Dear Client: 

Direct-to-consumer wine sales reached $3.2 billion in 2019 and continues to grow faster than the overall wine market. On the spirits side, despite less access to markets, the activity has grown on both an intrastate and interstate level. 

You may recall, Kentucky also recently passed legislation to open up DTC shipping for wine, beer and spirits. 

At the annual Wine & Spirits Daily Summit in January, we gathered a panel of experts to explore the emerging DTC spirits business, current challenges and where it is heading. This topic seems particularly timely right now as consumers increasingly turn to bev alc e-commerce amidst the COVID-19 pandemic. 

The panelists included Cheryl Durzy, founder and ceo, LibDib; Margie Lehrman, ceo, American Craft Spirits Association; Rob Warren, ceo, Still & Mash; and Devaraj Southworth, ceo and co-founder, Thirstie. Industry veteran and AM Shapiro & Associates founder Arthur Shapiro moderated the panel. 

ACSA asked its members how important DTC shipping is to them (for those who can legally do so), and 98% responded with incredibly important, right behind FET reduction. “So as soon as we get the FET relief in permanency, then I suspect we’ll have more bandwidth to look at DTC,” said Margie. 

About 92% of the roughly 2,000 craft distillers operating nationwide produce less than 5,000 cases annually. “Is that really a disruptor to our system? If we make allowances for those fewer than [5,000 annual cases], probably not. But will it take work to get there? Yes,” she added, but “I’m very optimistic that the future is bright in this area.”

“What I am really starting to see is with this direct to consumer is how do you focus on consumer pull versus distributor push,” said Cheryl. “You only have so many dollars to be out there in the market and to do things, and that’s where I see the value of… Thirstie and other platforms. How can these distillers push the consumers towards their products, and then therefore deplete and get placements at retailers and be kind of a part of the three tier ecosystem.”

PROOF OF CONCEPT. Can DTC spirits shipping be used as a measure of proof of performance? “I think absolutely,” said Devaraj. 

Similarly, Rob said, “How do consumers find brands that are interesting with great stories and discover those? And I think that’s where e-commerce has really got the opportunity to grow much faster than it’s been, and for those smaller makers to really find out do they have a proposition or not. It’s a great proving ground…”

He goes on to say that “I think what the direct to consumer can do for smaller brands is be a feeder system, be a proving ground, provide the data and analytics through some of the companies, like Thirstie…and it becomes  feeder system to a wholesaler that doesn’t want to take the chance right away.” 

SPIRITS V. WINE. Wine can ship directly in 45 states (46 once Kentucky comes online), but only a handful of states allow direct spirits shipping. Arthur posed the question: why is there that disparity? Noting, “even the National Institute of Health says a drink is a drink is a drink.”

“I do know that spirits across the board…typically have been treated differently,” said Margie. “Is there a real one singular answer why it’s different? Probably not.”  

“It’s actually a cultural issue that comes into play, where spirits have always been viewed as hard liquor,” added Rob, and that’s played out in legislation. “So I think there are some cultural barriers in there that still exist from the temperance.” As for “a drink is a drink,” Rob asks, “is it going to be a drink is a drink is a drink is a toke? I don’t know.” 

“Well the law is the law. That’s what it is right now,” said Cheryl. “I think that there are opportunities where, as a distributor, the kind of work that we’re doing as a platform can get those spirits [struggling to get distribution] to every state through the three tier system.” 

LOOKING AHEAD. Arthur asked the panel where they see the DTC spirits market five years from now. [Note, these projections are pre-COVID.] 

“We’d all like to see [share of alcohol e-commerce sales] to be 8%, 10%,” said Devaraj. “I think it’s going to be more around 3%-4% in the next five years.” Devaraj told WSD recently that we could reach that 3%-4% even sooner as a result of COVID-19. 

“I would probably agree that it’s not going to be much more than that [3%-4% share],” said Margie. “But a lot of it is going to depend upon what happens within the states, and how to activate your consumer base within the states to go to the state legislature and make change….And if we can get traction just as we did collectively on FET, we will definitely see a movement across the country for those states that are willing to modernize their regulations.”

PRESIDENT SIGNS BILL PROVIDING ADDITIONAL SMALL BUSINESS COVID-19 RELIEF FUNDING

Last month, legislators passed a $2 trillion economic stimulus package to provide relief for individuals and businesses impacted by COVID-19, which included loans and grants for small businesses. But the funds for small business loans dried up quickly. As such, today President Trump signed a $480 billion bill for further small business aid, hospital grants and COVID-19 testing, per NBC News.

The legislation includes $310 billion to replenish the Small Business Administration’s Paycheck Protection Program (PPP), $75 billion for hospitals and $25 billion for testing.

$60 billion of the new PPP funds are reserved for smaller lending institutions, and the Economic Injury Disaster Loan (EIDL) program includes $10 billion for grants and $50 billion for loans, which agricultural businesses will now be eligible for, according to WineAmerica. 

“This bill will help ensure that economic relief gets to small businesses that need it most, including craft distilleries that have been forced to lay off employees after shutting down tasting rooms and distillery tours to stop the spread of COVID-19,” per a statement from Distilled Spirits Council chief Chris Swonger. “We will continue to underscore with Congress and the administration the severe financial hardships faced by distillers and the workers they employ. While hundreds of distillers have been firing up their stills to make much-needed hand sanitizer for their communities, it is critical that they regain financial stability to get back to hiring and making whiskey and other spirits.” 

STATE AND LOCAL GOVERNMENTS AID STRUGGLING ON-PREMISE OPERATORS

In other relief news, states and localities are putting together efforts to help restaurants and bars keep their liquor licenses while revenues slump during COVID shutdowns, per Restaurant Hospitality.

Some states, including Arizona and Virginia, have offered to defer liquor license payments for on-premise operators. And, you may recall, Michigan Gov. Gretchen Whitmer authorized a bev alc buyback program for bars and restaurants [see WSD 04-15-2020]. 

Liquor licenses in states with licensing quotas can come with a high price tag, sometimes costing as much as hundreds of thousands of dollars on the open market. As a result, many license-holders take out large loans with high monthly payments.

For instance, a restaurant operator in Florida was liable for $2,600/month payments for her liquor license. She was able to negotiate a forbearance on the loan to delay payments “until the crisis has passed” with help from Miami-based Spiritus Law. 

Rob Lewis from Spiritus suggested that “operators in a similar situation contact their lenders first to see if they can negotiate new terms, and seek legal counsel to review loan documents.”

WSD BRIEFS: 

WOODFORD RESERVE AND CHURCHILL DOWNS ANNOUNCE KENTUCKY DERBY AT HOME. Brown-Forman’s Woodford Reserve has joined Churchill Downs for a nationwide, at-home celebration that honors the tradition and pageantry of the Kentucky Derby while also raising up to $2 million for the people impacted by the global pandemic, per a release. This day-long virtual experience will take place Saturday, May 2, which includes a virtual horse race. Churchill Downs has also pledged to match up to $1 million in donations to COVID-19 emergency relief efforts. Both companies will offer unique content on social media during the event which will be followed by the re-airing of the 2015 Kentucky Derby on NBC. The Kentucky Derby has been postponed to early June. 

TRINCHERO FAMILY ESTATES LAUNCHES DEL MAR WINE SELTZER. Trinchero Family Estates has launched a wine-based hard seltzer, Del Mar Wine Seltzer. It is available in four flavors, Black Cherry, Grapefruit, White Peach, and Watermelon. The seltzer is available in 4-packs of 355ml cans which retail for approximately $9. 

THE FLADGATE PARTNERSHIP RELEASES THREE 2018 VINTAGE PORTS. The Fladgate Partnership has released three 2018 vintage ports from Taylor Fladgate, Fonseca and Croft Port houses; the Taylor Fladgate Classic Vintage 2018 is available for about $120 a 750ml; the Fonseca Guimaraens Vintage 2018 retails at $60; and the Croft Quinta Da Roeda Vintage 2018 is also bottled at 40 proof and is available for $50. The Fladgate Partnership will be bottled in July and available nationwide in early 2021. Kobrand Corp. handles the wines in the US. 

NAKEDWINES.COM LAUNCHES $5M SUPPORT FUND. Nakedwines.com has launched a $5 million support fund for winemakers affected by COVID-19 disruption, per a release. The fund is immediately available and will be deployed to purchase stock that previously for channels such as restaurants, tasting rooms and traditional retail stores. It is available to independent winemakers worldwide. Winemakers must meet the following criteria: be an independent wine producer or winemaker; need to display a proven track record of quality; show evidence of COVID business impact; and  have cleared any importer/agent exclusivity agreements. 

GEORGES DUBOEUF BEAUJOLAIS NOUVEAU OPENS VOTING FOR LABEL COMPETITION. Georges Duboeuf Beaujolais Nouveau, imported by Quintessential Wines, has opened up voting for its annual labeling competition in which 14 finalists have been chosen. In addition to having their artwork featured on the upcoming vintage, the winner and runners-up will also receive grants totaling nearly $5,000.  

Until Monday,
Sarah

“It’s not what you look at that matters, it’s what you see.” – Henry David Thoreau

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