After a Difficult Year, What Does 2021 Have in Store for Craft Spirits?

To say that 2020 was a bad year for the craft spirits industry would be a massive understatement. At each step, producers had to overcome huge obstacles just to stay afloat. Distilleries were forced to close tasting rooms, which DISCUS reports generated anywhere up to 80% of annual sales, and as bars and restaurants closed across the country, on-premise sales dried up to the tune of about 70%, according to American Craft Spirits Association board president, Becky Harris, who is also co-owner of Catoctin Creek Distilling in Virginia and one of this year’s Imbibe 75 People to Watch. “We are collecting our data for the year right now, but what I can tell you is that most distilleries I’m talking to, both small and large, were decimated.”

But in a recent interview with Harris, she offered a cautiously optimistic view that things will rebound relatively quickly in the next year or two. For example, many distilleries managed to find a life raft in to-go cocktails when bars and restaurants began to spearhead those efforts, which will continue for the foreseeable future in more than 31 states where to-go is now legal. “That was a good option for places that are in relatively urban settings because you can make it work easily,” Harris says.

The hand sanitizer pivot could also continue to generate income moving forward for those who shifted into that production last spring. “Some have been working to get long-term contracts with healthcare systems or government contracts to continue that work, which is great, especially for rural distilleries that don’t get the same tourism that urban ones do,” Harris says, adding that the recent withdrawal of a surprise $14,000 fee from the FDA was especially good news. “I’m really glad the HHS (Department of Health and Human Services) put a hold on the FDA tax for now, because now we have the option to look at that kind of production and figure out how small businesses who want to stay in this space can do so post-pandemic.”

Most recently, the Craft Beverage Modernization and Tax Reform Act was passed into legislation, preventing a crippling 400% tax increase on producers that was set to go into action on the first of January. “We have a sense that a lot of people would have quit if the [act] went through but it didn’t,” she says. And with a Biden administration in the White House, experts are hopeful that the rollercoaster of EU tariffs on spirits exports will be rolled back, allowing overseas sales to rebound.

“If we can figure out a way to get through this—to continue to hold the line—we should be set for great growth again once people can come back out.”

Perhaps most importantly, state legislatures across America are beginning to allow direct-to-consumer shipping (DTC), which is an area that ACSA will focus most of their efforts on in 2021. “When you look at the wine industry in the past 30 something years, shipping bottles directly to consumers around the country has been widespread. It’s been a great way for smaller businesses to reach out and connect directly with their customers; A way for businesses to navigate a competitive landscape in a way that they can keep and have control over their own ability to grow their business,” she says.

Eight states currently allow direct shipping, and when DTC was passed in Virginia where Catoctin Creek is located, Harris says she saw 80% more sales year over year through DTC over first 6 months of the pandemic, and that throughout the state it was the smallest distilleries that benefitted the most from direct shipping. “Think about how many times you’ve visited a distillery and want to take a bottle but you don’t want to put it in your suitcase,” she says. “It’s something that gives people the experience and then the ability to get it at home, too. And if they like it, they can buy more! That’s why it’s our biggest push for this year.”

Finally, with vaccines being administered across the country, it’s only a matter of time before thirsty spirits fans start hitting the road again to patronize their favorite distilleries. With “distillery tourism” as one of the major drivers for visitors to tasting rooms, this final piece of the puzzle is critical in rebuilding. “Most small distilleries are like, ‘If I can get through this until people will be safe, people will really want to get out again, and once it rebounds there will be a boom!’ People are going to go to restaurants, bars, tasting rooms, vacations—everyone is going to want to get out of the freaking house,” Harris says. “If we can figure out a way to get through this—to continue to hold the line—we should be set for great growth again once people can come back out.”

“People want to help their neighbors and small businesses. It’s the same reason why people are getting takeout and looking for opportunities to buy things locally and not order everything from megastores,” Harris adds. “People see the pain that’s going on with people losing jobs, and if you have one you want to hold up your community. You want things to be there when everything comes back.”