Round-Up - NPD: The Birth and Growth of the Craft Distillery Concept

By | 23 July 2013

This month, Tom Vierhile from Datamonitor turns his attention to the burgeoning craft distilling scene in the US.

For many years, the craft beer industry has been the envy of the alcohol beverage market thanks to strong growth and the burgeoning ranks of craft brewers. In 2012 alone, the craft brewing industry in the US saw volumes leap by 15% on the year before, dwarfing the overall beer market’s estimated 0.9% volume gain, according to the Brewers Association.

Now, it looks like the liquor industry is following in the footsteps of the craft beer industry thanks to an explosion of new craft distilleries that could eventually upend the liquor market.

Many industry participants feel that the craft or micro distillery boom is in the same position as the craft beer market was a decade or two ago. The numbers seem to bear out this assessment, with the ranks of craft distilleries expanding from just 50 operating in the US in 2005 to more than 250 spread out over 45 states last year, according to the American Distilling Institute. The group estimates that the number of craft distilleries in the US could hit up to 500 by the year 2015.

Even more craft distilleries are on the way in the country, as state legislatures are beginning to create rules favourable to the industry. Florida recently passed a bill that granted the state’s craft distilleries (defined as operations that make less than 75,000 gallons of liquor a year, on site) the right to sell locally-made vodka, rum and whiskey directly to customers – though the law limits purchases to just two bottles a year per customer. In June, New Jersey’s state Senate approved a bill to update the state’s liquor laws by creating a new craft distillery licence. The bill would permit a craft distillery to make up to 20,000 gallons of hard liquor a year with the $938 license; quite a discount from the state's current large-scale distillery licence that costs some $12,500 per year.

New York is another state rolling out the red carpet for craft distilleries, passing the Farm Distillery Law in 2007. The law was passed after similar legislation for farm wineries proved spectacularly successful, and allows craft distillers to produce spirits, conduct tastings and sell their own products on the premises. The law sets an upper limit of 35,000 proof gallons per year for “farm distilleries” and requires that at least half of the ingredients used must come from New York farms. To put that production into perspective, a popular brand like Bacardi may see two to three times as much production in a single day as what a craft distiller in New York State may be authorised to create in a year.

The use of local ingredients has emerged as one of the major drawing cards with craft-distilled liquor products. Gardiner, NY-based Tuthilltown Spirits touts the use of 100% New York corn in its Hudson Baby Bourbon Whiskey and local maple syrup for its new Basement Bitters Bitter Frost. Tampa-based Florida Distillery uses Florida-grown cane sugar and filtered water drawn from the Floridan Aquifer for its new Cane Vodka. Basalt, Colorado-based Woody Creek Distillers uses native Colorado Rio Grande russet, and Chepita and Lady Claire potatoes for its vodka, all of which are grown and harvested by the distillery itself and handled with such expediency that the potatoes are claimed to make it into the still on the same day they are harvested.

Locally-grown and -sourced ingredients are a major component of the larger trend toward artisanal and craft foods and beverages. Interestingly, though, consumers of beer and spirits are not of exactly the same mind when evaluating the attractiveness of either local production or the production of beverage products by small-scale producers.

According to Datamonitor Consumer’s 2013 Global Consumer Survey, 14% of beer drinkers globally identified local production as a “most appealing” factor that would persuade them to pay more for a beer product. This compares to 11% of spirits drinkers that said the same thing for local production. Beer drinkers also seem to be somewhat more sold on small-scale production than spirits-drinkers currently are. Again, the Datamonitor survey results found 11% of beer drinkers globally rating production by a small-scale supplier as a “most appealing” reason to pay more for a beer product, compared to just 6% of spirits drinkers that said the same thing.

These survey results seem to indicate that local ingredients and small-scale production alone may not be enough to elevate craft distilled liquor products to the big time, at least not just yet.

Then again, craft distillers are just getting started, and the knives are getting sharpened. A case in point is Chattanooga, TN-based Richland Distilling Company and its recently-launched Richland Artisan Rum. Commenting on the launch, Erik Volk, the company’s founder and proprietor said: “Richland Rum ... does not depend on celebrity endorsements or marketing ploys to project an imaginary experience as a substitute for quality.” Volk goes on to note that “our rum is not mass produced ... and no aspect of our production has been outsourced.” The latter comment could hit a nerve with US consumers that have been conditioned to associate “outsourcing” with job losses and nefarious “big business.” It will be interesting to see if other craft distillers go in this direction.

Somewhat more likely is a focus on unusual flavours and formulations for new craft distilled liquor products. That is already happening with Nashville, TN-based Corsair Artisan and its Corsair Quinoa Whiskey, which is pot-distilled from red and white quinoa grains. A spicier flavour is on tap with Rogue Chipotle Spirit, an 80 proof clear spirit product distilled by Oregon-based Rouge Brewery.

Arguably one of the stranger recent vodka launches comes from the UK and Black Cow Pure Milk Vodka. This artisan vodka is the creation of West Dorset dairy farmer Jason Barber and is billed as the “world’s first pure milk vodka, made entirely from the milk of grass-grazed cows and nothing else.”

Sectors: Spirits

Companies: Bacardi

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