The novel coronavirus pandemic has a “crushing impact” on America’s craft distillers, says a new study conducted by the Distilled Spirits Council of the United States (DISCUS) in conjunction with the American Distilling Institute (ADI). Based on data from a June 2020 survey by the ADI, the study incorporates feedback from nearly 300 distilleries across 50 states and the District of Columbia.
Craft spirits sales are projected to fall 41%, or $700 million, for calendar year 2020, according to the study. Meanwhile, craft distillers have had to furlough 31% of their employees or approximately 4,600 people. A significant portion of these losses is attributed to the absence of on-premise sales from tasting rooms.
The study “makes clear the extreme challenges these small businesses are facing and the need for Congress to immediately act to help these cherished distilleries recover,” says Chris Swonger, president and CEO of DISCUS.
Liquor Store and On-Premise Sales Plummet
Despite statistics that sales of alcoholic beverages have spiked while consumers are drinking more at home, those dollars rarely reach craft distilleries, small producers say. Instead, sales are heavily concentrated in “value brands,” or well-known mainstream names packaged in handles and other larger formats, and competitively priced.
“Those bigger brands have done a good job during this period of offering incredible value to move the volume,” says Philip McDaniel, CEO and cofounder of St. Augustine Distillery in St. Augustine, Florida.
Large distributors can also negotiate prime product placement in the front of stores and large, eye-catching displays, he says, which is particularly attractive for many pandemic-era shoppers.
“People don’t want to browse—they want to get in and get out and stay safe,” says McDaniel. Further, “we can’t do tastings in stores, which is an important way for us to sell and build the brand. It’s another reason we’re not seeing the volume.”
Even before the pandemic, however, liquor stores were less likely to drive sales to craft distillers than the brands’ own tasting rooms or gift shops. According to the study, in 2019, an estimated $919 million of craft distiller revenues came from on-site sales; more than 40% of craft distillers derive more than 50% of their business from tasting room sites.
Many of those venues are closed right now, or visitor traffic has curtailed. Approximately 40% of craft distillers told DISCUS/ADI that their on-site sales were down at least 25%, and more than 15% said that their tasting rooms were completely shut down.
At St. Augustine, year-over-year revenue is down 35% to 40%, estimates CFO and cofounder Mike Diaz. But sales at the gift shop, “our biggest single source of business and revenue,” says Diaz, is down close to 70%. Year-to-date, the number of visitors is down 43% compared to 2019 (that includes April 2020, when zero visitors were permitted).
“It’s challenged us quite a bit,” Diaz adds. “The numbers are not good.”
Margins on bottles sold at the gift shop are significantly higher compared to those sold through wholesale channels, too. “We have to sell four bottles wholesale to make the same revenue as one bottle in the tasting room,” says McDaniel. “The real margin happens from the gift shop.”
Wholesale Business has Vanished
More than 40% of craft distillers report that their wholesale business to bars and restaurants is down 25% or more, the DISCUS/ADI study reports. In addition, 11% said they have lost all of their wholesale business.
With restaurants and bars closed or operating at reduced capacity due to the pandemic, this has a ripple effect on distilleries. Sales to liquors stores or package stores have helped offset the effect somewhat.
High Wire Distilling in Charleston, SC, has seen a 40% drop in overall sales, year-over-year. “Both our retail and wholesale have taken a hit,” says cofounder Ann Marshall.
Fortunately, however, she’s seen some improvement in recent months. “In May we were down 65%. We’ve gained some ground since May.”
Sales of hand sanitizer helped stabilize the business, followed by reopening of dining rooms in South Carolina in late May.
“We saw some signs of life from distributors since the beginning of July,” she says, as local bars and restaurants needed to restock shelves. Yet, “it’s been a bumpy ride,” as Covid-19 cases have prompted many venues to close and then reopen.
Meanwhile, High Wire had moved into a new, larger facility in February, shortly before the pandemic hit, and their on-site tasting room remained closed until early August (“we waited until we couldn’t wait any longer,” says Marshall).
Although the trajectory has improved in recent months, a 40% loss is a far cry from last year’s projections. “We were supposed to be up over 30% this year,” says Marshall.
Event Spaces Stand Empty
Though not mentioned in the DISCUS/ADI study, many distilleries rely on weddings, concerts, and other on-site events to supplement their business.
At Royal Foundry Craft Spirits, which opened in Minneapolis in December 2018, the effect has been particularly severe. Sales are down a whopping 70% versus the previous year, estimates co-owner and chief marketing officer Nikki McLain. With just a single product, gin, in distribution, and a newly built, 15,000-square-foot event space standing empty, times have been tough.
“Event sales was a big aspect of our business,” says McLain. “I have three event spaces. They were all rented out through summer, and they were all cancelled… It’s probably the biggest hit to our revenue.”
Royal Foundry tempered the loss by offering seating for 40–50 people on its outdoor patio and selling cocktail kits for pickup. The planned summertime launch of two additional spirits have been pushed into at least this fall.
Business has improved a bit from June and July, when it plummeted due to protests and social unrest following the death of George Floyd in Minneapolis. “But it’s not anywhere close to where we were in 2019,” she notes.
“The scariest part is the unknown of how long will this last, and how long can businesses hold on,” says McLain. “No one dreams of this sort of thing when they open a business, that a global pandemic would impact our business.”
Online/Direct-to-Consumer Sales Would Help
“In spite of the challenges that on-premise is facing, off-premise is not enough to make up for it,” says McDaniel. In this context, “on-premise” refers to sales to bars, restaurants, etc., while “off-premise” refers to sales at distilleries, liquor stores and the like.
High Wire’s Marshall also notes that state-to-state shipping would make a “huge” difference. In South Carolina and elsewhere, parity is needed for distilleries, which operate at a disadvantage compared to breweries and wineries in terms of whether food can be served on premise, operating hours and other considerations.
“We need a little more freedom to operate and make money here,” says Marshall. “When distilleries stepped up to pause everything and crank out hand sanitizer and donate [it], this seems like a good moment to push for loosening of restrictions that will help us recover these losses and be positioned for success going forward.”