Since the craft spirits boom began more than a decade ago, the segment—especially in whiskey—has carved out a small but significant slice of the U.S. market. Impact Databank estimates that craft spirits—defined as domestic brands produced by independent distillers with a maximum volume of 250,000 9-liter cases—reached sales of more than $3.5 billion in 2018, up 22% over the previous year. By volume, craft spirits shot ahead by about 17% last year to 7.1 million cases, and now account for 3% of the overall spirits market. The number of U.S. craft distilleries has grown from approximately 100 in 2005 to more than 1,800 in 2018, according to the American Craft Spirits Association.
Behind the growth, however, closures are occurring with increasing frequency. According to the Alcohol and Tobacco Tax and Trade Bureau (TTB), some 31 distilleries closed in 2016, followed by 29 in 2017. That’s a sharp acceleration in closures compared to previous years—in 2015, for example, only nine distilleries folded, with the majority shuttering after an average run of less than two years. The 60 closures in 2016 and 2017 involved distilleries that had operated for an average length of six years. This means that after the growth and boomtown atmosphere of the past decade, a clearer picture is emerging of who the market leaders are, as well as how they’re finding a permanent place in the U.S. spirits lexicon. Their efforts are bearing fruit through a combination of product quality, investment, and achievement of adequate scale. And whiskey makers are leading the pack.
Since launching in 2009, Smooth Ambler Spirits has successfully forged ahead in a crowded space. The West Virginia distiller was acquired by Pernod Ricard in December 2016, and has since undergone significant expansion. “From a sales and production perspective, we’re growing,” says CEO and master distiller John Little. “We used to run one shift a day, five days a week. Immediately after the Pernod investment, we went to 24 hours a day, seven days a week.” Smooth Ambler has doubled its workforce from 11 to 24 and grown from eight fermenters to 22. The distillery now produces about 3,000 barrels of its own whiskey annually.
Smooth Ambler has an equally sizeable sourced whiskey program for its Old Scout line—which includes the American whiskey ($35 a 750-ml.), Single Barrel Bourbon ($65), and Single Barrel Select ($65) labels. Smooth Ambler Contradiction ($50) blends the distillery’s wheated Bourbon and a sourced high-rye Bourbon. While Smooth Ambler enters new markets with a focus on Old Scout and Contradiction, its 100-proof Big Level Bourbon ($55) plays a leading role in certain markets. The company says it’s able to grow those products considerably now that it has more mature stock available.
Backed by Pernod Ricard’s investment, Smooth Ambler is now present in 37 states. The distiller is aligned with Republic National Distributing Co. (RNDC) and Southern Glazer’s Wine & Spirits through its parent company’s network and continues to self-distribute in its home state of West Virginia. “There are now more feet on the ground and more faces in the field,” says Little. “We’ve never had so many people out there talking about Smooth Ambler.” The portfolio’s market presence is at about 80% off-premise and 20% on-premise, although the company recently invested in growing bar and restaurant accounts by hiring key account managers in strategic markets. While the major whisk(e)y markets are important for Smooth Ambler, it’s also focusing on the mid-Atlantic and Southeast, where the team can personally connect with fans.
Growing The Business
Utah’s High West Distillery has roughly doubled its case volume since 2014, with about 80,000 cases in 2017, according to Impact Databank, further cementing its leadership role in the craft space. In October 2015, High West opened a new 200,000-case distillery at Blue Sky Ranch in Wanship, Utah. A year later, Constellation Brands outbid the competition to acquire High West for an estimated $160 million after identifying its potential as a platform for the company’s expansion into niche, luxury spirits brands. A recent High West milestone has been the introduction of own-make rye into its blends. “Rye distilled in our own pot still has been integrated into Double Rye ($35 a 750-ml.), Rendezvous Rye ($60), and Campfire Whiskey ($65), among others, and they taste great,” says High West marketing director Justin Lew.
Waco, Texas-based Balcones Distilling, which celebrated its tenth anniversary last fall, has now ended allocation for the first time in five years. In early 2016, Balcones began distilling at a 65,000-square-foot facility in the historic Texas Fireproof Storage building in downtown Waco. The $33 million facility’s annual capacity is about 90,000 9-liter cases, and the site features two sets of four-story copper Forsyths stills, a decommissioned mash tun from Speyburn Distillery in Scotland, larger fermentation tanks, and bottling equipment. “We’ve invested in order to significantly increase our capacity, and we haven’t encountered issues with feeding the pipeline on our core products,” says Balcones vice president of sales Jeff Liebhardt.
The core Balcones portfolio includes Baby Blue corn whiskey ($40 a 750-ml.), Texas single malt whiskey ($70), Texas 100 Proof rye ($40), True Blue 100 Proof corn whiskey ($60), and Brimstone, a smoked corn whiskey ($60). Despite years of being on allocation, Balcones says engagement with mixologists at craft cocktail bars and restaurants has been key to building the brand. “They understand and appreciate the complexity and character of our products,” Liebhardt says.
Since launching in 2004, Denver, Colorado-based craft distiller Stranahan’s has expanded its distribution presence into all 50 states. Supporting that growth has required a sharp increase in capacity, according to master distiller Rob Dietrich. “When we launched in 2004, we were making one or two barrels a week,” he says. “Today, our weekly production is up to about 65 barrels or more.” Visitors to the Denver distillery mostly hail from California, Texas, New York, and Colorado, making those states the focus markets. Stranahan’s, which is part of the Proximo Spirits portfolio, has also boosted its profile by joining with Colorado’s Red Rocks Amphitheatre as the venue’s official whiskey. Last February the distillery joined the Colorado Spirits Trail as part of its relationship with the Colorado Distillers Guild.
Expanding The Footprint
Washington state-based Woodinville Whiskey Co. received a major boost when it was acquired by Moët Hennessy in July 2017. Prior to that deal, Woodinville was available only in its home state. Last year, the brand expanded into northern California and Oregon with Southern Glazer’s as its distribution partner. This year, Woodinville says it will enter three to four new markets, with a focus on the western United States.
Woodinville’s core portfolio includes its Straight Bourbon ($40 a 750-ml.) and Straight rye ($42), as well as specialty releases like Toasted Applewood Finished Bourbon ($70), released last fall and available only at the distillery. The company says that dealing with supply issues has been a challenge, as its popularity has been skyrocketing and its distillate is 100% own-make. “Our growth is limited by what we can produce, because only what we produced five to six years ago is available,” says Orlin Sorensen, who founded Woodinville with Brett Carlile in 2010. “We’re careful not to enter new markets until we know we can supply them appropriately. But we’ve been investing in our production since the start, and we have more whiskey coming to market year over year.”
Westward American single malt Whiskey ($85 a 750-ml.), from Portland, Oregon, has long contended with supply issues, and that situation has impacted expansion plans over the years. “Westward’s availability is steadily increasing as more of our whiskey comes of age, but growing interest in the brand has caused supply to remain very tight,” says Westward CEO and co-owner Tom Mooney. “Our distribution strategy is focused on making Westward available across most of the United States, while managing the reality of scarce supply.” Last fall, however, Diageo-backed Distill Ventures added Westward to its portfolio with a minority investment. With the move to Distill, Westward’s production capacity is expected to expand by about 40% in the near term. Last year, the company laid down around 1,200 barrels of whiskey, which will translate to roughly 30,000 cases once it matures. Westward is currently available in Arizona, California, Illinois, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Texas, Washington, and Wyoming. Over the next year, the company expects to become available in most U.S. states.
As with many craft producers, Wyoming Whiskey spent several years strategizing over the best routes to expansion before deciding to partner with a major player, Edrington, last fall. It’s now aligned with Edrington’s existing distribution network, which includes Young’s Market Co., Empire Merchants, Breakthru Beverage Group, and RNDC. The brand self-distributes in its home state, however, because of its strong relationship with the Wyoming Liquor Division.
The Wyoming Whiskey lineup—Small Batch Bourbon ($42 a 750-ml.), Single Barrel Bourbon ($42), and Outryder Straight American whiskey ($52)—is distilled, aged, and bottled at the distillery in Kirby, so the brand struggles with limited supplies. “We recently strategically realigned our distribution footprint to focus on priority states, while also targeting an international brand presence through limited distribution in key international cities,” says Wyoming Whiskey co-founder and COO David DeFazio. “The brand is on an allocation model based on target markets, historical sales data, and forecasting, which allows us to control our product supply to the right markets as we begin planning for potential expansion.” Current key markets are centered around the Rocky Mountain region, including Colorado, Montana, Idaho, and Utah, but the major markets of New York, Illinois, Texas, Florida, and California are also prioritized.
While expanding into new markets is a natural next step for craft whiskey brands, some, like Balcones, say it’s a challenge to navigate the unique market conditions of each individual state, which can vary significantly. Balcones partnered with Southern Glazer’s in January 2017 and is currently represented by them in 15 markets. Its home state of Texas is the priority market, followed by California, New York, and Florida.
Evanston, Illinois-based F.E.W. Spirits has been working to fill the gaps in its distribution footprint. After more than seven years in business, the distillery is approaching national availability. “Expansion is going strong and there are always difficulties—this is an exceptionally challenging time and space,” says F.E.W. Spirits owner and distiller Paul Hletko. “But we’re growing a bit faster than our projections. That can be scary, but luckily we’re prepared.” According to Impact Databank, F.E.W. Spirits grew from 2,000 cases in 2014 to 61,500 cases in 2018.
F.E.W., whose lineup includes American whiskey ($50 a 750-ml.), Bourbon ($50), and rye ($54), as well as American gin and Breakfast gin (both $37), partnered with Miami-based Samson & Surrey in 2016. The distillery is aligned with a number of distributors across the U.S., such as Breakthru Beverage, RNDC, and Young’s, as well as Blueprint and Horizon in the Northeast, United Distributors in Georgia, Major Brands in Missouri, and Standard Beverage in Kansas. Samson & Surrey approaches the on-premise channel aggressively, with a team of brand ambassadors and advocates across the country.
Seattle’s Westland Distillery takes a more measured approach to growth by not aiming to hit a certain number of markets, but rather targeting accounts where it can reach serious whiskey enthusiasts. With its core Westland American Oak single malt ($60 a 750-ml.), Westland Sherry Wood single malt ($70), and Westland Peated single malt ($70), as well as limited releases like Garryana ($150), the company also focuses on farm-to-table restaurants, where the clientele may not be as familiar with whiskey but does prioritize the provenance of ingredients. Rémy Cointreau acquired Westland in late 2016, which has provided much-needed leverage on the distribution front. “The Rémy Cointreau organization and their distributors are pretty familiar with the right outlets for us to enter,” says Westland CEO Mark Breene. Westland’s portfolio is aligned with Rémy’s distribution network, which includes Young’s, Breakthru, Empire, and Southern Glazer’s, among others.
Feeding The Pipelines
With supply problems such a common concern for craft whiskey distillers, some of the top players have devised unique methods of dealing with the problem. “As we were expanding production, we started reaching out to our friends and families to volunteer on our bottling line,” says Dietrich of Stranahan’s. “Eventually, we received so many volunteers that we started our ‘bottling crew’ program. The program has grown over the years with more than 25,000 volunteers on our bottling list, patiently waiting to help us get our whiskey out the door.”
Louisville-based Kentucky Peerless Distilling Co. planned for strategic growth early on, and says it’s able to properly support supply needs over the long haul. “Our rye whiskey and Bourbon aren’t bottled until they meet strict quality standards,” explains Cordell Lawrence, global marketing and strategy director at Kentucky Peerless. “Each barrel is graded over many years before it’s ever considered a potential single barrel candidate or included in our small batch, which is made from just six barrels on average.” Peerless continues to roll out its highly anticipated limited releases on a regular basis, such as the recent launch of a 3-year-old Kentucky Straight rye ($125 a 750-ml.), as well as last fall’s Peerless Dimensions series of single-barrel rye whiskies sold by the case to retailers and on-premise accounts.
Kentucky Peerless has also made a unique strategic move by partnering with a wine company—Fetzer Vineyards—for its sales and distribution needs. In the fall of 2017, Fetzer began selling Kentucky Peerless in markets including California, Florida, Illinois, New York, Texas, and Tennessee. The partnership took Peerless to 36 states and two overseas markets in less than a year. The company is partnered with various distributors in those states, such as Breakthru/RNDC, Southern Glazer’s, Young’s, Empire, and Horizon. The on-premise channel has also become key to Kentucky Peerless’ success, providing a trial for consumers who are still unfamiliar with the brand.
As new craft whiskey producers enter the market, established players are differentiating themselves through focused efforts at building awareness. One case in point is the fledgling American single malt category. Stranahan’s sees growing potential as it seeks to establish the category officially with the TTB. “As we work with the American Single Malt Whiskey Commission to push forward the category legitimization, it’s important to go around the country and connect with influential bars and bartenders to education the community,” says Dietrich. “Our goal is to eventually have our three core expressions—Original ($55 a 750-ml.), Diamond Peak ($65), and Sherry Cask ($80)—listed on every bar menu under the category ‘American Single Malt,’ rather than in Bourbon or rye sections.”
Other producers are working to set themselves apart through direct connections with consumers. Smooth Ambler has created a mobile Whiskey Wagon tasting room to reach consumers in its key markets, and the company is active on social media. “At the heart of it, we want to remain a small business and have relationships with retailers, bar and restaurant owners, and our distributors, as well as our customers,” says Little. “Making sure we’re still the face of the brand in the market is going to be one of the key differentiators as the category continues to grow.”