Growth of United States Distilled Spirits Industry

Over the past decade, the number of craft distilleries in the United States has grown exponentially. In 2010, there were only 250 licensed craft distilleries. Now over 1,700 craft distilleries are licensed and operating across all 50 states. (National Association of American Spirits) This boom in small batch distilleries has been driven by growing consumer interest in unique locally produced spirits and a desire to support small businesses. Craft distilleries often specialize in unique flavor profiles and small batch techniques not found in mass produced spirits. They are also hubs for their local communities hosting tasting rooms and educational tours. Despite being small producers individually, together craft distilleries now account for around 15% of total U.S. Distilled Spirits revenue.

Premiumization of Spirit Categories

Across all distilled spirit categories, consumers have been trading up to more premium and super premium brands. This premiumization trend has benefited the largest distillers producing brands over $25 per 750ml bottle. In the American whiskey category, brands over $25 grew volume by 8% in 2020 while under $25 brands declined 5%. Similarly, for vodka over $25 grew 3% while under $25 declined 11%. This shift has been particularly notable in the bourbon category which has seen tremendous growth. Super premium bourbons over $50 now account for about 30% of the total bourbon market, up from less than 10% a decade ago. Iconic bourbon brands like Maker's Mark, Woodford Reserve and Buffalo Trace have tapped into growing demand for premium sipping bourbons among consumers.

Rise of Ready-to-Drink Cocktails

Perhaps no other distilled spirits product has grown faster recently than ready-to-drink (RTD) cocktails. RTD cocktail sales grew 59% in 2020 to $1.5 billion according to IWSR Drinks Market Analysis. Leading the charge has been hard seltzer brand White Claw whose drinks contain alcohol but mimic the flavor profiles of popular seltzers. But traditional premixed cocktail brands like Cutwater Spirits hard vodka soda and High Noon hard seltzers have also found huge success. RTDs appeal to younger drinkers who enjoy convenience and variety of flavors like lime, grapefruit and watermelon without having to mix their own drinks. Major spirits companies have taken notice with Bacardi and Diageo launching their own RTD cocktail brands in the past year.

United States Distilled Spirits Industry Expanding Overseas Markets

While the United States remains the world's largest distilled spirits market by revenue, American distillers have been seeking new opportunities internationally for growth. However, establishing brands and breaking into foreign alcohol markets poses unique regulatory challenges and cultural differences to navigate. Lately several major American whiskey and bourbon brands have focused on expanding to international urban hubs with growing middle and affluent classes open to new premium spirit experiences. Canada, United Kingdom, Germany and Australia have proven receptive given familiarity with American pop culture while newer markets in Asia, South America and Africa show promise. Smaller craft distilleries often partner with established importers abroad who understand local tastes and regulations better. Covid-19 disruptions have also accelerated e-commerce expansion allowing international consumers to access American brands online.

Consolidation Activity

As the most lucrative distilled spirits categories see intensifying competition, major industry players have turned to acquisitions to gain synergies and market share. In 2021, spirits giant Diageo spent $550 million to acquire Davos Brands and its portfolio of seven ready-to-drink cocktail brands like Cocktail Qup and Château. Pernod Ricard followed suit acquiring Castle Brands which owned brands like Jefferson's Bourbon. Bacardi too made a big play purchasing high-end spirit brand Patrón along with several other tequila and rum labels. Meanwhile, Japanese beverage giant Kirin Holdings completed its $2.35 billion purchase of Four Roses Bourbon to add to its whiskey portfolio. Mid-sized players like Sazerac are consolidating craft distilleries to enhance innovation capabilities. Such consolidation allows these companies to enhance their brand offerings, leverage sales networks and unlock cost efficiencies. However, it also reduces choice for consumers and competition in the market long term.

Threats on the Horizon

Despite strong growth, the distilled spirits industry faces threats that could challenge future performance. Increasing health concerns around high alcohol content drinks and obesity may drive moderation trends curbing some consumption. Climate change could impact agricultural inputs like grains depending upon weather vagaries. Rising input costs of glass, transportation and labor will likely require producers to consider modest price hikes. Stricter regulations on marketing and high strength beverages have been proposed in some regions as well. The ongoing shift online also enhances the clout of e-commerce platforms squeezing distiller margins. While international expansion holds promise, geopolitical tensions and protectionism may limit access to rising foreign markets. Nonetheless, the popularity of premium spirits and innovative new products like cocktails should help the sector stay on a upward growth path overall.

Overall, the United States distilled spirits industry enjoys robust tailwinds with the rise of bourbon culture and premiumization driving underlying volume and value gains. While challenges exist ahead, innovations in products, expanding global markets and measured consolidation strategies position leading American spirits houses well for continued success going forward. Craft distilleries too play an important role adding uniqueness that enriches the overall industry landscape. Overall, the next decade appears bright if distillers steer skillfully through emerging shifts in consumer preferences and regulations.

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