Craft Distillers Push for Direct-to-Consumer Sales

The distilling industry’s pandemic-fueled pivot to hand sanitizer can only do so much to stem losses. Several of the country’s smaller craft distilleries are foundering. The ongoing one-two punch of tasting room closures and distillery tour cancellations continues to hemorrhage revenue nationwide, compelling the Distilled Spirits Council of the United States (DISCUS) to project a 41% loss in industry sales. Translated to dollars, this works out to roughly $700 million in losses.

These numbers are obviously dismal. However, they might be even worse if not for the pandemic-inspired rollout of temporary direct-to-consumer (DTC) distillery shipping laws in eight states, including California, Oregon, Pennsylvania, Virginia and Washington. This piecemeal permission for distilleries to directly sell and ship spirits from their facilities straight to customers has functioned as a revenue boost, one that’s slightly cauterized the economic wound for some small craft establishments. It has also laid the groundwork for a more pronounced push toward a carefully coordinated nationwide expansion of the concept, which could help smaller brands bounce back after the COVID-19 pandemic.

 

Simplifying the Solution

Becky Harris knows DTC can work. The founder of Catoctin Creek distillery in Purcellville, Virginia, saw a robust uptick in sales within days of her state’s implementation of temporary DTC shipping laws on April 6, and sales have been routinely surpassing pre-pandemic numbers on a weekly basis.

It’s knowledge that Harris has applied in her concurrent role as the president of the American Craft Spirits Association (ASCA), as she has led the charge for common-sense DTC legislation to be passed in each state. The mission involves the creation of nationwide model legislation that can be adapted to account for state-specific concerns, such as the three-tier system and ABC laws regarding shipping spirits across state lines.

It also calls for delivering clarity to the concept, which is not an easy task. “The language isn’t always clear when it comes to existing DTC laws,” says Harris. “There are a lot of gray areas to consider.”

This is a vast understatement. Trying to extrapolate precise legal understanding from the half-dozen or so states that held pre-pandemic DTC spirits shipping laws is a complex task. The mandates issued in states such as Arizona and Nebraska were saddled with such tight restrictions and byzantine legal details that they organically discouraged most distillers from bothering to try. In 2018, Kentucky passed a state law approving in-state DTC, but it languished in limbo until earlier this year as the state squabbled over how to regulate the process.

In some cases, a lack of clarity prevents laws from getting formed in the first place. Texas, one of more than 30 states prohibiting DTC shipping of spirits, currently takes the stance that DTC shipping is illegal for distilleries because nothing has ever been written to accept or prohibit the practice. Plenty of work remains to be done to cut through so much fog.

Fortunately, ASCA isn’t alone in its efforts. With survival on the line, many craft distilleries have made increased efforts to get their voices heard. This is particularly the case with labels new to the scene, who are fighting hard for recognition at a time when forging customer connections is hard to come by.

“One thing that the startups have learned is that if they don’t get involved with government regulation quickly, the government’s going to get involved in their business,” says Mark Shilling, a partner in marketing company Big Thirst Consulting and the founder of Revolution Spirits, a small craft distiller, both based in Austin, Texas. “That’s an important lesson to understand, especially at a time when the distilleries in Texas are losing 35% to 40% of their revenue.”

 

Substantial Challenges

Harris and Shilling are quick to point out several benefits to a functional DTC model free from ambiguity: It builds a distillery’s customer base. It boosts brand loyalty. It makes tourists happy to know they can get the great locally produced spirit they just discovered shipped straight to their home.

A few roadblocks clutter the path to these perks, however. Some people in the industry have expressed some caution about DTC’s potential circumvention of longstanding practices regarding distributors and retailers.

“There’s a lot of entrenched interest in protecting the three-tier system,” says Paul Hletko, the founder of FEW Spirits in Evansville, Illinois. “The relationship between the customer and retailer can be very nuanced. Direct-to-consumer is a great thing, but it’s important to keep in mind that a lot of people rely on their favorite liquor store to discover new brands.”

Other concerns go beyond current laws or stingy agencies. Harris acknowledges that several distilleries struggled with logistics and supply-chain challenges for months after getting the green light to ship directly. She also harbors ongoing concerns about distilleries in states with no DTC arrangements illegally shipping their product and the damage their actions could potentially cause the movement.

Still, these aren’t significant-enough hurdles to impede the push toward direct shipping. “We are not worried about perfection at this point,” says Harris. “We just want to get things going.”

The health, and possibly even the survival, of many smaller brands may depend on it.