though this number appears to be growing slowly.

  Exports add 0.9% to the overall volume for U.S. craft distillers, with medium craft distillers reporting 0.2% sales from exports. These exports declined by 32.9% from 104,000 cases in 2020.

Employment In Craft Distilleries

  According to this survey, COVID-19 had a heavy impact on the U.S. craft industry. Between 2018 and 2020, the average number of full-time employees decreased by 24%. In 2019, total employment surpassed 30,000 but was reduced by nearly 50% in 2020 to under 17,000. While this data points to a significant drop by any standards, Kohlmann noted that the industry still maintained volume growth at a 7.3% rate, reaching 12 million cases produced with fewer employees.

Ranking of Distilleries by State

  In breaking down the number of craft distilleries by region, the West and South contain the highest percentage of distilleries at 30% and 29.3%, respectively, followed by the Midwest with 20.7% and the Northeast at 20%.

  The top five states that produce the most craft spirits are, in order, California (190), New York (180), Washington (135), Texas (135), and Pennsylvania (117). In this ranking, Pennsylvania passed Colorado, which has historically been in the top five. These five states make up 33% of the U.S. craft distilleries. The next five states––Colorado (107), Michigan (88), North Carolina (80), Oregon (77) and Ohio (73)–– comprise an additional 18.6% of the market, with the remaining states representing 48.4% of the market.

Impact of Legislation on the Industry

  The Craft Beverage Modernization and Tax Reform Act reduced the Federal Excise Tax on dis-tilled spirits from $13.50 to $2.70 per proof gallon for the first 100,000 proof gallons removed from bond annually. As a result of this decision, the U.S. craft spirits industry invested $759 million in their businesses, rising from $698 million in 2019. According to the Project, the top moti-vation for investing was expanding to meet consumer demand and increase visitor space.

  As a small craft distiller who opened during the pandemic, Stephen Hopkins, owner and distiller at Aimsir Distilling in Portland, Oregon, pointed to how state law can aid small craft distillers for whom tasting sales remain critical. “Oregon recently updated its law to reduce the taxes on tasting room sales which has really helped our business survive the pandemic.”

  Also, he noted the need to streamline the process of moving products to different states. “The overhead of moving to another state is very high and often hard for small producers to overcome. Even regional states being more cooperative would help small producers as well as the consumers.”

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