Denver recently played host to DStill – a festival of spirits at the McNichols Center. It was a refreshing bite to our otherwise sud-centric city that allowed the craft distillers to show that beer isn’t the only thing that is making a go of it here in Denver. Of course, it is difficult to pay attention to the craft numbers when so many economic reports are coming out about the national strength of craft beer, especially the percent of the Colorado economy that comes specifically from beer. Just this week otherwise smaller craft brewers signed on with national distributors in order to increase their market footprint. In the wake of DStill, we are left asking: could we expect something similar to happen out of the local craft spirits industry?
Yes, economic strength from Craft Spirits will grow, but that impact growth curve will be much slower. Just the simple economics driven by spirits, i.e. you might buy a twelve pack a week and a few bottles a year, most liquor stores and corporate / chain restaurants will be slow to adapt. Probably very slow (comparably), craft beer started and grew out of hole in the beer market. The major industrial brewers were all producing an extremely similar product. Craft beer accounts for somewhere around 9% of all the national beer sales. In Colorado, it is closer to 15% (40% in the Denver metro area, closer to 3% out in the suburbs).
Let’s first remember that craft beer has grown quickly in the past, only to retract later on. That could very well happen with craft spirits – an increased share of the market, but without having to worry about the quality, consistency and individuality that mass spirit producers take on. Right now the craft spirit market is crowded with numerous clear spirits. Why? The need to get something into the market that doesn’t require much aging – vodka and gin. Where is differentation in product? Vodka for the most part is vodka, colorless, odorless, and tasteless. But vodka is also competitive because it is still the most consumed spirit in America. While gin is growing, it is difficult for them to find shelf space at liquor stores, bars, and restaurant shelves. Gin has never been the kind of spirit that consumers gravitate to. Just about everyone has a pre-concieved idea about what it is and that idea usually stems from a bad experience. Simply, if the gin does not sell, the distiller goes out of business.
There is also advertising budgets. This alone will cause craft spirit sales to pale in comparison to the industrial brands. The ad budget of just about every craft producer at Dstill is probably less than 1% of the total amount of companies like Kettle One or Jack Daniels. If the brand does not have the capital to advertise, consumers won’t hear about them, their product won’t sell. Same goes for the capital to acquire equipment and employees. Just think about how long a place like Stranahan’s relied on volunteers to bottle their product.
Of course, there are numerous ways to acquire capital. Building off the Stranahan’s example: great product, national acclaim, awards won, tons of fans, and then BANG! – bought out. While something like this probably won’t happen to someone like Leopold Brothers, it is a classic example of how investment in distribution can go a long way for a brand. Big companies taking out a stake in smaller companies is nothing new. Smaller guys get the much-needed cash, bigger companies get a way into a niche market. This is basically why the craft beer market recedes every now and again – the bigger guys get into the niche markets and essentially crush any new startups trying to gain a market share.
From behind the bar, we rarely see anyone order a vodka or gin neat. Some old goat might enjoy a few fingers of whiskey on it’s own. Spirits, though, are commonly served in mixed drink. After you add the ice and whatever liqueur or fruit the base of the spirit is pretty much lost. Serious drinkers (or those who feel they have something to prove) will say they have a specific brand of spirits they will only have in their cocktail. Otherwise, it’s whatever is out of the well. It takes a pretty refined tongue to taste and define what is special about different brands of liquor. Spirits are something you have to think about and really invest in. It is easier to buy a 12 pack brewer sampler for 18 bucks. It is harder to pick one bottle of vodka, gin or whiskey for $30+. DStill opened a lot of people up to new flavors, but it was a very niche and limited event in that regard.
So what can craft spirits do in the meantime? They all have the “buy local” mantra going for them. Sure, that will help drive sales and build a pride in their brand. Because they are setting up where the craft beer market is strongest they are also gaining access to educated and curious drinkers. In the end it may not be about the product or the brand or the market, but about the curious customer. Of course, growth cannot be infinite. Sure, we will see plenty of new distillers come on the scene in the coming months and years. But the expansion is not sustainable. Yes, places will close. But in the end, the best products prevail.