How To Open A Craft Distillery
So, you’re thinking about opening your own craft distillery. While more heavily regulated than many other countries, the U.S. craft distilling industry continues to enjoy its solid multi-year growth. Sales from the roughly 2,600 American craft distilleries grew double-digits last year, reaching over $7.5 billion. The varying regulatory and reporting requirements make worldwide figures a little more difficult to summarize, but spirits consumption and sales continue to increase. Now could be the right time for you to get into the spirits world, and if done correctly, it can be very profitable.
AN OVERVIEW OF THE DISTILLERY INDUSTRY
Before we get started, let’s take a deeper look into the craft distilling industry. According to IBIS World, the distillery industry includes any producer that “distills potable liquors, blends liquors and mixes liquors with other ingredients”. It’s been deemed by the Distilled Spirits Council as the “second most valuable” industry in the world (valued at around $20 billion dollars). It continues to see record growth that just keeps sweetening the idea of starting your own distillery. The American Craft Spirits Association estimates that there are 2,687 distilleries in the U.S. that are actively distilling spirits. Sales volume grew 10.4%, sales grew 12.2%, and the distilling industry continues to outperform the brewery industry for the sixth straight year. And if you’re really curious, here’s a breakdown of sales and revenue by the spirit.
There’s just one problem: roughly 60% of bottle sales are attributed to only 2% of distillers. But this inequitable disproportion of sales is changing, making it incredibly feasible for new, small-scale craft distilleries to be successful.
Just as the distillery industry as a whole has been experiencing growth, so has the craft distillery industry. While there’s no exact production requirement to be considered a craft distillery, the consensus is that if you produce less than 50,000 gallons a year and source most of your ingredients locally, you’re a craft distillery. According to the American Craft Spirits Association, sales volume for craft distillers has increased 18.5% from last year and there are 20% more craft distilleries today than there was last year.
So what’s driving this sudden growth for smaller craft distillers? Premiumization. Premiumization is the idea that consumers are willing to pay a higher price for premium products. This is the same concept that drove the craft beer industry boon. Consumers are willing to spend more money on something that’s not mass-produced or “craft.” Thanks to this trend, a new brewery is opening up almost every hour, and now, a new craft distillery is opening roughly every other day.
And if that wasn’t good enough news, thanks to this growth and renewed attention on the industry, legislation is following suit. A 2017 tax overhaul gave smaller craft distilleries some much-needed tax relief. Tax rates for liquor producers have dropped from $13.50 to $2.70 per gallon (for the first 100,000 gallons produced or imported). This tax reduction allows smaller craft distilleries to retain more of their income and compete against large corporations and mass-producing distillers.