COVID-19 Impact on Pharmaceutical Packaging in Chemicals and Materials Industry

COVID-19 Impact on Craft Spirits in Food and Beverages Industry

  • Food & Beverage
  • Dec 30, 2020

COVID-19 Impact on Craft Spirits in Food and Beverages Industry

MARKET OVERVIEW:

Craft spirits are handcrafted spirits produced with small distilleries with less distillation process. Various spirits such as whisky, rum, vodka, gin, and tequila are majorly consumed across the entire continent. The majority of the small distilleries have been focused on produced handcrafted gin due to their increasing demand in the bars and taste tours. Most craft distillation uses their local ingredients as most distilleries distribute their crafts in the local market. The United States majorly occupies the demand of the craft distillers. The total number of current working craft distillers in the USA is approximately 2,046 in 2019 from 1,835 in 2018. According to the American Craft Spirits Association (ACSA), the American craft spirit share's current volume share is approximately 5.6% of the total spirits market and has registered the highest growth rate in any liquor up-to 25% to 30%. The increased demands for local flavor spirits and growing consumption of handcrafted spirits have boosted the market's growth.

COVID-19 IMPACT ON CRAFT SPIRITS:

The Novel COVID-19 has crushed over the craft spirits industry due to forceful shutdown of craft distilleries and extended lockdown of distilleries in initial days. The craft spirits business had to step out with challenging decisions, such as the shutdown of testing rooms, production closures, and employees' furloughing. The spirits are imported from European countries such as the United Kingdom, Germany, Ireland, Italy, France, and Spain. However, before the pandemic, the U.S. government has imposed a 25% hike in the tariff charges of the spirits such as whisky, liqueurs, and cordials imported from European countries to boost the production market in American countries itself. The drastic hike has devasted the small craft spirits business, which was already struggling to sustain itself in the market.

  • According to the Distilled Spirits Council of the United States (DISCUS) and American Distilling Institute (ADI) has predicted that there is a fall in the consumption of craft spirits, estimated up to USD 700 million in 2020.  Moreover, the employees associated with the craft distillery have left approximately 31% counting 4,600 employees due to the absence of on-premises sales and closing of tasting rooms.   

The craft spirits was high as liquor stores were likely to drive the sale compare to the branded spirits as growing attribution of tasting rooms and gift shops.

  • According to the study conducted by American Distillers Association in 2019, the total on-site revenue is estimated to be USD 919 million and almost 50% revenue of the craft distillers are from their tasting room sites.
  • However, the Craft distillers discussed with the Distilled Spirits Council of the United States (DISCUS) and American Distilling Institute (ADI) that pandemic hampered the growth of the on-site sales and which is down up to 25% and almost 15% of the distillers stated that their tasting rooms have completely shut down.

Various companies have priory shown an upsurge in their revenue from craft spirits, which drastically impacted by pandemic. For instance,

  • St. Augustine craft distillers have majorly impacted by the COVID-19 pandemic and stated that their revenue have been down fall up-to 35% to 40%. Also, the CFO of the company stated that 70% of the source of their revenue is close and the visitor’s number has drastically reduced up to 43% compared to 2019.
  • “High Wire Distilling in Charleston, SC, has seen a 40% drop in overall sales, year-over-year. “Both our retail and wholesale have taken a hit,”- cofounder Ann Marshall.

In Craft spirits, the majority of the distribution share is being held by the wholesale distributors, such as cafes, restaurants, bars, hotels, and catering services. According to the article published by Distilled Spirits Council of the United States (DISCUS) and American Distilling Institute (ADI), 25% of the distilleries mentioned that they had lost due to the pandemic their wholesale business ultimately.  

For instance,

  • In the United States food service sector is the second largest private employer entity with approximately 15.6 million annually. Among these according to National Restaurant Association (NRA) restaurants counts 1 million with fast food outlets in USA.
  • The National Restaurant Association (NRA) have estimated that the sales generated from small service sector including eateries such as restaurants, hotels, bars, cafes and catering will show downturn approximately USD 225 Billion in the month of March, April and May which from quarter estimated value counting USD 899 billion.

With restaurants and bars closed or operating at reduced capacity due to the pandemic, this has a ripple effect on distilleries. Sales to liquors stores or package stores have helped offset the effect somewhat.

  • In European countries, the United Kingdom is one of the dominant markets under the craft spirits market, and pandemics have drastically slowed down the heritage craft spirits. Heritage Crafts Association (HCA), associated with the craft liquor market, has reported that the craft beverages' order has been down to 67% in a pandemic. The artistry engaged in craft drinks production is almost 60% of them with zero financial income.    

“Government has the UK started with initiatives to regain the craft market with the hashtag of #ArtistSupportPledge. The initiative, supported by The Crafts Council, asks artists to post images using the hashtag while giving details of their works and price (up to a maximum of £200), and every time an artist reaches £1,000 of sales, they pledge to buy £200 of work from another artist.” Pandemic has boosted the market of direct to consumer channel for the distilleries and grocery industry, which a life savior for the craft spirits producers. The challenges faced by the on-premises sale, various companies have made their entrance through the e-commerce channel to distribute their craft distiller directly to the consumers in this pandemic.

Company Initiative New Spirits:

“In August 2020, Terai India Dry Gin has launched in collaboration with The Proof Creative Team. “

            -TERAI Dry Gin

Texas Distillery Launches New Whiskey During Pandemic

“Promoting a new spirit during a pandemic has been challenging. Not being able to do on-premise tasting has hurt the craft industry. People have continued to buy spirits, but they maybe only buy things that they already know.”

            - Godevais, Texas Distillery

 “COVID-19 has been the cause of a major shift across the board for the beverage industry — adversely affecting several areas including bars, restaurants and independent distilleries that have had to shut down tasting rooms and even pivot their production to supply essential hand sanitizer. But this has also led to a positive impact on e-commerce sales for the spirits industry and new customers purchasing online.

            - Weiss says, Michael Weiss, CEO and founder of Lincolnwood, Ill.-based Spirit Hub

“The American Craft Spirits Association (ACSA) has been working closely with the U.S. Food and Drug Administration (FDA) and the Alcohol”

 “Alcobrew launches One More Pure Craft Vodka”

            - Alcobrew Distilleries

 “We found that many craft gins in the U.K. were using ‘exotic’ ingredients like cardamom and cinnamon, which we already have in South East Asia, so we thought why not make use of it.”

“Craft gin RM Singapore Distillery has launched new products, made from a blend of Asian herbs and spices common in the region.”

            - Craft Gin Firm

CONCLUSION

The disruptions in craft spirits and lockdown of the tasting distilleries and tours have slowed down the craft spirits market. The shutdown of on premises wholesale channel from where most craft spirits revenue is being extracted has drastically impacted the sale volume of crafted spirits. However, the development of the off-premises platform and the small distillers' website development have made an opportunity for local players. The high tariff charges established by the American and European governments have not scratched the giant spirit producers. In contrast, it has drastically impacted the small distillers, which cannot sustain in the stock market.

The majority of the initiatives to consume locally handcrafted products and government authorities' funding to boost small distillers' growth will help reshape the overall spirits market. Various craft spirits producers have shifted their workplace in the preparation of sanitizer to fight against the COVID-19 pandemic. Companies' strategic steps have helped them sustain in the market and with their brand equity among consumers.