Cheers-Nov-Dec 2016

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Page 7 of 63 8 • November/December 2016 DRINK CULTURE An increase in consumer taste for experimentation and premium prod- ucts has fueled a modern craft spirits movement. The inaugural Craft Spirits Economic Briefi ng broke down this phenomenon into numbers and defi nitions. Held Oct. 18 in New York, the event presented fi ndings from the Craft Spirits Data Project. The goal of the Project, a yearlong study conducted by the American Craft Spirits Association, International Wine and Spirits Research and alcohol-brand services provider Park Street, was to quantify the number, size and impact of craft spirits producers in the U.S. As such the Project required a specifi c defi nition for what constitutes U.S. craft spirits. Researchers considered state classifi cations for craft distillers, and those from distillery organizations and came up with this defi nition: American craft spirits are made in the U.S. by licensed producers that have not removed more than 750,000 gallons from bond (or 394,317 nine-liter cases), market themselves as craft and are not controlled by a large supplier such as Diageo or Constellation Brands. Here are six takeaways from the briefi ng: 1) U.S. CRAFT SPIRITS SALES AND MARKET SHARE KEEP CLIMBING The U.S. craft spirits market reached 4.9 million cases sold and $2.4 billion in retail volume in 2015. That's up from 1.47 million cases and $700,000 in sales in 2010, for gains of 27.4% and 27.9%, respectively. During this current boom, the market share of craft spirits reached 2.2% in volume and 3.0% in value, up from 0.8% and 1.1% in 2010, respectively. 2) MORE CRAFT DISTILLERIES ARE CROPPING UP As product volume and sales continue to grow, the number of producers is on the rise as well. Operational U.S. craft spirits distillers totaled 1,315 as of this past August. And there are more than 2,000 approved permits for distilleries in the U.S. Recent growth has been rapid: There were just 204 craft spirits distilleries open in the U.S. in 2010. It's not likely to continue at the current growth rate, however. Market saturation and other economic factors (taxes, competition) will likely slow the growth distilleries, said Harry Kohlmann, Ph.D., cofounder of Park Street. Kohlmann predicts 2,500 as a realistic number of U.S. distilleries operating by 2020. 3) "CRAFT" IS CONFUSING TO CONSUMERS While the craft movement has given rise to new fl avors, unique products and consumer experimentation, it has also caused some confusion, as "craft" is an ambiguous term that's sometimes thrown around loosely. The Project polled consumers and found that terms they most associated with craft spirits were "distinct and unique," "small batch" and "locally produced." Nevertheless, 25% of those same consumers when quizzed on the matter incorrectly identifi ed big brands (i.e. Bulleit Bourbon, Tito's Vodka, and so on) as being craft spirits. Marketing plays a big role here: There are no rules about which brands can label or position themselves as craft. So brands can portray themselves as craft to tap into the trend, even if they are mass-produc- ing product or are owned by a major company. 4) CRAFT DISTILLERIES OPERATE LIKE LOCAL BUSINESSES About 14% of craft distillery sales in 2015 were direct-to-consumer (i.e. conducted on-site in the tasting rooms) while another 40% came from home-state sales. In other words, more than half of the product (54%) is sold in the state where it's made. This is particularly true for small craft producers, a segment defi ned by the Project as those distillers removing up to 100,000 gallons from bond annually. For these producers, direct-to-consumer and home-state sales totaled 67%. Local and in-state sales are the backbone of small, growing distill- eries. They allow these businesses to survive the early diffi cult years of getting off the ground. In states that limit what distilleries can sell onsite—or whether they can self-distribute—these businesses are being legislatively blocked from growth, said Maggie Lehman, associate director, American Craft Spirits Association. 5) OUTDATED LAWS HOLD BACK THE INDUSTRY Since most wineries and craft breweries operate like local business- es, they are helped by pro-business laws that encourage them to operate this way. But not all states, towns and counties have laws permitting similar activity for distilleries. In some places, distilleries cannot sell spirits, bottles, or cocktails onsite, or cannot self-distribute. This legislation, a business roadblock, typically dates back to right after Prohibition, explained Lehman. At the time, states feared distilleries selling their own product would lead to more crime. But distilleries today are no longer shady operations or gangster hideouts. Rather, they have become community gathering spots and places of craftsmanship—just like microbreweries and wineries. "We just ask that lawmakers give us parity with what they already have in wine and beer," said Lehman. Taxes are another issue. Those levied on distilled spirits are among the nation's highest. Taxes comprise 54% of the typical spirit product's purchase price. Of the U.S. craft spirits producers polled in the Project, 61% were displeased with federal legislative efforts for their industry, while 54% were unhappy with laws on the state level. 6) SPIRITS ACCOUNTS WANT MORE EDUCATION, FEWER PRODUCTS The Project polled both on- and off-premise operators and found that more than 90% in both camps thought U.S. craft distilleries should invest more in consumer education. This includes additional in-store tastings, and more educational content on bottle labels. Both camps also resoundingly believed that distilleries should make fewer spirits, and of better quality, rather than be too quick to expand product lines. —Kyle Swartz SIX TRENDS DEFINING U.S. CRAFT SPIRITS U.S. craft spirits reached 4.9 million cases and $2.4 billion in retail volume in 2015, according to the Craft Spirits Data Project study. :PHOTO COURTESY OF DEATH'S DOOR DISTILLERY

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