Artisan Spirit: Spring 2016

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we have 28 members with another 18 distilleries on the way.” That is the largest KDA membership since the repeal of Prohibition, and they currently rank eighth in the number of distilleries by state. Even with all the new bourbons coming from small producers across the country, Kentucky distillers still make 95 percent of the world’s bourbon, and 2015 was the third straight year Kentucky distillers have produced more than a million barrels. Unlike the beer industry, large Kentucky distillers embraced the influx of small distilleries, and rewrote the KDA bylaws to include them and provide a craft level membership. They also added a Craft Tour to the Kentucky Bourbon Trail, which not only increased tourism in the communities where those distilleries are located, but also helped generate additional traffic for the whole tour, with 762,000 visits last year. Adding the Craft Tour also expanded the political footprint for Kentucky distillers, and Gregory says they now have politicians voting for alcohol bills that they never considered before because they have craft distilleries in their district now. Improving legislation is essential for distilling industry growth. Ozgo says that defeating hospitality tax increases is one of DISCUS’s primary objectives, and he says distillers need to continue to push for modernization of alcohol laws. One modernization effort Ozgo advises distillers to watch is the growth of delivery services like Drizly and Amazon. “It’s the way people buy things today,”

shared Ozgo, “and spirits obviously need to move in that direction.” As laws regarding spirits are modernized and distillers gain more parity with brewers and vintners, they also gain more alcohol market share, which is extremely valuable. Since 2000, spirits market share has increased 6.7 points, and each point is worth $680 million. That equates to $4.6 billion, and accounts for almost 20 percent of the total spirits industry revenue.

TRENDS TO WATCH Nearly all whiskey sales grew in 2015, with Jack Daniel’s and Jim Beam leading the U.S. brands. One category that shrank was white/corn whiskey, which many small distillers produce to generate revenue when they first open, but are often marketed and purchased as a one-time novelty. Flavored whiskeys now account for 14 percent of the whiskey market, growing from almost nothing in 2008. Flavored vodka sales, on the other hand, shrank, while traditional vodkas grew a bit. Overall, vodka accounts for one-third of total spirits volumes. Rye whiskey volumes grew 20 percent, cognac was up 14 percent and tequila added 7.4 percentage points, with most of that growth in the high-end and super premium categories. When looking at the future, all the speakers said distillers should consider millennials when developing their marketing and branding. With a smorgasbord of labels to choose from and new products entering the market daily, millennials are used to experimenting.

“If you look at millennials and their desire to taste new spirits versus baby boomers, there’s a big difference,” explains Meek. Meek says that over half of millennials polled want to try new spirits and new categories, while only 36 percent of baby boomers said they would. While that means millennials are willing and excited to try your brand, it also means it will be much more difficult to retain their loyalty, since many switch brands, and even categories, regularly. That means your advertising, brand identity and packaging may need to change with purchasing and consumption trends, and Meek notes that brands seem to have shorter life cycles than they used to. If you do change your branding, keep in mind that many industry experts believe that transparency will become a defining characteristic in the rise or fall of a brand. “Today’s consumers are much more educated than they were five years ago,” shares KDA’s Gregory. “They understand quality, and they understand labeling issues, so resist taking creative license with age requirements and labeling. If you’re not going to get caught on social media, there are lawsuits out there.” The spirits industry is growing, and purchasing trends are shifting toward high quality products, innovative products, independent brands and authenticity. Most of the suppliers who meet these criteria are succeeding and growing, but no one is doing better than consumers. With a larger selection of high quality products than ever before, this is a great time to drink spirits.