Diversifying Your Business by Distilling Spirits

Revised on August 6, 2020

There's still incredible growth and innovation to be had within the spirits industry. The spirits market has grown 5.3% in 2019, and the industry continues to grow, even within the pandemic itself, with new trends like canned cocktails.

Depending on your current business model, expanding into distilling spirits and/or canned cocktails may be the best solution when it comes to diversifying your business.

Continual Growth of the Spirits Industry

According to the Distilled Spirits Council of the US (DISCUS), US spirits sales increased 5.3% in 2019, increasing $1.5 billion, making 2019 the 10th year of increased revenues for the industry. When compared to other alcoholic beverages like beer and wine, spirits accounts for 37.8% of the total beverage alcohol market.

While some alcohol segments have struggled to offset losses in the on-premise category, like beer and cider, according to Nielsen, spirits have continued to maintain strong volume growth with a growth rate of 31.7%, which is way over the 22% estimated volume growth needed to offset those on-premise losses.

There is plenty of growth to be had within the spirits segment if you have the capability to sell your spirits online, retail distribution and delivery. To adapt to the current market situation, many spirits producers are beginning to focus on producing to-go drinks through canned cocktails.

The Growth of Canned Cocktails: Fun in a Can

One of the hottest trends over the past few years has been the rise of ready-to drink cocktails. From hard seltzer, to wine spritzers or even traditional cocktail blends, expanding into this market makes a lot of sense, especially if you already operate a distillery. 

According to Nielsen, the overall category of ready-to-drinks, which includes malt-based flavored drinks, hard seltzers and canned cocktails, have grown around 80% from April 2019 to April 2020. And according to the same report, this product segment continues to grow even in the wake of the pandemic.

The Trend for RTD cocktails has accelerated in the wake of the coronavirus pandemic, with sales growing exponentially, as consumers are unable to visit bars and restaurants.

Sarah O'Sullivan

Researcher at Nielsen

The reason for this continued growth is an increased demand from Millennials for more-healthy, lower ABV drinks that can be conveniently drunk at home and on-the-go, since many aren't comfortable with drinking in bars yet.

It was a natural progression to look at ready-to-drink cocktails once we got our beer into cans, since canned cocktails can go anywhere beer can go. RTD packaging allows our consumers to conveniently and easily bring delicious cocktails on boats, to beaches, on the golf course, and to social events without having to pre-mix by hand.

Brett Vanderkamp

President and Founder of New Holland Brewing Company

If you’re already canning your drinks and perhaps have a successful line of distilled products, canned cocktails are a great way to diversify your business, but it doesn't come without it's challenges. Creating a new line of distilled spirits is a complex endeavor. There’s new equipment to consider. You may need more space than you’re currently occupying, more barrels, and consider the costs of branding your new product line.

That’s even before you consider the maze that is the Distillers Report of Operations (DRO). The BRO equivalent in the spirits world is a behemoth of complicated proportions. There are also state and local regulations to be aware of, as well as creating your own narrative for your new brands. So, where do you start?

Factors to Consider Before You Begin Distilling Spirits

If you have a desire to distill spirits, start by joining the American Distilling Institute to become a “Distillery in Planning.” ADI provides access to multiple business plans and spreadsheets that were used to start distilleries currently in business. Deciding which raw material suppliers you will partner with, equipment, and an outline of costs is critical when diving into a new industry, as a budget needs to be created to begin the process of securing funding.

ADI membership also includes access to the Distiller’s Resource Directory. Learning from those already in the business, understanding the brands in your area, and creating connections to further ensure your success is critical.

Before you begin distilling spirits, you need to have a deep understanding of local, state and federal laws as you do not want to be fined for doing something that could have been preventable. Ensure you understand the expectations at every level – from background checks, to building regulations, licensing and taproom regulations.

Once you know the landscape of distilling spirits, one of the most critical steps is to determine your brand identity. To make this process easier, we recommend creating your business and brand story Once you determine your core values and the story you want to tell with those values, it will be easier to visualize what you want your spirits brand to look like.

Distillers, distributors and retailers […] consistently mentioned the importance of a well-expressed, authentic story. People seek an emotional connection to the brands they purchase, and this drives their willingness to pay a premium for a distilled spirit.

Cynthis Sterling

Writer at Distillery Trail

Lastly, there's many operational things you need to consider that should differentiate your spirits from other distilleries:

• Will you be packaging in bottles and/or cans?

• Do you plan to serve onsite at your current location?

• Will you be setting up a separate location?

• Address local, state and federal laws and all of their contingencies.

The Benefits of Utilizing an All-In-One Management Solution When Managing Multiple Beverage Types

Taking on many specialty products sounds great on paper, though getting to that point requires having the internal infrastructure to manage all these custom processes. Tracking all your costing, sales, production, financials and reports in one place, as you grow, can become difficult.

If you’re going to take the leap, will your current system of production be able to handle the increased complexity of these new projects? Having a flexible, customizable craft beverage software will enable you to reach your goals by organizing these new processes, avoiding tougher growing pains in the long term, especially from a finance perspective.

Our all-in-one distillery management solution, Orchestrated, helps separate your product segments' financials into separate charts of accounts, making it easy to report on the costs and margins each product segment has. With robust financial capabilities, it is easier to understand, at a deep level, what drives your product margins and with integrated inventory, production and data-driven supply chain management, you have all the information you need to make better sales promises and increase your sales.

Conclusion

Orchestrated can be customized to handle Spirits, ready-to-drink cocktails, and other craft beverage production types. It enables craft beverage manufacturers, like yourself, to expand into new segments without having to change systems.

Ready to learn how Orchestrated can make it easy for beverage manufacturers to track all their beverage segments in one place, with a single source of truth? Attend our demo to discover how we can help your business diversify and differentiate through supporting your growth in the spirits market.