June 27, 2019

Craft Spirits Growth Outpacing Total Bev Alc. in 2019

Dear Client:

The total craft market (craft beer + craft spirits) accounts for about 11% of the total beverage alcohol market, according to IRI data. Craft beer accounts for about two-thirds of the total craft category and craft spirits about one-third.

In a webinar yesterday put on by Beverage Industry, Lana Farrell, principal, market and shopper intelligence at Information Resources Inc. delved into the craft market landscape including growth drivers, regional differences and current trends.

Craft spirits growth is outpacing total beverage alcohol as well as craft beer in 2019, and it’s at the highest growth rate in the past four years, up 12% to $2 billion in the 52 weeks through May 19 in all IRI-measured channels.

Note, because there’s no universally agreed upon definition of craft, Lana uses two definitions: 1) brands producing less than 200,000 gallons annually and 2) brands producing less than 200,000 gallons annually excluding brands owned by large parent companies. (They also excluded Tito’s “because it’s a separate conversation,” said Lana.)

Craft spirits growth is not just driven by larger craft producers. Both big and small producers are growing the segment, with both groups reporting 12% growth rates for the year period.

WHISKEY, VODKA DOMINATE CRAFT. Perhaps not too surprisingly, whiskey and vodka drive the most dollar sales and account for the most brands in the segment, said Lana.

Vodka has higher dollar share among smaller distillers, while whiskey leads in the broader definition of craft.

WEST & NORTH-CENTRAL ARE KEY REGIONS. The north central region accounts for 45% of craft spirits dollar share and about 43% of the dollar growth. The west accounts for about 39% of dollar share and 44% of growth. “So, those two regions are kind of driving craft spirits equally,” said Lana.

Craft spirits consumers spend the most in the west at an average of $213 annually, bringing in about $556 million for the year period. In the north central, consumers spend about $156 per year on craft spirits and accounted for $486 million.

Lana noted that consumers are spending a bit less in the north central compared to the west, showing that “there’s room to grow.”

During the year period, the south raked in $156 million and the northeast brought in $41 million.

More buyers and increased spending over last year drove growth in all regions except the northeast, where the buy rate is actually declining, according to Lana.

INDUSTRY SOUNDS OFF ON SUPREME COURT RULING 

Yesterday, the US Supreme Court struck down Tennessee’s residency requirement to obtain a liquor license in the Tennessee Wine and Spirits Retailers Association v. the Tennessee Alcoholic Beverage Commission (and Total Wine & More) case [see WSD 06-26-2019].

TRADE GROUP RESPONSES A MIXED BAG. The Wine & Spirits Wholesalers of America said they disagree with the ruling, but are glad that the opinion advocated for the importance of the three-tier system and the role it plays in public health and safety. Your editor got on the horn with WSWA chief Michelle Korsmo to discuss it further.

“WSWA’s position has long been that the states have the authority to determine how best to regulate alcohol within their borders,” Michelle tells WSD, adding that Tennessee’s two-year residency requirement was “within the state’s authority” because “that was part of what the 21st Amendment was about. The opinion that came down from the court looked at it differently.”

“In the next few years, we’ll go through that process of figuring out what it all means and how it applies to specific situations,” she says, adding that in the dissent, penned by Justice Neil Gorsuch, he “really questioned whether or not the court was helping bring clarity to the system.”

When asked what her biggest takeaway from the ruling is, she said, “for me, the critical aspect of health and safety in the states’ regulations of beverage alcohol.”

“It takes time for it to all work out and it’s an evolution,” she says, “I think that it’s reasonable for us to assume that this is a new lens and a new filter through which beverage alcohol regulation is judged.”

Similarly, the American Beverage Licensees also disagrees with the ruling. “It is disappointing that the Court did not recognize the full weight of the Twenty-first Amendment and the societal intent of the Tennessee residency laws when balanced against the Dormant Commerce Clause,” says ABL executive director John Bodnovich in a statement.

ABL notes that the majority opinion did acknowledge the limit of its ruling: “Because we agree with the dissent that, under [Section 2], States ‘remai[n] free to pursue’ their legitimate interests in regulating the health and safety risks posed by the alcohol trade, each variation must be judged based on its own features.”

“In light of today’s ruling, and as we look to what the future may hold for the retail alcohol community, accountability, transparency and compliance will be of the utmost importance,” says John.

Meanwhile, the National Beer Wholesalers Association did not explicitly say whether or not they agree or disagree with the ruling. Rather, the group focused on the fact that the court pointed out the importance of the three-tier system.

“The Court was deliberate in clarifying that this case was not a ruling on the three-tier system. It reaffirms that the basic model and essential features of the three-tier system are legitimate,” says NBWA chief Craig Purser. “It recognizes that requiring industry participants to be physically present in the states where they operate – something NBWA believes to be essential to the three-tier system – is legitimate as well. More broadly, today’s decision establishes a framework for state regulators and responsible industry participants to advance and support legitimate state laws that are essential to an orderly alcohol marketplace.”

On the other hand, the National Association of Wine Retailers is over the moon with yesterday’s ruling.

“The decision is a historic wine for both free trade and wine consumers across the country,” says NAWR executive director Tom Wark. He goes on to say that “while we expect the opponents of free trade and supporters of protectionism to fight this evolution in the American marketplace, we are equally confident that this Supreme Court decision will lead to greater access to the hundreds of thousands of wines many consumers do not currently have access to due to protectionist wine shipping laws.”

WSD BRIEFS:

DSC AND RESPONSIBILITY.ORG ANNOUNCE LEADERSHIP APPOINTMENTS. The Distilled Spirits Council and Responsibility.org have announced several key senior leadership appointments following the alignment of the two organizations. The senior leadership team now includes: Courtney Armour as chief legal officer for both organizations; Adrian Baxter as chief financial officer; Sarah Fitzmaurice as chief, resource planning & management; Leslie Kimball as chief, branding & communications; Christine LoCascio as chief, public policy for DSC; Ben Nordstrom M.D., Ph.D. as executive director for Responsibility.org; Eric Reller as chief strategic initiatives for DSC; and Dr. Sam Zakhari as chief of science & health at DSC.

LIBDIB NAMES NEW COO. Liberation Distribution (or LibDib) has announced that Josh Zellar has joined their executive team as chief operations officer, marking the first executive hire since LibDib’s launch in March 2017. In his new role, Josh will be responsible for all aspects of distributor operations, including logistics, reseller experience and finance. He joins LibDib from Republic National Distribution Co. where he worked as director of operations.

DAVOS BRANDS’ TYKU INTRODUCES CUCUMBER SAKE IN A CAN. TYKU has introduced cucumber sake in a 250ml can. It retails at $5 per 250ml can or about $20 per four-pack. The cucumber sake is already available nationwide in 720 ml and 330ml glass bottles.

PROVENANCE VINEYARDS’ DEBUTS DEADEYE RED BLEND. Treasury Wine Estates’ Provenance Vineyards has launched a Napa Valley Cabernet focused red blend called DeadEye. The blend is composed of predominantly cabernet sauvignon, and also includes petite sirah, merlot, petit verdot and malbec. It has a limited release of 2,396 cases and is available nationwide at a suggested retail price of $50 a 750 ml.

BARTON 1792 DISTILLERY RELEASES SMALL BATCH BOURBON. Sazerac’s Barton 1792 Distillery has released the 1792 Aged Twelve Years, a limited edition 12-year-old small batch bourbon. One batch of the Aged Twelve Years Bourbon will be released each summer and carry a suggested retail price of $50 a 750 ml.

KIM CRAWFORD LAUNCHES “MAKE IT AMAZING” CAMPAIGN. Constellation Brands’ Kim Crawford has launched its new national marketing campaign, with the tagline “Make It Amazing.” The new campaign is supported by a 360-degree integrated marketing plan including TV and digital advertising, social media content, dynamic displays at retail, strategic partnerships, consumer sampling, and experiential programming.

Until tomorrow,
Sarah

“We aim above the mark to hit the mark.” – Ralph Waldo Emerson