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This week we’ll be digging into the heated debate about distribution challenges for craft spirits.

What insiders are reading: Check out incoming exclusive data from CGA by NIQ and headlines like how Mommenpop is riding the spritz wave.

-BevNET spirits editor, Ferron Salniker

The spirits world is abuzz this week (no pun intended) following a Food & Wine article proclaiming craft spirits in crisis. That’s not news for anyone in the industry, but I checked in with a few craft distillers to ask if they’re feeling the sense of dread that the story described, and where there might be some relief. 

In ascribing craft spirits’ problems largely to distribution consolidation, including the growing market share of the biggest three distributors, as well as the legal barriers preventing distillers from taking sales into their own hands, the article lay bare some of the tensions in the industry. 

On behalf of distributors, the WSWA, of course, argued that the article missed broader economic conditions, and complained that it oversimplified the potential of direct-to-consumer shipping as a way for brands to make ends meet. The American Craft Spirits Association snapped back about the need for market modernizations that could give craft distillers a fair chance.

There are, however, other issues that interconnect with the distribution challenges. For starters, we’re in “peak craft”, with nearly 225,000 brands and 2,700 distilleries - that’s something of a traffic jam. The funnel is becoming smaller as distributors consolidate, however – for those craft spirits businesses that want to, as F&W put it, move beyond the hobby stage, the pressure is on to offer something different and to have a sound business plan. 

“The pain that's being felt among distilleries everywhere, nationally, regardless of size, has more to do with not being innovative and trying to continue to push the same stuff over and over again,” said Adam Spiegel, who started Sonoma County Distilling in 2010 and more recently added on Corning & Company, an industrial services program for people in the spirits space.

Part of Spiegel’s work is having the ‘come-to-Jesus' conversation with distillers about their sometimes too-lofty ambitions in terms of immediate growth; he argues that there are still ways to launch regionally without upending a startup's budget in search of a national footprint. As the advisor to many craft entrepreneurs and distillers, he’s also seeing the growing pains of an industry where some of the players are now grappling with the consequences of not building proper business plans.

But for other distillers, despite the innate logic of building in one’s backyard, going deep before going wide can be tricky – there’s that glut in inventory, plus the constraints of a three-tier system and high taxes in some home markets. They believe there have to be changes to the status quo.

“What a bizarre system— I could ship something halfway around the world and make a better margin than in our own three-tier system,” said Jill Kuehler, whose Portland, Oregon-based Freeland Spirits is distributed in 20 states. 

Spiegel argues that some regulatory shifts could boost craft distillers’ market access without cutting into distributors’ pockets: self-distribution (even with limits) could help distillers develop an account base before going to a distributor that otherwise won’t take them on, and more DTC privileges could allow brands to gather data and connect with consumers in a faraway state before approaching distributors. 

“The system was probably built for a much smaller amount of inputs, and now that there's so much going on, the system just has to adjust in some way, shape or form,” he said. 

So is it growing pains, or poisoned roots? I’ll be diving into more of these conversations over the next weeks, so stay tuned, and as always, drop me a tip if you have anything to add. 

Last week, a coalition sent a letter to the TTB urging the bureau to finalize the official standard for the American Single Malt category, marking the two-year anniversary of TTB’s notice of proposed rulemaking to establish a standard of identity. The urgency is due to several factors: the American Single Malt label popping up on bottles that don’t meet the proposed definition, as well as the risk of the category falling behind other international spirits receiving formal definitions and “protections,” said Steve Hawley, head of the American Single Malt Whiskey Commission. The ruling has been labeled as a high priority by the TTB according to Hawley, but there’s no guarantee on any timeline. Check out a deep dive on the category from earlier this year.

Threats of tax increases on alcohol at the state level have surfaced recently. In Oregon, there are less than two months left before a task force must submit recommendations to Oregon Gov. Tina Kotek on ways the state can work to curb substance abuse, which may include tax increases on alcohol. My colleague Zoe at Brewbound has the lowdown. Meanwhile, in Nebraska, a $3.75 tax on alcohol and spirits could potentially reach $14.50 per gallon in Gov. Jim Pillen’s proposal to increase state sales tax revenue. The proposal was heard by the revenue committee at the end of last month with no action taken. 

Eric LeGrand’s life was changed in 2010, when he became paralyzed while playing football as a defensive tackle for Rutgers University. The end of his athletic career marked the start of his entrepreneurial path, leading to his latest venture launched last year: Eric LeGrand Bourbon. We chatted with LeGrand about how a purpose-driven brand competes in a saturated category. 

After a hiatus, we’re seeing a few investments in higher-end mezcal brands like Gallo’s recent addition of Derrumbes to its portfolio. We talked with the orchestrator of a different transaction to get the details. The Aether Group, a recently launched incubator and brand house from a former Coca-Cola executive made its first acquisition last month: Corte Vetusto, a mezcal brand with a U.K. footprint whose U.S. distribution stalled due to the pandemic. Read the full story.

The earnings results are in from major food and beverage companies, and apparently consumers are skipping out on happy meals and tequila, which might also be why luxury goods group LVMH has blamed low champagne sales on our… collective sadness? After earnings results from Diageo and Campari we took a closer look at the trends, including what’s going on with tequila premiumization and how flavor innovation is bringing in new customers. Read our summary.