S
ix months ago, craft distillers ended 2019 by celebrating the one-year extension of a hard-fought FET reduction and looking forward to an increasingly profitable year ahead. Today, the industry is hanging on by a thread. The COVID-19 pandemic has upended virtually every aspect of life around the country — including the lives of the tens of thousands of business owners and employees in the craft distilling industry. Distillers are facing challenges today that would have seemed unthinkable just a few months ago: government-mandated closures, terrified consumers, girdled supply chains, the near-total closure of on-premise retailers, and plummeting household incomes. “There’s no way to sugarcoat this news — the economic climate for the craft distilling industry is dire,” said Erik Owens, president of the American Distilling Institute, in a recent statement. In late March, the American Craft Spirits Association estimated that two in three craft distilleries would be forced to close within three months without government aid. Every week, the picture continues to darken. While many states are now in the process of lifting stay at home orders, huge questions remain about consumer confidence and the nation’s ability to cope with future outbreaks. While the picture is unequivocally dark, it’s not the first time that distillers have faced tough times. According to the National Bureau of Economic Research, the Great Recession that began in late 2007 officially ended in June 2009. But the lingering effects of that recession were felt for many years beyond that in the form WWW.ART ISANSP IRITMAG.COM
of elevated unemployment, depressed household earnings, and muted consumer spending well into the early 2010s — a time when many of today’s craft distilleries were first launched. Still, beginning in June of 2009, the National Bureau of Economic Research reports that the U.S. economy grew every single month for 128 straight months. That hot streak, of course, came to an abrupt end in March of 2020. The next period will test an industry that has struggled to achieve consistent profitability even in good times. As of late April, reports from the U.S. Commerce Department reveal that U.S. domestic product contracted at a 4.8 percent annual rate in Q1 2020 — a particularly startling statistic, given that the major economic impacts of COVID-19 didn’t arise until the final two weeks of the quarter. Q2 of 2020, which encompasses the meat of the COVID-19 pandemic thus far, is widely expected to bring levels of GDP decline not seen since World War II. Growth in craft distilleries has largely mirrored economic expansion during the past decade. Between 2009 and 2019, about 1,800 new distilleries opened their doors in the United States. That means the vast majority of distilleries operating today have only existed in an environment of economic growth and improving macroeconomic conditions. But not all. Just
“
*
19 E D- G VI R A COOVE C
CULTIVATING RESILIENCE
Distillers Reflect on Written by Enduring Margarett Waterbu ry Tough Times
as we talk now about the carefree “before COVID” times of impromptu group gatherings at restaurants, thoughtless trips to the grocery store, and worry-free outings on public transit, there was a “before” the last recession, and distilleries were part of it. So how did these elders of the industry make it through those trying times — and what can newer distilleries learn from their success? Hood River Distillers in Hood River, Oregon, didn’t just successfully endure the last recession; it also endured the previous 12. The company was founded in 1934, not long after the end of the Great Depression, to transform surplus apples and pears from Columbia Valley orchards into spirits. Over the past 86 years, Hood River Distillers has reinvented itself numerous times, pivoting from fruit-based spirits to importing and blending and back again. During the Great Recession, Hood River Distillers was most famous for its value bottlings of vodka, gin, and blended whiskey widely distributed throughout the Northwest under the HRD and Monarch brands, as well as Pendleton Whisky, a popular brand of Canadian whisky. Erica Mitchell, chief financial officer at Hood River Distillers, says that was no coincidence: Consumers simply become more price sensitive during tough economic times. “When people have a little less money, we’ve found that many might not want to experiment,” said Mitchell. “A lot of our customers would look down a shelf. We saw an increase in — Erica Mitchell, value sales, with people sticking with at Hood River Distillers r office cial finan chief
When people have a little less money, we’ve found that many might not want to experiment.”
61