As distillers face an array of social, generational, economic, and market-access challenges, individuals and organizations that maintain a 30,000-foot view are working to tackle some of the hurdles.
“No Safe Level”
About a year ago, the World Health Organization published a document saying there is no safe level of alcohol. Now the beverage-alcohol industry is watching for potential changes to U.S. dietary guidelines, where advocates are pushing for federal policies to state something similar. While there are divisive policy and legislative areas, all beverage-alcohol sectors should be able to unite against this “no-safe-level” conversation, says Michael Walker, state policy advisor at the American Craft Spirits Association (ACSA).
“Philosophically, those sorts of conversations should be unifying to the industry,” he says. “You look at the policy implications of that down the road. What does that mean?” Among the possibilities, he notes the potential for higher tax rates or increased restrictions on access.
Chris Swonger, president of the Distilled Spirits Council of the United States (DISCUS), says their organization is working closely with beer and wine groups on the scientific aspect of safe alcohol consumption, underscoring how critically important it is to be united on that front.
“There is a whole community very organized to almost pursue its own version of Prohibition,” he says. “Not Prohibition as we knew it 100 years ago, but [to] really malign beverage alcohol and the positive role beverage alcohol plays in communities across the country, bringing people together—obviously moderate, responsible consumption of beverage alcohol.”
RTD Parity
However, there is strain between spirits and other sectors due to the rising tide for ready-to-drink cocktails (RTDs). They’ve been around in various forms for years, but the segment’s current success—especially in the context of broader industry struggles—“has caused some tension between the big three sectors: wine, beer, and spirits,” Walker says.
DISCUS has been pushing for tax parity for RTDs, Swonger says, noting that they’re often taxed as distilled spirits despite being offered at ABVs comparable to beer or wine. In Washington state, he says, the tax on a spirits-based RTD is 50 times higher than on a malt-based one; in Maryland, it’s 17 times higher. In Texas, meanwhile, spirits-based RTDs are available only in package liquor stores, unlike the malt-based options produced by breweries.
“It’s got the same amount of alcohol, and we’re getting kneecapped,” Swonger says. Increasing access to RTDs “allows consumers more opportunities to appreciate and enjoy a vodka-based RTD, or a whiskey-based, or a tequila-based RTD, and we’ll take that competition all day long with the taste and authenticity of the product. Getting spirits-based RTDs in our priority states and getting consumers to try and enjoy [them], that is going to help grow the distilled-spirits industry in the long run.”
State Alcohol Taxes
There’s also the state-by-state legislative ground game. Swonger highlights the Nebraska governor’s failed effort over the summer to reduce property taxes; he proposed offsetting it with a 287 percent hike in the spirits excise tax, which would have gone from $3.75 to $14.50 per proof gallon.
The DISCUS team worked with distillers in Nebraska, such as Brickway Brewery & Distillery’s Zac Triemert, to campaign against the proposed increase.
“There is not a huge craft-distilling community in Nebraska,” Swonger says, “but there are some great, great distilleries there, and a 287 percent tax increase … could put them out of business.”
DTC Shipping and Narrowing Distribution
One of the stickiest and most divisive questions facing distillers is whether they should have the right to ship product directly to consumers.
Walker and others describe a systemic bottleneck in the federally mandated three-tier distribution system for beverage alcohol. After years of industry consolidation, distributors have effectively positioned themselves as gatekeepers between an industry with a growing number of craft producers and a public unable to access a wide gamut of smaller brands. (A July Food & Wine article titled “U.S. Craft Distillers Are in Crisis” led to much discussion on the topic.)
While the number of distillers has grown dramatically over the years, combined with the roughly one-third of the market that’s produced abroad, “craft distillers are operating in a really global marketplace,” Walker says. Yet their avenues to that marketplace are shrinking. He points to recent reporting on distributor consolidation: The top 10 wholesalers now control 80 percent of the market, while two of those—Republic National Distribution and Southern Glazer’s—control more than 50 percent.
“You can see that consolidation in the wholesale tier,” Walker says. “I don’t know where you’re supposed to go.”
While acknowledging macroeconomic issues such as a consumption slowdown and higher interest rates, Walker decries distributors’ attempt to shift focus to those issues when discussing potential solutions. The Wine & Spirits Wholesalers of America (WSWA) “doesn’t want to talk about any additional routes to market at all,” he says. “They want to place it on some of these more macro issues, which everyone seems to be facing. [DTC] may not be a silver bullet, but we can’t understand why wholesalers would be opposed to it. Build up brands, then get them into the distribution network.”
Further frustrating distillers’ ambitions are the relatively looser regulations on shipping of beer and wine. New York state recently passed a DTC law for distillers based on the existing legislation for winery DTC shipping, including a reciprocity provision. While regulators still need to fill in some details, New York distillers will be able to ship to states that have similar DTC rules, Walker says, “the difference being that there’s nine states that allow spirits … and there’s 44 that allow wine.”
“If you look at the policy work over the years, the alternate routes to market for craft distillers are just not the same ... as [for] wine or beer,” he says. “There’s no reason we shouldn’t be working on alternate routes to market and have craft distillers be allowed to access the market in any way they choose.”
An annual report by Sovos ShipCompliant indicates that consumer sentiment is on distillers’ side, with 87 percent of craft-spirits consumers in support of DTC in 2023, up from 80 percent in 2022. Sentiment at the state legislative level may be turning, as well. Walker says lawmakers introduced spirits DTC bills in 14 states around the country this year, with some of those bills advancing out of committee or passing a legislative chamber.
“We saw some movement in places that I never expected to see movement,” he says. “Mississippi. Iowa moved. The concept of direct-to-consumer shipping for spirits seems to be taking a step forward. Until the last few years, there were fits and starts. A lot of bills just didn’t move at all. They got a hearing, but didn’t move anywhere, whereas this year we actually saw some movement, culminating in New York, the bill passing on the last day of the legislature. Maybe there’s some growing recognition of this.”
Swonger says DISCUS launched a grassroots campaign, Ship My Spirits, to support the expansion of DTC. “That issue requires supplier-tier unity,” he says. “It is important that we rally together on that issue because that’s a tough, industry-sensitive issue. We support the three-tier system, but we also recognize the three-tier system needs to evolve.”
Toward Industry Unity
Swonger says the push for DTC shipping is only one area of broader need for unity as distillers try to weather the current storm. He also acknowledges the reticence that some smaller distillers feel toward DISCUS as a longtime representative of larger distilleries’ interests.
“The industry’s got major storm clouds coming,” he says. “We recognize, with the marketplace challenges, and with the inflation challenges, probably the hardest-hit are the craft-distiller communities.
“Now is the time for the industry to come together, to rally together. Part of that is supporting organizations like DISCUS because our advocacy efforts are going to be critical, and the more united we are, the better we are. We want every craft distillery in the country to thrive, and we want to help.”