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Craft distillers across the country were forced to shut down their tasting rooms and tours at the start of the pandemic. And while those moves were necessary to help curb the spread of the novel coronavirus, the shutdowns have had had a severe impact on what was becoming a burgeoning industry that generated $3.2 billion in retail sales last year.
A new study from the Distilled Spirits Council of the United States (DISCUS) published on Thursday revealed startling figures about lost sales and jobs within the domestic craft liquor industry due to COVID-19 closures. The study was based on data from a June 2020 survey conducted by the American Distilling Institute, a trade association for craft distillers, with feedback from nearly 300 distilleries across all 50 states and the District of Columbia.
Approximately 41% of sales evaporated—worth more than $700 million—and 31% of employees—roughly 4,600 jobs—at craft distilleries have been furloughed. A significant portion of these losses was attributed to the shutdown of on-site sales from tasting rooms and other on-premise sales. Approximately 40% of craft distillers reported that their on-site sales were down 25% or more, and more than 15% said that their tasting rooms were completely shut down.
“Distillers started 2020 with a sense of relief and guarded optimism after the last-minute extension of the federal excise tax reduction at the end of 2019. But then, starting in March, quarantines around the country shut down restaurants, bars and tasting rooms, removing major sources of revenue for craft distillers,” says Erik Owens, president of the American Distilling Institute. “Some distillers went months with no income from their spirits. This will be the first year in over a decade we will end with fewer craft distilleries than we started with.”
Craft distillers rely heavily on sales through on-site tasting rooms, which have been hit hard by the pandemic as many states have shutdown tasting rooms and other indoor services to curb the spread of COVID-19. In 2019, approximately $919 million of craft distiller revenues stemmed from on-site sales. And more than 40% of craft distillers derive more than half of their business from tasting rooms sales.
Craft distillers are considered small businesses within the hospitality industry. Approximately 60% of craft spirits makers sell less than 2,500 cases per year. There are more than 2,000 craft distilleries operating in the U.S.—45% of craft distillers operate in just one state; only 12% of craft distillers operate in more than 10 states—collectively funding more than 15,000 direct jobs. Seventy percent employ 10 or fewer employees; 55% employ one to five workers.
Many states have enacted innovative measures to provide some much-needed financial support to craft distillers following the closure of their tasting rooms and tours. Since COVID-19 hit the U.S., eight states are permitting in-state distillers to ship products to in-state consumers as a temporary economic relief measure, and dozens more are now permitting the sale of to-go cocktails, notes Chris Swonger, president and CEO of the Distilled Spirits Council.
“These measures have been a critical lifeline for small craft distilleries, and a number of states are now considering making some of these policies permanent based on the positive feedback from consumers and distillers,” Swonger says, also pointing toward the number of independent businesses that pivoted quickly to contribute to the front lines. “At the start of the pandemic, more than 800 distillers quickly switched gears and jumped into action to make hand sanitizer for their local first responders and communities. This benefitted their communities and also helped to keep some distillery workers on the job.”
The Distilled Spirits Council has been working closely with state guilds to urge Congress for additional economic relief. Key to the craft distilling industry’s survival is the passage of the Craft Beverage Modernization and Tax Reform Act. The federal legislation would lower the federal excise tax on the first 100,000 proof gallons from $13.50 per proof gallon to just $2.70. “This reduces the tax burden for craft distillers by over $20 per case,” Swonger explains. “If the legislation is not extended or made permanent by year’s end, craft distillers will face a 400% tax increase in January, which could be the final blow for many of these struggling small businesses.”
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