The unforeseen consequences craft distillers faced because of COVID-19

March 28, 2021, 2:00 PM UTC
St. Augustine Distillery, named for its hometown and the oldest city in the United States, prides itself on working with farming partners throughout the state of Florida and from their grains to produce its bourbon.
Courtesy ofSt. Augustine Distillery

In 2020, the business plan for craft distilleries was simple: survive. But with cautious optimism, the liquor industry’s upstarts have a new playbook for 2021 and beyond: thrive.

There’s no denying 2020 was a brutal year for craft distilleries. Tasting rooms, where most small distilleries generate a bulk of revenue and profits, spent months shuttered. When they reopened, visitation rates saw a steep drop. Restaurant and bar closures cut off an important distribution and brand-building channel. A tariff war with Europe has badly bruised whiskey and bourbon makers. A brief pivot to making hand sanitizer just to keep the lights on.

Through it all, Kōloa Rum Company, Hawaii’s second-oldest distillery, remained transfixed on the future.

“We believe that once we get past the pandemic, that we would be in a position to take advantage of a rebound in our business once we get bars and restaurants online,” says president and CEO Bob Gunter.

Nearly 70% of the company’s revenue vanished when COVID-19 hit, hurt by a steep drop in tourism to the island state. Cost-cutting ensued, including furloughs. But Kōloa Rum continued to launch new items, including a 5-year, single barrel rum and a chocolate rum. It added distribution to Colorado and Minnesota. Even with the tariffs, the company is sending its first bottles to Europe this month.

A quirk in Kōloa’s business strategy is what helped the liquor maker survive. In the years after it opened in 2009, Kōloa added distribution to retailers in the United States Mainland. Tourists that found themselves with a lingering taste for Kōloa could go to their local liquor store and buy the brand’s rums that can fetch as much as $80 per bottle. That’s the only element of the business truly thriving today.

A bottle of New Liberty Bloody Butcher Bourbon, made with corn sourced from Castle Valley Mill in Doylestown, Penn.

Like Kōloa, Delaware-based Painted Stave Distilling saw dizzying declines in 2020. Sales to retailers outside Delaware tumbled 95%. Bottle and cocktail sales at the distillery dropped 50% and 95%, respectively.

But to-go cocktail sales grew last year, helping Painted Stave in its darkest moment. “That’s our lifeline and that one channel is keeping us afloat,” says Ron Gomes, CEO of Painted Stave.

Currently, more than 30 states allow the sale of cocktails to go by restaurants or bars and Iowa, Ohio, Kentucky, Wisconsin, and the District of Columbia have all made this COVID-era trend permanent. Dozens are mulling similar supportive measures.

The great irony of the craft industry’s challenges is that total liquor revenue in the U.S. actually grew 7.7% in 2020 from a year earlier, according to industry advocate the Distilled Spirits Council. Spirits makers stole share from wine and beer for the 11th consecutive year.

Ron Gomes, CEO of Painted Stave.
Courtesy of Painted Stave

But craft makers were brutally battered by the forced closure of tasting rooms, and other unexpected twists. Bars and restaurants, in survival mode themselves, quickly switched to cheaper produced liquors to cut costs. And even e-commerce—where beverage alcohol sales soared 42% in 2020—tended to favor top-selling brands like Jack Daniel’s and Tito’s. Roughly a third of craft distilleries reported revenue dropped 25% or more in 2020, a Distilled Spirits Council survey shows.

Phil McDaniel, CEO of St. Augustine Distillery and chair of the Distilled Spirits Council Craft Advisory Council, says his Florida business saw visitation slip from 160,000 annually to just over 50,000 last year. Like most, St. Augustine barrels whiskey years in advance in anticipation of future growth, which has dried up as the world turned upside down.

One big disadvantage McDaniel laments is that Florida doesn’t allow distilleries to ship their products directly to consumers. On premise sales were down 70% but retail sales didn’t fare much better, off by 20% in 2020. “We took a pretty big hit,” says McDaniel.

“For craft distillers, we strongly advocate and encourage providing parity with wineries and having the ability to ship to consumers,” adds McDaniel. “Consumers now want e-commerce. They expect it.”

Established in 2013, St. Augustine Distillery is family-owned and operated.
Courtesy of St Augustine Distillery

Currently, ten states and the District of Columbia allow direct-to-consumer shipping. Since COVID-19, six additional states permit in-state distillers to send their liquor to consumers that also live within the state as a temporary economic relief measure.

Legislation advocacy, it turns out, is a key ingredient to keep distilling a success in America. Years-old changes to regulation in Pennsylvania has made the state far more friendlier for business for New Liberty Distillery, where Robert Cassell is president. In the Keystone State, distilleries can ship direct to consumers. It was notably helpful in the early months of the pandemic, when Pennsylvania shut down all state-owned liquor and wine stores.

New Liberty Distillery threw caution to the wind, opting to offer flat-rate shipping throughout the state, at times paying $30 to ship a bottle of whiskey to remote, rural parts of the state. New fans emerged, and New Liberty Distillery says retail sales have since spiked in places where demand had been scant before the pandemic.

“With direct to consumer, you aren’t going to build your brand that way, but you can get brand exposure,” says Cassell.

Koval founders and owners Dr. Sonat Birnecker Hart and Robert Birnecker.
Courtesy of Koval

At an urban distillery in Chicago, where Koval Distillery produces whiskey and liqueurs, co-owner and President Dr. Sonat Birnecker Hart says she’s reassessed her business to figure out strengths and weaknesses over the past year. But she employed trench warfare tactics in Europe, refusing to lose shelf space on Koval’s exports.

The brand ships to 55 export markets, putting a premium on distribution as a vehicle for growth. Koval has been forced to gulp Europe’s brutal 25% tariffs—set to double to 50% this June—because passing along those costs to customers could kill sales momentum. Koval has moved to ship more to markets in Asia like Japan and South Korea, while also investing in promotions in Europe to reassure customers.

“We have to quell fears and show we are really invested in the market,” says Dr. Birnecker Hart. “It is a real shame that at a time in which there are so many problems that craft brands are facing in the pandemic, that not figuring out a way to remedy the tariffs is cutting off another angle for the survival of another craft brand.”

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