Survey: Craft Distillers Say Distributor, Supplier Relations are Good

FILED NOVEMBER 19, 2015

Yesterday, we shared the results of our first-ever craft distiller survey detailing who the participants were and how much they're growing [see WSD 11-18-2015]. Today, we'll take a look at their growth strategies and how they feel about their relationships with distributors and retailers.

STRATEGIES: A MIXED BAG. When asked what strategies they put the most focus on this year, getting feet on the street and focusing on capacity were the top priorities -- recall from our report yesterday 80% of the distillers spent money on increasing capacity this year. But regardless of size, the craft distiller's respective focuses were pretty evenly split across all of the strategies below.

-- 23% plan on focusing getting feet on the street
-- 23% plan on focusing on capacity
-- 20% are focusing on distributor relations
-- 17% are focusing on new markets
-- 17% are focusing on growth

A couple distillers said all of these are important strategies, and one distiller added that "training staff and safety are top priorities."

DISTRIBUTOR/RETAILER RELATIONS ARE HEALTHY. Surprisingly, most craft distillers said relations with retailers and distributors are good. Only 6.5% of distillers said relations with retailers were not good and only 16% said they were not good with distributors.

"Larger distributors are taking notice and investing in the small brands to show diversity in their portfolios... The real trick is to not fall into the habit of gimmicks and to look beyond the fiscal year to better predict trends while simultaneously setting them," said one distiller.

"Someone once told me to look at distributors as nothing more than a trucking company and it becomes more true everyday," said another.

HOLDING PRICES. Craft spirits are usually on the high end of the pricing spectrum, but the majority of them are not looking to go any higher. 64% of those surveyed had not taken a price increase this year, and very few reported taking any at all, with one reporting taking a price increase at 10% and another at 2%.

One distiller said its strategy was to introduce "certain new products that are a bit more expensive. When our sourced whiskey brand, now nine years old, hits ten years, we'll probably raise the price."

GENERAL INDUSTRY COMMENTS. We also opened up the floor for respondents to share their thoughts about the state of the category in 2015. Here is what some of them had to say:

-- "Fun year, more in focus, more in tune, happy with where the category is going."

-- "For us there still is an increase in locally produced spirits however there is an increase in local producers in the market which seems to be a trend across the country."

-- "Accounts that are truly interested in supporting locally produced, premium quality, artisanal spirits are the ones that will drive the growth industry."

-- "It has been a tough year in terms of growth. Some markets while booming are also selective in bringing on new brands into those markets. Hopefully 2016 will bring a brighter outlook in terms of consumer spend in the spirits market."

-- "53 Gallon barrel shortages made it tough to lay down significant quantities of new make as forced to use the smaller barrels, but still great distributor, retailer and consumer demand for craft Bourbon and Rye. Expansion limited by this issue as well as lack of quality trained manpower to support brands in new launch markets."

-- "...We also believe that we will soon start to see a massive number of distilleries open that are focused primarily on the retail component of their business, tasting room, event space, restaurant, etc. With the distilleries that are focused on growth and widespread distribution being rare. We also believe that we are 2-3 years from the first consolidation of the industry. Distilleries that focus on the retail component of their business are somewhat sheltered from the consolidate because they operate essentially a brew pub model with the draw being the idea of drinking the product 10-feet from where it was produced. The distilleries that focus on widespread distribution with sub-par products (unfortunately there are a large number of them), will see a huge decline in numbers over the next 5+ years as other distilleries come online that are focused on quality products at reasonable prices. "Craft" is dying, "Quality" is coming in hot. Fortunately, craft distilleries have a better ability to put out quality products due to the lesser quantity of products produced relative to a massive scale distillery. However, capital constraints will always dictate the products."

OHIO JUDGE DISMISSES (IN PART) FRAUD CLAIM IN TITO'S 'HANDMADE' SUIT

On Tuesday, Ohio federal judge dismissed (in part) a fraud claim against Tito's Handmade Vodka owner Fifth Generation. However, Tito's motion to dismiss the plaintiff's promissory estoppel claim and request for declaratory judgment and injunctive relief was denied.

BACKGROUND. Tito's has been under a lot of scrutiny lately and facing several similar lawsuits over its use of the word 'handmade' on the label. This particular case filed in Ohio claims Tito's "is not actually handmade, because it is made from commercially manufactured neutral grain spirit that is trucked and pumped into an industrial facility, distilled in a large industrial complex with modern, technologically advanced stills, and produced and bottled in extremely large quantities."

In response, Tito's filed a motion to dismiss. US District Judge Susan Dlott sided with Tito's in ruling that a consumer does not have standing to commence a civil action under the Ohio Deceptive Trade Practices Act; nor does the plaintiff have the standing to advance an Ohio Consumer Sales Practices Act (OCSPA) claim on behalf of a class -- though her individual OCSPA claim survives -- dismissing the negligent misrepresentation claim and the fraud claim.

Moreover, the judge also denied the plaintiff's motion to amend the case.

But the judge sided against Tito's in ruling that the plaintiff's promissory estoppel claim would not be dismissed. A promissory estoppel claim in Ohio is comprised of four elements: (1) a clear, unambiguous promise; (2) reliance upon the promise by the person to whom the promise is made; (3) the reliance is reasonable and foreseeable; and (4) the person claiming reliance is injured as a result of reliance on the promise. She also denied the request for declaratory judgement and injunctive relief for Tito's.

THE BIGGER PICTURE. You may recall, just last month a California federal judge denied the request to consolidate similar cases against Tito's [see WSD 10-30-2015]. Before that, a Florida judge found that "no reasonable consumer could believe" that a vodka made in such volume could be handmade [see WSD 09-25-2015].

It looks like Tito's is fairing alright amidst the sea of class action suits, but we'll keep the coverage rolling as it comes in.

WSD BRIEFS:

THE OTHER GUYS REBRANDS AS 3 BADGE BEVERAGE CORP. "We felt it appropriate to start a new chapter with a new name that unified our varied businesses and that connected more directly with our family history and new home," says president August Sebastiani. They will also be changing the heading of the wine division from The Other Guys to 3 Badge Enology and the spirits division from 35 Maple Street Spirits to 3 Badge Mixology. The individual wine (Leese-Fitch, Plungerhead, Pennywise, The White Knight, Hey Mambo, Moobuzz and Gehricke) and spirits brands (Uncle Val's Gin, Kirk and Sweeney Rum, Bib & Tucker Bourbon and Masterson's Whiskey) will remain the same. The name change will take effect January 1, 2016.

WINE.COM LAUNCHES LARGEST MOBILE WINE STORE, DOUBLES SELECTION. Wine.com, the nation's leading online wine retailer, has launched a new mobile website and doubled their selection of wines to nearly 10,000 wines for the west coast distribution hub and 7,000 wines for the east coast. "Without physical space limitations, Wine.com can offer a selection with breadth and depth unlike any brick and mortar store," says founder and vp merchandising Mike Osborn. Moreover, mobile revenue is up 55% the first half of this fiscal year, per a release. Also, the site now lets consumers live chat with on-staff sommeliers seven days a week. "Wine.com is seeking to become the world's largest wine store with the world's best service," says chief Rich Bergsund.

Until tomorrow,
Emily

"If at first you don't succeed, failure may be your style." -- Quentin Crisp

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