No part of the document may be circulated, quoted, or reproduced for distribution without prior written approval fromPark Street, ACSA, or IWSR. This material was used during an oral presentation; it is not a complete record of the discussion.
Annual Craft Spirits Economic Briefing Preliminary Draft – November 2020
© 2020
Contents
§ Key Messages
§ Craft Spirits Research Definition
§ Craft Spirits Market Data
§ Appendix
2
Key Messages
© 2020
Key Messages
• The number of active craft distillers* in the U.S. grew by 10.7% over the last year to 2,265 in August 2020.
• The U.S. craft spirits market volume reached over 11m 9 liter cases in retail sales in 2019, growing at an annual growth rate of 24%. In value terms, the market reached $6.1 billion in sales, growing at an annual growth rate of 27.1%. U.S. craft spirits market share of total U.S. spirits reached 4.6% in volume and 6.9% in value in 2019, up from 1.8% in volume and 2.3% in value in 2014 and 3.9% in volume and 5.8% in value in 2018.
• Exports of U.S. craft spirits decreased by 57.6% versus last year to a total of 155,000 cases in 2019, adding 1.4% of additional volume to U.S. craft distillers’ total sales.
• The U.S. craft spirits market is fairly concentrated with larger producers (between 100,000 and 750,000 proof gallons removed from bond) making up only 1.6% of the total number of craft producers, but are responsible for 57.2% of the cases sold. 90.3% of U.S. craft producers are classified as small producers (between 0 and 10,000 proof gallons removed from bond). They are responsible for just 11.7% of the cases sold annually.
4*Active craft distillers: licensed US distilled spirits producers, removed 750k proof
gallons (or 394,317 9L cases) or less from bond, market themselves as craft,
are not openly controlled by a large supplier, and have no proven violation of the ACSA Code of Ethics.
© 2020
Key Messages (Continued)
• Direct sales at the site of the distilled spirits producer (DSP) are important for all
craft distillers but especially important for small producers where these sales
make up 47.3% of total sales. Out of state business is particularly important for
large producers, accounting for 70.1% of the total business.
• COVID-19 has had a major negative impact on craft spirits producers. The
majority of craft producers have experience a double-digit decrease in sales in
the first half of 2020, however, over 80% are confident they will make it through
the economic downturn and return to historic growth rates.
• In 2019, the number of people employed in the U.S. craft spirits industry
increased by more than 5,000 to a total of over 30,000 people. The total impact
of COVID-19 on employment in the industry remains to be seen.
• Since the enactment of the Craft Beverage Modernization and Tax Reform Act,
investments by craft producers have continued to increase. In 2019, the amount
of capital invested by the U.S. craft spirits industry was $698 million, an increase
of over $19 million from 2018. The impact of COVID-19 on investment levels in
2020 remains to be seen.
5
Craft Spirits Research Definition
© 2020
ACSA Code of Ethics:"We operate in an honest, transparent and non-deceptive fashion. We inform consumers truthfully and accurately about the sources and methods used to make our spirits through our labels, materials and communications. We expect fair dealing and respect amongst members. We obey all federal, state, and local laws."
U.S. Craft spirits (for the purposes of this research)
U.S. Craft spirits are distilled spirits that are produced in the U.S. by licensed producers that have not more than 750,000 proof gallons (or 394,317 9L cases) removed from bond, market themselves as craft, are not openly controlled by a large supplier, and have no proven violation of the ACSA Code of Ethics
Craft Defined for Purposes of the Research
7
Size:Not more than 750,000 proof gallons (or 394,317 9L cases) removed from bond by licensed producer (DSP)
Self-proclamation of licensed craft distiller, not openly controlled by a larger supplier:Distiller claims to be a U.S. craft spirits producer with a valid DSP license and is not openly controlled by a larger supplier
Craft Spirits Market Data
© 2020 9Sources: TTB, ACSA, ADI, State ABC Boards, State Guilds, Team Analyses
§ The list of DSPs is broken down into segments in order to distinguish the amount of distillers that are not considered craft: duplicates, leading suppliers, bottlers, and/or non-craft/non-operational
§ The list of active craft distillers is generated bottoms-up through individual assessment
# of DSPs by Segment as of August 2020
00
3,606
00
00
Not operational
or non-craft
Research universe
In planningBottlers / industrial
Leading suppliers
Duplicates / multiple
locations of any supplier
All licensed DSPs
Active craft distillers
257 46 144 481 2,664
2,265
From DSPs to Active Craft Distillers
399
© 2020
Active Craft Distillers by State
10Sources: TTB, ACSA, ADI, State ABC Boards, State Guilds, Team Analyses
Over half of active U.S. craft distilleries are located in ten states
203178
139128
109
431
1,077
TotalNext 55. PA All other1. CA 4. TX3. WA2. NY
2,265
The top 5 states make up 33.4% of craft distillers
Remaining states represent 48%
The next 5 states make up
19%
# of Active Craft Distillers by State as of August 2020
© 2020
2,046
2,265
1,100
1,300
1,500
1,700
1,900
2,100
2,300
2019 2020
+9%
Number of Active Craft Distillers Has Grown 9% Since Last Year# of Active Craft Distillers, August 2019 vs. August 2020
11Sources: IWSR, Team Analyses
§ In August 2020 there were 2,265 craft distillers active in the U.S., up 9% from 2,046 active distillers in August 2019
184
160
124
118
89
CA
NY
WA
TX
PA
139
2019
203
109
178
128
2020States with Highest # of Active Craft Distillers, August 2019 vs. August 2020
% Growth
22.5%
8.5%
12.1%
11.3%
9.1%
© 2020
# of Active Craft Distillers by State and Region as of August 2020
30
1113
139
84
20203
12
30
17 108
22
17
5
10
9
11 62
41
21
4686
764755
128
11 8
244 21
67
3041
775652 50
109178
26
34
24
33
19
8
737
19
17
19.9%
28.1%
20.7%30.4%
2,265 Total Distilleries
Active Craft Distillers by State and Region
12Sources: TTB, ACSA, ADI, State ABC Boards, State Guilds, Team Analyses
10
© 2020
906
1,163
1,439
1,748
2,001
2,197
0
400
800
1,200
1,600
2,000
2,400
2014 2015 2016 2017 2018 2019
Number of Active Distillers Still Growing
13
# of Craft Spirits Producers2014 – 2019
Sources: TTB, IWSR, Team Analyses
# of Craft Spirits ProducersDecember 2019 – August 2020
2,19
7
2,21
1
2,22
1
2,23
0
2,24
0
2,24
5
2,25
6
2,25
9
2,26
5
0
400
800
1,200
1,600
2,000
2,400
Dec Jan Feb Mar Apr May Jun Jul Aug
2014–2019 CAGR19.4%
Annualized Growth 3.1%
© 2020
Craft Spirits Sales Grew Rapidly in 2019, but Will
Likely Decrease in 2020
14Sources: TTB, ACSA, IWSR, State ABC Boards, State Guilds, Team
Analyses
3,880
4,930
5,842
7,160
9,021
11,189
0
2,000
4,000
6,000
8,000
10,000
12,000
2014 2015 2016 2017 2018 2019
Craft Spirits Sales by Volume,2014 – 20199L Cases (000)
1.8
2.4
3.0
3.7
4.8
6.1
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
2014 2015 2016 2017 2018 2019
Millions
Craft Spirits Retail Sales by Value,2014 – 2019$ Billions
+27.1%+24%
© 2020
Craft Spirits Market Share at 6.9% in Value and 4.6% in Volume
§ U.S. craft spirits currently has an estimated market share of 4.6% in cases, up from 1.8% in 2014 § The U.S. craft market share in value is estimated at 6.9%, up from 2.3% in 2014§ U.S. craft spirits is clearly a contributor to the trend towards premiumization in the U.S. market
1.8%2.2%
2.6%
3.2%
3.9%
4.6%
2.3%
3.0%
3.8%
4.6%
5.8%
6.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2014 2015 2016 2017 2018 2019
15
Craft Distiller Sales as a Share of Total U.S. Spirits Volume and Value
Sources: TTB, ACSA, IWSR, State ABC Boards, State Guilds, Team Analyses
Share ValueShare VolumePercent
© 2020
YoY Change
Average Volume of U.S. Craft Distillers Continued to Increase
16Sources: TTB, ACSA, IWSR, State ABC Boards, State Guilds, Team Analyses
4,282 4,239 4,0604,096
4,5085,093
-15%
-10%
-5%
0%
5%
10%
15%
0
1,000
2,000
3,000
4,000
5,000
6,000
2014 2015 2016 2017 2018 2019
# of Cases of Average U.S. Craft Distiller 2014 – 2019
§ The market has passed an inflection point at which the volume growth outpaces the growth in number of distillers.
§ The volume of the average U.S. craft producer reached 5,093 cases in 2019, up 13% versus 2018.
9L Cases, Percent Number of Cases
© 2019
Sources of Case Sales – Total U.S. Craft Spirits Industry, Domestic and Export 2018
More Than 45% of the U.S. Craft Business Takes Place in the Home State
17Sources: TTB, ACSA, ADI, State ABC Boards, State Guilds, Team Analyses
2,824
2,340
6,025
11,189 155 11,343
Home state, but outside
premises
ExportSales at DSP
Total U.S. business
Total business
Other U.S. states
% of total U.S. business
25.2% 20.9% 53.9% 100.0% 1.4% 101.4%
§ More than 45% of the total U.S. craft business takes place in the home state of the craft distiller
§ Exports add 1.4% to the overall volume for the U.S. business
9L Cases (000)
© 2020
Total Craft Spirits Industry, Sources of Case Sales, 2017 – 20199L Cases (000)
Craft Spirits Growth is Driven by Domestic Sales as Exports Have Decreased in Recent Years
18Sources: TTB, ACSA, ADI, State ABC Boards, State Guilds, Team Analyses
1,491 2,0872,824
2017 2018 2019
Sales at DSP
Home State
Other States
Export
2,073 2,222 2,340
2017 2018 2019
3,596 4,712 6,025
2017 2018 2019
598304 155
2017 2018 2019
37.6%CAGR
6.2%CAGR
29.4%CAGR
-26.7%CAGR
29.0%% of total
U.S. business
% of total U.S.
business
% of total U.S.
business
% of total U.S.
business24.6% 20.9%
20.8% 23.1% 25.2%
7.7% 3.3% 1.4%
50.2% 52.2% 53.9%+4.4%
-8.1% -6.3%
+3.7%
© 2020
Craft Spirits Market Is Fairly Concentrated
19
§ The U.S. craft distilling market is fairly concentrated with less than 2% of producers responsible for almost 60% of the cases
§ 90.3% producers are classified as small producers. They are responsible for just 11.7% of the cases
Sources: TTB, Distiller Surveys, Team Analyses *Small: 0 - 5,258 9L Cases, Medium: 5,258 - 52,576 9L Cases, Large: 52,576 - 394,317 9L Cases
Number of cases
100%
57.2%
31.1%
11,189
11.7%
Large producers
Small producers
Medium producers
8.1%
Number of producers
1.6%
2,197
90.3%
# of Craft Distillers and Case Volumes by Producer Size, 2019# of Producers, 9L Cases (000)
© 2020
Average Volume of Large Craft Producers Experienced Growth in 2019
20
# of Large ProducersNumber
20 23 24 28 34 36
010203040
2014 2015 2016 2017 2018 2019# of Cases of Large Producers9L Cases (000)
2,615 3,045 3,327 4,096 5,242 6,396
02,0004,0006,0008,000
2014 2015 2016 2017 2018 2019
Average # of Cases of Large Producers9L Cases (000)
132 132 139 146 154 178
050
100150200
2014 2015 2016 2017 2018 2019
§ The number of large craft producers, as well as the average number of cases produced, has been growing rapidly
§ The number of large craft distillers has grown from 20 in 2014 to 36 in 2019, an 80% increase
§ The number of cases of large craft distillers has grown from 2.6 million 9L cases in 2014 to almost 6.4 million 9L cases in 2019
§ The average number of cases of large craft distillers has increased from 132k 9L cases in 2014 to 178k 9L cases in 2019
Sources: TTB, Distiller Surveys, Team Analyses
12.5%CAGR
14.9%CAGR
6.2%CAGR
© 2020
Sources of Case Sales – Large U.S. Craft Spirits Producers, Domestic and Export 2019
More Than 70% of the Business of Large Craft Producers Takes Place Outside the Home States
21Sources: TTB, ACSA, ADI, State ABC Boards, State Guilds, Team Analyses
Home state, but outside
premises
ExportSales at DSP
Total U.S. business
Total business
Other U.S. states
704
6,5366,396
1,209
4,483
141
% oftotal U.S. business
18.9% 11.0% 70.1% 100% 2.2% 102.2%
§ Large craft producers are more likely to drive growth outside of their home state
§ Exports add 2.2% to the overall volume of the U.S. business
9L Cases (000)
© 2020
Large Craft Spirits Producers, Sources of Case Sales, 2017 - 2019 9L Cases (000)
While Large Craft Producer Sales Are Growing,
Home State Sales Continue to Decline
22Sources: TTB, ACSA, ADI, State ABC Boards, State Guilds, Team
Analyses
717959
1,209
2017 2018 2019
Sales at DSP
Home State
Other States
Export
821 797
704
2017 2018 2019
2,5583,486
4,483
2017 2018 2019
530
262141
2017 2018 2019
29.9%CAGR
-7.4%CAGR
32.4%CAGR
-48.4%CAGR
20.0%
% of total
U.S.
business
% of total
U.S.
business
% of total
U.S.
business
% of total
U.S.
business15.2% 11.0%
17.5% 18.3% 18.9%
11.5% 5.0% 2.2%
62.5% 66.5% 70.1%+1.4%
-9.0% -9.3%
+7.6%
© 2020
Medium-Size Craft Producers Have Been Growing Well
23
# of Medium-Size ProducersNumber
55 73 91 106 124178
050
100150200
2014 2015 2016 2017 2018 2019# of Cases of Medium-Size Producers9L Cases (000)
831 1,289 1,765 2,127 2,616 3,479
01,0002,0003,0004,000
2014 2015 2016 2017 2018 2019Average # of Cases of Medium-Size Producers9L Cases (000)
15 18 19 20 21 20
0
10
20
30
2014 2015 2016 2017 2018 2019
Sources: TTB, Distiller Surveys, Team Analyses
26.5%CAGR
33.2%CAGR
2.13 %CAGR
§ The number of medium craft producers, as well as the average number of cases produced, has been growing rapidly
§ The number of medium craft producers has grown more than three-fold, from 55 in 2014 to 178 in 2019
§ The number of cases of medium craft distillers has grown from 831k 9L casesin 2014 to over 3.4 million 9L cases in 2019
§ The average number of cases of medium craft distillers has increased from 15k 9L cases in 2014 to 20k 9L cases in 2019
© 2020
Sources of Case Sales – Medium U.S. Craft Spirits Producers, Domestic and Export 2019
Nearly 60% of the Business of Medium Craft Producers Takes Place in the Home State
24Sources: TTB, ACSA, ADI, State ABC Boards, State Guilds, Team Analyses
Home state, but outside
premises
ExportSales at DSP
Total U.S. business
Total business
Other U.S. States
1,045
3,4913,479
993
1,440
12
% oftotal U.S. business
28.6% 30.0% 41.4% 100% 0.4% 100.4%
§ 58.6% of the total U.S. business of the medium U.S. craft producers takes place in the home state of the craft distiller
§ Exports add only 0.4% to the overall volume of the U.S. business
9L Cases (000)
© 2020
Medium Craft Spirits Producers, Sources of Case Sales, 2017 – 20199L Cases (000)
Medium Craft Producer Sales Have Grown Strongly Across All Sources, Excluding Exports
25Sources: TTB, ACSA, ADI, State ABC Boards, State Guilds, Team Analyses
402 613993
2017 2018 2019
Sales at DSP
Home State
Other States
Export
765 864 1,045
2017 2018 2019
959 1,138 1,440
2017 2018 2019
5133
12
2017 2018 2019
57.2%CAGR
16.9%CAGR
22.5%CAGR
-51.5%CAGR
36.0%% of total
U.S. business
% of total U.S.
business
% of total U.S.
business
% of total U.S.
business33.1% 30.0%
18.9% 23.5% 28.6%
2.3% 1.3% 0.4%
45.1% 43.5% 41.4%+9.7%
-6.0% -1.9%
-3.7%
© 2020
Small Craft Producers Have Been Growing Well
26
Number of Small ProducersNumber
831 1,067 1,324 1,614 1,843 1,983
0
1000
2000
3000
2014 2015 2016 2017 2018 2019Cases of Small Producers9L Cases (000)
434 597 749 938 1,163 1,314
0
500
1,000
1,500
2014 2015 2016 2017 2018 2019Average Number of Cases of Small Producers9L Cases
522 559 566 581 631 663
0200400600800
2014 2015 2016 2017 2018 2019
Sources: TTB, Distiller Surveys, Team Analyses
19.0%CAGR
24.8%CAGR
4.9%CAGR
§ The number of small craft producers, as well as the average number of cases produced, has been growing rapidly
§ The number of small craft distillers has grown more than two-fold from 831 in 2014 to 1,983 in 2019
§ The number of cases of small craft distillers has grown from 434k 9L casesin 2014 to 1.3 million 9L cases in 2019
§ The average number of cases of small craft distillers has slightly increased from 522 9L cases in 2014 to 663 9L cases in 2019
© 2020
Sources of Case Sales – Small U.S. Craft Spirits Producers, Domestic and Export 2019
92% of the Business of Small Craft Producers Takes Place in the Home States
27Sources: TTB, ACSA, ADI, State ABC Boards, State Guilds, Team Analyses
Home state, but outside
premises
ExportSales at DSP
Total U.S. business
Total business
Other U.S. States
591
1,3161,314
622
1022
% oftotal U.S. business
47.3% 45.0% 7.7% 100% 0.1% 100.1%
§ Over 47% of the total business of small craft producers comes from sales at the DSP
§ Less than 10% of the total business comes from sales outside the home state
9L Cases (000)
© 2020
Small Craft Spirits Producers, Sources of Case Sales, 2017 – 20199L Cases (000)
Small Craft Producer Sales Are Slowly Growing
Outside of Their Home States
28Sources: TTB, ACSA, ADI, State ABC Boards, State Guilds, Team
Analyses
372514
622
2017 2018 2019
Sales at DSP
Home State
Other States
Export
487 561 591
2017 2018 2019
79 88 102
2017 2018 2019
17 9 2
2017 2018 2019
29.3%CAGR
10.2%CAGR
13.6%CAGR
-65.7%CAGR
51.9%
% of total
U.S.
business
% of total
U.S.
business
% of total
U.S.
business
% of total
U.S.
business48.2% 45.0%
39.7% 44.2% 47.3%
1.8% 0.8% 0.1%
8.4% 7.6% 7.8%+7.6%
-6.9% -1.7%
-0.6%
© 2020
More Than Half of U.S. Craft Spirits Producers Were Heavily Impacted by COVID-19
29
Level of Confidence That Craft Producers Will Still be in Business by the End of 2020Percent of Respondents
Sources: Distiller Surveys, TTB, Team Analyses
Craft Producers Sales in the First Half of 2020 Compared to the First Half of 2019Percent of Respondents
§ Over 50% of craft producers have experienced a double-digit decrease in sales in the first half of 2020 compared to the first half of 2019
§ Although heavily impacted by COVID-19, over 80% of craft producers are confident that they will still be in business by the end of 2020
Veryconfident
Somewhatconfident
Unsure Somewhatpessimistic
Verypessimistic
0%
10%
20%
30%
40%
50%
60%
Down single-digits
Downdouble-digits
Same Up single-digits
Up double-digits
0%
10%
20%
30%
40%
50%
60%
© 2019
Craft Spirits Sales Will Likely Decline in 2020, but Are Expected to Return to Growth
30
U.S. Market Size Scenarios
Projected Scenarios
2019 – 2023 CAGRs
Sources: IWSR, Team Analyses
1.5
11.2 10.112.4
14
18.7
2019 20102023 E
Constant market share of 4.6% (volume)
Assumed 10% decline and constant CAGR of previous five years moving forward
25.0%
Assumed 10% decline because of COVID-19 and zero growth going forward
-2.6%
5.7%
9L Cases (millions)
Assumed 10% decline and half the CAGR of previous five years
2.6%
13.7%
© 2020
Employment in the U.S. Craft Industry Has Been on the Rise
31
# of Full-Time Domestic Employees of U.S. Craft Spirits Producers, 2017 – 2019FTEs
18,304
25,556
30,849
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2017 2018 2019
Sources: Distiller Surveys, TTB, Team Analyses
Average Full-Time Domestic Employees of U.S. Craft Spirits Producers, 2017 – 2019FTEs
10.5
12.814.0
0
2
4
6
8
10
12
14
16
2017 2018 2019
§ Number of average full-time employees has increased by nearly 30% between 2017 and 2019
§ Total employment has surpassed the 30,000 mark in 2019 with a strong CAGR of 29.9% since 2017
§ As of 2020, employment in the craft spirits industry has taken a hit due to COVID-19 with only 71% of distillers able to retain employees, while others had to furlough or lay off employees due to the pandemic
15.5%CAGR 29.9%
CAGR
© 2020
Investment in the U.S. Craft Industry Has Been on the Rise
32
Total Investment* of U.S. Craft Spirits Producers, 2017 – 2019$ Millions
Sources: Distiller Surveys, TTB, Team Analyses. *Investments for expansions.
Average Investment* of U.S. Craft Spirits Producers, 2017 – 2019$ Thousands
§ Total investment has increased by 2.8% from $679m in 2018 to $698m in 2019§ Total investment is expected to decline overall in 2020 due to COVID-19
317.3339.6 317.9
050
100150200250300350400
2017 2018 2019
593
679698
540560580600620640660680700720
2017 2018 2019
0.1%CAGR 8.5%
CAGR
© 2020
Contact Information
33
For more information on the data and analysis included in this presentation, please contact
Alexandra S. CloughGATHER [email protected] 428 7210
Brandy RandThe [email protected] 830 2616
Harry Kohlmann, Ph.D.Park Street [email protected] 967 7440
© 2020
Appendix
34
Project Background and Craft Spirits Definition
© 2020
Craft Spirits Data Project - Industry Wide Collaboration
Teaming up for a common causeThe American Craft Spirits Association, International Wine and Spirits Research, and Park Street teamed up in 2015 to launch the Craft Spirits Data Project (the “Project”), a research initiative with the goal of providing a solid and reliable fact base for evaluating performance and trends in the U.S. craft spirits industry
36
§ Major industry stakeholders such as the TTB, NABCA, WSWA, and ABL have committed resources to help the Project
§ The fact base helps all stakeholders to make their respective investment cases and vastly improve an understanding of the full impact at the local, regional, and federal level
§ The Project is set-up to provide a consistent fact base for all stakeholders on an ongoing basis. Update reports will be published annually
© 2020
Project Background and Research Methodology
§ The project serves to:• Quantify the number, size, and impact of craft spirits producers in the U.S.
• Create a deeper understanding of the U.S. craft spirits landscape among four key groups: DSPs, wholesalers, retailers, and consumers
• Provide findings on craft supplier best practices and success factors
§ The following information was collected (all information was collected with the assurances of full confidentiality):• Data on craft distiller production size and patterns, sources of revenue, and the category’s overall
economic impact within the spirits industry
• Data on craft spirits business size, patterns, and outlook on the wholesaler and retail levels (both on-and off-premise)
• Input on craft spirits brand perceptions
§ Things to remember: • When estimating the number of producers behind the U.S. craft spirits production, the Project team
relied on a combination of official data released by regulatory authorities, survey data, other industry data sources both national (e.g., NABCA, ACSA) and regional (e.g., guilds), as well as interviews and team assessments using the craft distiller definition
• In the accompanying data sets, the team assumes independent ownership as having equal or more than a 75% equity stake and/or operational control of the DSP. The team has set up a process that asks industry members to notify the ACSA of all ownership or strategy changes away from craft so the changes can be reflected accordingly in the database
37
© 2020
The American Craft Spirits Association (ACSA) is the only registered non-profit trade association representing the U.S. craft spirits industry. Its mission is to elevate and advocate for the community of craft spirits producers. Membership in ACSA is open to anyone.
ACSA is governed by a Board of Directors elected by the eligible voting members of the Association. Voting members must be independent, licensed distillers (DSPs) annually removing fewer than 750,000 proof gallons from bond (the amount on which a federal excise tax is paid.)
ACSA was founded in 2013 by 23 founding craft distillers.
Project Organizer: American Craft Spirits Association (ACSA)
38
© 2020
Project Partners: IWSR and Park Street
39
The IWSR is the leading source of data and analysis on the beverage alcohol market. IWSR is the longest-running research company specializing exclusively in global alcoholic drinks. The IWSR’s comprehensive database quantifies the global and local market of wine, spirits, beer, cider and prepared cocktails by volume and value, and provides insight into short- and long-term trends
Park Street delivers productivity-enhancing and cost-saving back-office solutions, advisory services, and working capital to more than 12,500 alcoholic beverage brands from the U.S. and around the world. Established in 2003, the company provides a fast and reliable conduit to the U.S. and EU markets and a cost-effective operating platform. Park Street works with suppliers at all stages of growth and its clients range from entrepreneurial craft distillers to multi-brand global portfolios
© 2020
Project Supporters: Broad Industry Collaboration
40
TTB: Provided Beverage Spirits Producers and Bottlers by Average Taxable Removals; agreed to change annual reporting moving forward to enable consistent fact basis
WSWA: Assisted in wholesaler survey design and execution with members
ABL: Assisted in on- and off-premise retailer survey design and execution with members
NABCA: Provided in-depth view of craft distillers using control state data
© 2020
What Constitutes a Craft Spirit?
§ There is no universally accepted definition of craft spirits in the industry, and the expression “craft spirit” is not protected in any way
§ Given the positive trends for craft spirits from a consumer perspective (e.g., premium to other spirits, rising demand), there is a natural incentive for brands to utilize craft spirits cues and position themselves as a craft spirit
§ The industry has responded with different definition attempts based on criteria for the producer of the craft spirit including production steps at the location, ownership and operational control of the distillery, subscription to an ethics code based on honesty and transparency, production methodology, and size of production
§ Many of the criteria used or suggested by industry members would require a formal certification or peer approval process in order to be used as a universal base for quantification purposes
§ As long as a universally accepted craft spirits certification or approval that could be used as an industry wide criteria remains unavailable, the quantification has to rely on certain verifiable quantitative metrics which are complemented by estimates to bridge gaps
§ Looking at the manufacturer, size of production, ownership/control, and production specifics are criteria that could possibly be measurable and verifiable. However, the consistent collection of the data is not without barriers and could be very cumbersome, which suggests the potential use of a pragmatic approach
§ U.S. craft spirits, as defined pragmatically for the purposes of the research, are distilled spirits that are produced in the U.S. by licensed producers that have not more than 750,000 proof gallons (or 394,317 9L cases) removed from bond, market themselves as craft, are not openly controlled by a large supplier, and have no proven violation of the ACSA Code of Ethics
41
© 2020 42
Large craft distiller
Medium-size craft distiller
Small craft distiller
Range of gallons removed from bond annually*
Range of 9L cases removed from bonds annually* Characteristics
§ Often only locally distributed
§ If no on-premisebusiness, typically cash flow negative
§ Often nationally distributed
§ If negative cash flow, then by choice in favor of investment
§ Often regionally distributed
§ Often still cash flow negative
100,001 –750,000
52,577 -394,317
5,259 –52,576
10,001-100,000
1- 10,000 1 - 5,258
Sources: TTB, Team Analyses’ *Assuming on average 80 proof alcohol content; for purposes of the analysis removed from bond equals sales
Craft Distillers by Size – Classification Definition
© 2020
Overview and Update on the Craft Beverage Modernization and Tax Reform Act
43
The Act provides for reduced tax rates on distilled spirits, wine, and beer for the 2018, 2019 and 2020 calendar years
There are two reduced tiers for Distilled Spirits
• The first 100,000 proof gallons will be charged at $2.70 per proof gallon
• Over 100,000 proof gallons up to 22,230,000 proof gallons will be charged $13.34 per proof gallon
The tax reduction is set to expire at the end of 2020
Sources: TTB, ACSA, Team Analyses
December 22, 2017 Act was signed into law
by President
January 1, 2018Act goes into effect
December 31, 2020Act set to expire
© 2020
75% of Craft Distillers on Applied for and Received Paycheck Protection Program Loans
44Sources: Distiller Surveys, Team Analyses
Paycheck Protection Program and Other Loans Utilized by Craft ProducersPercent of Respondents
§ 75% of craft producers received PPP loans
§ 16% did not apply for PPP loans
§ 5% applied, but did not receive a loan
§ About 4% of distillers applied for Economic Injury Disaster loans
Applied andreceived
Applied, didnot receive
Applied andreceived but
returned
Did not apply Other Loan0%
10%
20%
30%
40%
50%
60%
70%
80%
© 2020
A Variety of Measures Were Taken by Craft Producers in Response to the Pandemic
45
COVID-19 Measures Taken by Craft ProducersPercent of Respondents
Sources: Distiller Surveys, Team Analyses
§ While just over 70% of producers were able to retain employees, 22% experienced permanent layoffs§ Over 65% had to close tastings rooms in which many transitioned to curbside pickup
40%
71%
22%28%
57%
86%
67%
15%
Furloughedemployees
Retainedemployees
Permanentlylaid-off
employees
Currentlydistilling handsanitizer ordisinfectant
spray
Had produceddistilling
sanitizer ordisinfectant
spray
Currentlydistilling spirits
Had to closetasting room
Other0%
20%
40%
60%
80%
100%
© 2020
Many States Have Relaxed Direct to Consumer Restrictions Since the Start of the Pandemic
46
Craft Producers That Temporarily or Permanently Have the Ability to Ship DtC Since March 2020 Percent of Respondents
Sources: Distiller Surveys, Team Analyses
38%
60%
2%
State already allowed DtCprior to March 2020
State has allowed temporaryDtC shipments due to
pandemic
State has allowed permanentDtC shipments due to
pandemic
0%
10%
20%
30%
40%
50%
60%
70%
§ 60% of craft producers have their main distillery located in states that have allowed temporary DtC shipments
§ DtC opens another avenue for sales for producers affected by closures of tasting rooms and tour operations
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