LinkedIn article, originally published February 13, 2019
With all the headlines in the news about federal workers recently, you may have heard a thing or two about how the US government shutdown affected various industries. National parks closed or reduced staffing, with Joshua Tree National Park in California bearing the brunt of Americans' sometimes, well, crappy attitude toward taking care of nature. (This is why we can't have nice things.)
In addition to the nearly half a million federal employees who worked without pay for 35 days, we saw consumers and business owners lose government services. Farmers went without USDA market data important for their day-to-day operations, entrepreneurs stopped receiving loans from the Small Business Administration, and elderly and disabled people living in low-income housing no longer saw health and safety inspectors coming around for mandatory checks.
Although to a possibly lesser, or less-dire, extent, producers (and consumers) of alcoholic beverages also have been affected. On the craft beer and liquor side, US breweries and distilleries may need to adjust 2019 product release schedules and expansion plans to account for delays in required approvals stemming from the government shutdown. The closure of the Alcohol and Tobacco Tax and Trade Bureau meant a halt on approving alcohol labels as well as new business applications and sales of new products across states. Backlogs for the TTB may continue to delay new product releases, hampering efforts by companies to gain market share.
Despite the not-so-rosy (rosé?) start of the year, distilleries in particular may still see a lot of success in 2019. A few key markets are helping to drive growth, or at the very least, innovation.
The following are some of the trends, challenges, and new opportunities I recently uncovered in my research for Dun & Bradstreet's Distilleries industry profile:
1. Hard Seltzer Growth
Distillery producers may want to consider promoting a newer, hot market segment: hard seltzer. The low-calorie, often no-sugar, gluten-free alcoholic beverage has been especially popular in summer months and is beginning to compete with beer. Hard seltzer sales grew triple digits in 2018 alone, leading the flavored malt beverage category at about $450 million, according to Nielsen data. Craft brewers are taking hold of the trend by launching their own lines of hard seltzer. As consumers continue to demand healthier food and beverage items in convenient packaging, hard seltzer may be a mainstay in the distillery category.
2. Increased Competition from Marijuana
As more states legalize marijuana for medical and recreational use, the makers of rival intoxicants such as alcohol must compete. The perception that marijuana is "safer" or less addictive than alcohol also may hurt distilleries. A recent US study led by university researchers showed a 15% reduction in alcohol sales in states that have legalized medical marijuana. Because alcohol and marijuana tend to share an audience, it is expected that marijuana could continue to negatively affect sales as more states legalize. Startups also are producing alcohol alternatives and cannabis-based sodas, while larger companies look to invest in the cannabis drink market, such as with cannabis-infused cocktails.
3. Instagrammable, Hybrid Drinks
As distilleries compete for millennials' tastes (and boy are we picky), photo-worthy, hybrid drinks may be among younger consumers' top choices in the liquor category. While millennials become an increasingly health-conscious demographic, fewer may be drinking alcohol, increasing competition among producers. Novelty drinks, such as tequila hybrids vodquila and rumquila, are on the rise, according to a report in The Guardian. Sparkling liqueur made with vodka and sparkling wine also has gained interest. Some distillery brands, such as Glenfiddich, are launching products that are finished in beer barrels that can provide new, hoppy notes. Pernod Ricard UK's Beefeater Pink gin also checks the box of Instagrammable.
With these trends and more — ahem, in case you haven't heard, Willie Nelson just launched his own CBD coffee — I'd expect to see new products from competing industries try to dominate distilleries in 2019.