Category: General

By: Becky Garrison

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.”

By: Nan McCreary

Husband and wife team Melkon Khosrovian and Litty Mathew, owners of Greenbar Distillery in the heart of the downtown Los Angeles’ Art District, may not see themselves as pioneers in the beverage industry, but they are right up there with the leaders in two of the hottest trends going today: bar-quality canned cocktails and non-alcoholic mixed drinks. And, as Los Angeles’ first distillery since Prohibition and home to the world’s largest portfolio of organic spirits, they are using their innovative spirit to drive a sustainability movement that they hope will make the planet a better place.

  Khosrovian and Mathew began their odyssey into craft spirits in the early 2000s when Khosrovian tried to “import” the drinking culture from his native Armenia into their home. Traditions there meant sipping fruit brandy, but only with meals, and even then, always with a toast.

  “My wife hated what family served,” Khosrovian said, “so I began to visit farmers’ markets to gather fresh fruits and herbs to infuse into vodka. The first drink I created was vodka infused with fresh pear, lavender and vanilla beans. She loved it.”

  With this success, the two began making complex spirits with clean, rich flavors that they could serve with food. As a Cordon Bleu-trained chef and food writer, Mathew complemented Khosrovian’s skills as a spirits maker.

  “It was a collaborative effort,” Khosrovian told Beverage Master Magazine. “I’d make it, she’d try it, I’d fix it.” They began sharing their creations with their cousins, and when the cousins—and the cousins’ friends—kept coming back for more, and more, and more, they decided to open their own distillery. That was in 2004, and they’ve been breaking barriers ever since.

  Initially, the team created only bottled spirits in a 6,000 square-foot warehouse in Monrovia under the brand name Modern Spirits. As the couple expanded, their products—gin, vodka, tequila, rum, whisky, liquors, and amaro—were not typical run-of-the-mill recipes. From vodka infused with midwestern wheat and California pomegranate to whiskeys aged with six kinds of wood, their spirits were designed to be interesting and complex, with flavor as the main motivation. Initially, they weren’t necessarily seeking organic products.

  “We primarily bought ingredients from local farms for freshness and maximum flavor,” Khosrovian said, “and over several years, we noticed that the spirits began to taste different. We narrowed the difference down to the flavors; the farmers were selling us organic products because they had more flavor, and they knew that flavor is what we were after. That’s when we made the switch to all organically grown ingredients.”

  After several years of growing and evolving the business, in 2012, Khosrovian and Mathew moved from their Monrovia location to their current digs, a 14,000 square-foot distillery in the LA Arts District. They retired the name “Modern Spirits” and adopted the moniker “Greenbar,” a name that fits their emphasis on organic products. Instead of buying pre-distilled neutral spirits and infusing them with local produce as they did in Monrovia, they now had the equipment and space to distill their own base spirit.

  Greenbar’s spirits begin with whole ingredients. “We always use whole ingredients, whether fresh or dried, because that’s what tastes right to us,” Khosrovian said. “In fact, we make the largest volume of infused products in the U.S.”

  Khosrovian and Mathew, like true artisans, are deeply committed to their craft. Greenbar, for example, hand-zests more than 2,000 lemons for each 1,000 gallon batch of its lemon vodka. “This is why people like our products,” Khosrovian added. “They taste real.”

  The distillery uses a continuous column still for primary distillation. But it’s not the typical column still that one finds at a vodka distiller. “This still is designed to pull very precise flavors, so it is a unique beast,” Khosrovian said. “We can get very geeky with flavors by changing temperatures and extracting specific flavors, and then recombining them at the end. If you have OCD, this is your dream still.” Greenbar also owns a traditional pot still, which they use for redistillation.

  Greenbar’s spirits are essentially a bartender brand, created “for customers seeking a higher standard of taste and an easier way to make the perfect cocktail.” They include liqueurs, amaro, gin, whiskey, vodka, rum and tequila. Before the pandemic, Greenbar sold 80% of its spirits to bars, hotels and restaurants. When Covid-19 hit, the game changed practically overnight.

  “When the pandemic struck, our sales essentially evaporated,” Khosrovian told Beverage Master Magazine. “Everyone was clamoring to experience a real cocktail but couldn’t get it. Sales were exploding at retail stores, so we began to make canned cocktails that people could buy at liquor stores and supermarkets. Basically, we reinvented ourselves.” 

  Their sales took off. With products that tasted like what you could get at a bar, Greenbar found a home in more and more states. Today, Greenbar has distribution in approximately 40 states. “The pandemic hurt us in a lot of ways and helped us in a lot more ways,” Khosrovian said.

  As Greenbar enjoyed success with their canned cocktails, and with the better-for-you movement gaining traction, they decided to take another leap to create canned non-alcoholic mixed drinks.

“We’re distillers, so at first non-alcoholic products didn’t compute,” Khosrovian said. “But we learned that while people like the idea of cocktails, for many, it’s the flavor, not the booze. We began to see cocktails in a brand new light—as a flavor experience first and as an alcohol experience second.” 

  Greenbar’s non-alcoholic cocktails are made with the same process as their alcoholic products, starting as an alcoholic spirit and then distilled until the alcohol has been stripped away, leaving behind the flavors that people know and recognize. “We came to the idea with a good grasp of what was happening in the market,” Khosrovian said. “A growing number of people want the experience of enjoying a cocktail, but they don’t want the booze.”

  Today, while Greenbar still produces a full range of bottled spirits, 75% of their business is canned products. Non-alcoholic ready-to-drink cocktails include Burnt Orange Bitters+Soda, Lavender Bitters+Soda, Earl Grey Bitters+Soda, UnGin+Tonic and UnRum+Cola. All non-alcoholic RTDs are carbonated after distillation, which gives them a bubbly texture. Their alcoholic RTDS include City Gin+Tonic, Coastal Rum+Cola, Single Malt Whiskey+Soda and Hibiscus Spritz, an Italian classic updated to make it craft, organic and portable. Alcohol by volume ranges from 6% to 8%. Greenbar also produces a line of bitters to add to cocktails or sparkling water.

  With RTD alcoholic beverages being one of the fastest-growing beverage industry segments—and the market for non-alcoholic drinks taking off—Greenbar is enjoying increasing success with its canned products. “As the pandemic goes on, we are selling literally everywhere,” Khosrovian said. “We’re selling to retail outlets, restaurants, hotels, bars, concert venues; you name it. People just want that cocktail experience, and our canned products are filling the gap.” 

  As some hospitality venues are slowly reopening, canned products are in big demand there, too. Bartenders like the alcoholic products because they require less time and fewer additional ingredients. Also, staff shortages require quick turn-around times, and Greenbar’s canned cocktails—alcoholic and non-alcoholic—are simple to pour yet offer the same complexity as a real cocktail.

  While Greenbar Distillery generates enthusiastic reviews as having the world’s most extensive portfolio of organic spirits, their efforts toward sustainability are equally acclaimed. “After we went organic, we changed to light-weight glass for our bottles and recycled paper for labels,” Khosrovian said. “If not, we would have been talking out of both sides of our mouth when discussing sustainability.”

  At the same time, Khosrovian and his wife contacted a company that traced their carbon footprint for producing a bottle of spirits. To them, the results were shocking. Production of one bottle—including the box, the glass and other products used in manufacturing and transportation—created two to three kilograms of pollution (1kg = 2.2 lbs). With this knowledge and realizing that a tree absorbs 790 kilograms (1741 pounds) of carbon, Greenbar decided to plant one tree per bottle sold. Trees are planted, in cooperation with a nonprofit organization, in the rain forests of Central America and provide shade for fair trade crops of coffee and cacao so local farmers can better feed their families.

  “An average American produces 45.2 kgs of carbon dioxide every day,” Khosrovian said. “By being efficient and careful in the manufacturing process and planting one tree per bottle sold, a single cocktail with Greenbar spirits helps remove 46.6 kgs of carbon dioxide from the atmosphere. If you drink one cocktail made with one and a half ounces of any Greenbar Distillery spirits, you are carbon negative for the day, and you are drinking to a better world.” 

  To date, Greenbar has planted nearly one million trees and made more than 16 million people carbon-negative for a day.

  As Greenbar Distillery looks to the future, Khosrovian said their goal is to encourage their peers in the industry to make cocktails better and easier to drink. “Everyone loves a cocktail, but no one wants to make it,” he said. “Whether it’s bubbly in a can or a spirit in a bottle, our goal is to make the experience so easy and so delicious that anyone can drink better anytime they feel like it. Plus,” he added, “we want to forge a path as a company so all of us can keep living on this planet.”

For more information on Greenbar Distillery, visit their website at…www.greenbardistillery.com