In 2003, there were 60 craft distillers operating in the United States. Today, that total is 760, according to the American Distilling Institute (ADI), and a further 200 are under construction. The craft category, of course, remains very small. The Distilled Spirits Council of the United States (DISCUS) defines small distillers as those producing under 100,000 nine-liter cases a year, and more than 95 percent of today’s players make fewer than 50,000 cases annually, according to the ADI. Analysts at brokerage firm BNP Paribas estimate small distillers’ total spirits market share in the United States at 1.7 percent by volume and nearly 2 percent by value, with gross income nearing $450 million in 2014.
As with craft beer, the craft spirits category is ascending swiftly. The ADI estimates current growth at around 30 percent. Its market share has doubled in the past two years, and analysts at the ADI believe that it could hit 8 percent by 2020, coming close to recent share levels achieved by craft beer. Much of the credit goes to whiskey, which represents 37 percent of all craft labels, followed by gin at 13 percent, vodka at 12 percent and rum at 10 percent, according to BNP Paribas.
Pennfield Jenson, founder and executive director of the American Craft Spirits Association (ACSA), tracks a chart that shows craft distilling “is now on a steeper growth curve than craft beer was on in the 1980s.” When the nation’s leading spirits and wine distributor praises the trend toward craft spirits, you know the movement has arrived. The new Southern Glazer’s Wine and Spirits, a 41-state distribution colossus, has vowed to allocate considerable resources to handling the category. “I see craft spirits as a business where we’ll need to devote a lot of attention in the coming years,” says Southern Glazer’s CEO Wayne Chaplin. “We see craft spirits, along with locally oriented mixology, as a key trend for the future. It will definitely be a growth driver for us.”
Industry deal-making shows that the big distillers are paying attention to the craft category. William Grant & Sons bought the Hudson whiskey line from Gardiner, New York’s Tuthilltown Spirits in 2010. Proximo Spirits purchased Hangar 1 vodka from Alameda, California’s St. George Spirits and also acquired Denver-based Stranahan’s Colorado whiskey that same year. Gruppo Campari bought Canadian craft whisky player Forty Creek Distillery in 2014, and Bacardi purchased Louisville, Kentucky–based Angel’s Envy Bourbon last year. “The bigger players are undoubtedly tracking the craft companies, and I predict they’ll be making more offers,” the ACSA’s Jenson says.
But most small distillers aren’t considering exit strategies just yet. Instead, they’re focused on volume growth and portfolio diversification. Frank Coleman, senior vice president of public affairs at DISCUS, notes that a loosening of state laws in recent years has also helped the current craft explosion. Pennsylvania, for example, now allows craft distillers to operate restaurants, bars and event spaces. St. George Spirits co-owner and master distiller Lance Winters is capitalizing on a new California law that allows craft distillers to build restaurants and sell bottles at retail. “We were previously only allowed to serve pours of our products,” Winters says. “Now we can serve our spirits in cocktails.”
Many distilleries have launched expansion projects. Tom Mooney, co-owner and CEO of House Spirits Distillery in Portland, Oregon, tripled the size of his production facility to 13,000 square feet and installed a new 3,000-gallon pot still last year. He raised capital from some high-profile partners, including retired professional football player Joe Montana, who’s been a co-owner since 2011. Mooney says the new facility will allow House Spirits to boost production of its flagship Aviation gin ($30 a 750-ml. bottle), which depleted 20,000 cases in 2015. The company is also ramping up production of its Westward Oregon Straight Malt whiskey ($50 a 375-ml. bottle).
Park City, Utah–based High West Distillery came to prominence by blending whiskies sourced from Lawrenceburg, Indiana–based MGP Ingredients. But last year, High West opened a new distillery at Wanship, Utah’s Blue Sky Ranch, which is building a luxury hotel, spa and other high-end amenities designed to enhance the visitor experience. The facility has one 1,500-gallon pot still with space for three more and will eventually be able to produce 200,000 cases annually. Founder David Perkins notes that the company aims to grow by focusing on quality. “We’re a boutique brand,” he says. With a footprint that’s nearly national but still light, High West is now aiming for deeper distribution. Toward that goal, last year the company hired industry veteran John Esposito, a longtime board member, as chief commercial officer. He’s joined by former Stoli Group executive Tom Schlactenhaufen as senior vice president of sales and E&J Gallo veteran Justin Lew as vice president of marketing. “To grow into 200,000 cases, we’re going to need to get sales up, and that’s where John and the others come in,” Perkins explains. “They know how to do that.”
Many craft distillers are opting for broad portfolios, often trying unusual expressions. Philadelphia Distilling will open a new 20,000-square-foot distillery, with space for a restaurant and cocktail bar, in April. Its Bluecoat American Dry gin ($28 a 750-ml. bottle) features only organic botanicals, while The Bay vodka ($25 a 1-liter bottle) is infused with salt and Old Bay seasoning, making it perfect for a Bloody Mary. The company also produces Vieux Carré absinthe ($60 a 750-ml. bottle). “When we opened in 2005, we were the first craft distillery in Pennsylvania,” says Philadelphia Distilling president Andrew Auwerda. “Now, there are over 30 in the state, and we have to work at finding ways to stand out.”
Rogue Ales and Spirits in Newport, Oregon, has made a name for itself by emphasizing innovation. “Our passion is creativity,” president Brett Joyce says. “We’re trying to do things nobody else does.” The company produces Oregon Single Malt vodka, a Chipotle whiskey that’s infused with locally grown alderwood-smoked jalapeños, a Spruce gin that’s made with the tips of spruce branches and a Pink Spruce gin that’s finished in Oregon Pinot Noir barrels for about six months (all $45 a 750-ml. bottle).
In 2007, Kent Rabish, owner of northern Michigan’s Grand Traverse Distillery, got his start making vodka. Today, the company’s True North vodka ($33 a 750-ml. bottle) features four different expressions: Rye, Wheat, Cherry and Chocolate. Rabish buys nearly all his ingredients from local farms—a distinction that sets him apart from rival distillers who acquire raw spirit from big suppliers. “Too many so-called craft distilleries are buying other people’s products and merely refiltering it themselves,” he says. “To call yourself a craft distillery you should have to mash and distill on site.” Beyond vodka, Rabish is increasingly betting on whiskey. “We haven’t increased the vodka’s price since 2007, even though our grain costs have tripled since then,” Rabish notes. “With whiskey, I can charge more and still sell every drop I make.”
At Death’s Door Spirits in Middleton, Wisconsin, owner Brian Ellison derived 70 percent of his sales last year from Death’s Door gin ($30), which is sold nationwide and marketed by Serallés USA. But he too is tying his future to whiskey, with plans to lay down hundreds of barrels this year. Ellison worries about rival products already on the market. “Craft distillers have been releasing a lot of short-aged whiskey, and I’m not sure it’s doing anybody a favor,” Ellison says. “When we’re ready, we’ll come out with a whiskey that’s got some considerable barrel-aging.” In 2015, the company shipped 45,000 cases across its portfolio. Ellison cites reports that ranked his gin No. 5 in sales of all gins priced over $20 in the United States. “That number sounds impressive until you consider that the No.-4 gin, Hendrick’s, was 20 times our size last year,” Ellison says. “The small players remain highly fragmented. It isn’t easy to break out a brand.”
Tourist traffic has been important to many craft distillers. The Starlight Distillery in southern Indiana is just 10 miles from Interstate 65, the main highway from Chicago and Indianapolis to Louisville, Kentucky. Last year, it hosted 600,000 visitors and sold nearly 10,000 cases. Ted Huber, Starlight’s master distiller and a sixth-generation farmer who grows most of the grains and fruit for the company’s brandies and whiskies, says the next generation of Hubers is poised to start work. “My wife is head of distribution, and my oldest son is studying wine in Ontario,” Huber says. “Starlight is very much a family business. Selling out isn’t part of our plan.”
But enlisting distributors is still a challenge for most craft players. Brad Irwin, owner of Oregon Spirit Distillers in Bend, Oregon, has been making his Wild Card absinthe ($50 a 750-ml. bottle) and One-Eyed Jon Spiced rum ($30) since 2012, but most of the company’s sales are limited to the Northwest. Earlier forays into California didn’t work out, though Oregon Spirits is lining up a new wholesaler for a fresh push in the Golden State later this year. “Some distributors will tell you that if you can’t give them 100,000 cases, then what’s the point?” Irwin says.
To surmount such hurdles, marketing cooperatives are playing a role. Blue Ridge Spirits in Atlanta, for instance, doesn’t make its own product, but instead handles the sales and marketing duties for such small firms as Yellow Rose Distilling in Houston and Asheville Distilling Co. in Asheville, North Carolina. “We meet a lot of new companies that want local and regional coverage, and we try to get them to think about national expansion,” says Blue Ridge CEO Carlos Carreras. “But we caution them not to enter a state unless they have the resources to service it.”
New distilleries are often being built on a larger scale to allow brands to break out early. In Minden, Nevada, entrepreneur Christopher Bently is spending millions to open Bently Heritage Estate Distillery in a historic flour-milling center. In the heart of Bourbon country, David Mandell has assembled an investor team to pour $25 million into the nascent Bardstown Bourbon Co., due to start production in late summer. Mandell’s operation will be so big that he expects to sell raw distillate to craft rivals. He also plans to build a hotel and restaurant on the 100-acre property and has hired former Maker’s Mark Bourbon distiller Steve Nally to make his product.
Bars and restaurants are eager to tout independently made spirits to locavore-minded customers. Local 360 restaurant in Seattle sources nearly all its products within 360 miles. The venue makes its Old Fashioned ($10) with John Jacob rye whiskey from nearby Fremont Mischief Distillery and its Quincely Jones cocktail ($10) with locally produced Tattoosh Single Malt whiskey. Local 360 has even begun aging some of its own Bourbon in-house with distillate acquired from 2Bar Spirits of Seattle.
Local 360 manager Sylvain Berthe notes so many local distilleries have opened that the restaurant has to rotate names on its menu to give everybody a chance. “There are very interesting products coming from most of these distilleries,” Berthe says. “The craft category is growing up fast.”