As 2020 comes to an end and we are 10 months into the pandemic, two narratives continue to lead conversations surrounding alcohol sales in the U.S. The first, by all accounts, is that off-premise alcohol sales are up. Most reports suggest that larger brands are mainly benefitting from this trend while craft producers have not seen the same boost.
The COVID-19 pandemic has hit craft distillers exceptionally hard. Unlike the established national spirits brands, most craft distillers lack a broad retail distribution network.
There’s a significant number of testimonies from market analysts supporting these narratives. But the more we scrutinize the numbers, the more it becomes apparent this is a nuanced conversation — one that’s impossible to sum up with a one-size-fits-all answer.
Prior to the pandemic, many craft beverage brands placed more emphasis on on-premise sales, because that channel offers greater profit margins.
With lengthy on-premise closures and continued capacity restrictions, the loss (or significant reduction) of this vital revenue stream has had a notable impact.
During the “pantry loading” months of March, April, and June, consumer purchasing habits shifted to favor macro brands, according to analysts such as the IWSR.
"Covid-19 has indeed brought us all in the craft beverage business to our knees" says Frontier Spirits chairman and founder, Stewart Skloss. "The end result is that the top 5 brand in each category (Gin, Rum, Tequila, Vodka, Whiskey, etc.., now control ~80% of each category market as people are buying value by a cost and volume."
“The narrative had been that people were buying all kinds of liquors, but we were skeptical,” said Scott Harris, co-owner of Catoctin Creek Distilling in Purcellville, Va., which makes its flagship Roundstone Rye, as well as gin and brandy. “The market has seismically changed.”
People largely drink the fancy stuff, the small-production craft spirits, in restaurants and bars, leaving themselves in the expert care of mixologists. At home, people aren’t fiddling with amari and bitters so much, going heavy on handles of less-expensive familiar brands such as Jim Beam or Smirnoff.
Jaime Windon, who runs Windon Distilling in St. Michaels, Md., and is also president of the Maryland Distillers Guild, said that with many liquor stores closed to in-person shopping, the serendipity of finding something new by browsing is over, for the time being. She said craft brands might not be getting full representation on liquor stores’ websites, either.
“There’s a difference between feel-good booze and pandemic booze,” she said. “Craft distillers make lovely spirits meant for savoring and sharing with friends. If you’re unemployed or don’t know where your next paycheck is coming from, craft is perceived as a little bit of luxury.”
Many craft distilleries were already hurt by retaliatory tariffs in the trade wars that made American goods, including bourbon and rye whiskey, more expensive to import.
To add further insult to injury, a key tax provision is set to expire by the end of the year. The result would be a five-fold increase in the excise tax that the federal government levies on alcohol produced by craft distillers.
According to Chris Swonger, President & CEO, Distilled Spirits Council of the United States:
2020 has been such a stressful year for craft distillers with the devastating impact of the pandemic, the retaliatory tariffs and now a looming massive federal tax hike. The countdown is on. If we don’t get the Craft Beverage Modernization and Tax Reform Act (CBMTRA) passed by the end of the year, I fear this may be the final blow for many small craft distilleries.
Because the tax is imposed on the amount of alcohol in a bottle and not on the bottle’s retail selling price, it has a bigger impact on low priced spirits than on expensive ones.
Still, market analysts like the IWSR predict the craft beverage industry will return to a “healthy” landscape within two years, and volume losses will also be regained in the coming years. But crucial to the continued health of the industry will be a diversification of revenue streams.
Within retail channels, consumers can not only expect a reduction in brands on shelves, but also a streamlining of styles. “I think this is really going to cull the selection because stores were already overwhelmed with the amount of variety on offer,” says Night Shift’s Oxton.
One pandemic trend all hope will continue is the manner in which consumers have increasingly supported local businesses. “As long as the quality is there, consumers will also be there,“ IWSR’s Rogers says.
