The U.S. craft spirits industry is booming. An increase in consumer taste for experimentation and premium products has fueled a modern craft movement. Naturally, it’s useful to measure and define this trend.
The inaugural Craft Spirits Economic Briefing broke down this movement into numbers and definitions. Held yesterday at the Nomad Hotel in New York, the briefing presented findings from the Craft Spirits Data Project (the Project), a yearlong study conducted by the American Craft Spirits Association, International Wine and Spirits Research, and alcohol-brand services provider Park Street.
The goal was to quantify the number, size and impact of craft spirits producers in the U.S. Here were major takeaways:
1) U.S. Craft Spirits Continue To Boom
Sales continue to climb exponentially for craft spirits. Numbers from the past five years alone are eye-opening.
The U.S. craft spirits market reached 4.9 million cases and $2.4 billion in retail volume in 2015. That’s up from 1.47 million cases and $700,000 in retail volume 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) Craft Distilleries Are Growing In Number
As product volume and sales continue to grow, it makes sense that producers too are increasing in number.
The amount of operational U.S. craft spirits distillers totaled 1,315 as of August 2016. And there are more than 2,000 approved permits for distilleries in the U.S.
Recent growth has been rapid. There were only 204 craft spirits distilleries open in America in 2010. Given the current growth rate, that total is on track to reach 2,800 by 2020.
However, such an amount is unlikely. Market saturation and other economic factors (taxes, competition) will likely slow the growth distilleries, explained Harry Kohlmann, Ph.D., co-founder of Park Street, during the presentation. Instead, Kohlmann foresees 2,500 as a more realistic number of U.S. distilleries in operation by 2020.
3) Consumers Are Unsure About The Meaning Of ‘Craft’
While the craft movement has given rise to new flavors, unique products, and consumer experimentation, it has also caused some confusion. Consumers may now wonder: what exactly are ‘craft spirits’? It’s an ambiguous term, 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, ¼ of those same consumers when quizzed on the matter incorrectly identified big brands (i.e. Bulleit Bourbon, Tito’s Vodka, etc) as being craft spirits.
Marketing plays a big role here. There are no rules about which brands can label or position themselves as craft. Large brands have wisely portrayed themselves as being craft in order to tap into this current hot trend.
Of course, this whole issue depends on your definition of craft spirits.
4) Forming A Definition Of ‘Craft Spirits’
The Project required a specific definition for what constituted U.S. craft spirits. (Otherwise, how would they know what data was relevant?)
In defining this term, researchers considered state classifications for craft distillers, and those from distillery organizations. The Project came up with this: U.S. craft spirits are made in America by licensed producers that have not removed more than 750,000 gallons from bond (or 394,317 9-liter cases), market themselves as craft and are not controlled by a large supplier like Diageo or Constellation Brands.
5) Craft Distilleries Operate Like Local Businesses
About 14% of craft distillery sales in 2015 were direct-to-consumer (i.e. tasting rooms) while another 40% came from home-state sales. In other words, more than half of their product, 54%, is sold in the state where it’s made.
This is particularly true for small craft distillers (defined by the Project as those removing 0 to 100,000 gallons from bond annually). For these producers, direct-to-consumer comprised 25% of all sales, and home state sales (which include direct-to-consumer) totaled 67%.
Local and in-state sales are the backbone of small, growing distilleries. They allow these businesses to survive the early difficult 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.