Craft Spirits Outpace Growth of Non-Craft Spirits in US

Craft spirits are set to vastly outperform the mainstream U.S. market in the coming years, IWSR Drinks Market Analysis predicts.

Despite the turmoil caused by the coronavirus pandemic, in 2020, craft spirits in the US registered a volume gain of close to +8%, while non–craft spirits volumes posted about 5% growth. This allowed the craft segment to achieve a 5% volume share of the total US spirits market, and a 7% value
share.

The growth gap between mainstream and craft spirits is set to widen in the coming years, with IWSR analysts predicting a +21% CAGR in US craft spirits for 2020–2025, while US non–craft spirits is expected to register a +4% CAGR for the same period. This demonstrates that the trend for premium, artisanal spirits is gaining significant traction stateside.

Still, growth over the next five years will decelerate compared to
the previous five years, due to increasing market maturity and competition.

Craft distilleries faced numerous challenges throughout the pandemic – including forced closures of tasting rooms and a lack of access to bars and restaurants, both key revenue drivers for smaller producers – but the impact on sales was less severe than expected.

Lockdown measures forced distillers to diversify their sales channels – a move aided by the loosening of alcohol legislation – by pivoting to ecommerce and direct–to–consumer, and investing in growing their
outdoor entertainment spaces. Brands also more aggressively sought to  expand distribution and implemented successful social media campaigns that enhanced their connection with local communities. These are strategic changes that will continue to pay dividends in the longer term.

“While there was a substantial deceleration in growth, craft producers and indeed the total US beverage alcohol market as a whole, performed better than projected last year due to consumption switching to the home–premise,” says IWSR analyst Ryan Lee.

In fact, while there was a record 56 distillery closures in the U.S. in 2020, the craft segment saw the opening of 33 more distilleries than in 2019. While this represents a significant deceleration of new openings compared to previous years, it is a testament to the buoyancy of the sector in a time of
heightened turmoil. The number of new craft distilleries is set to  significantly ramp up in the next four years, with a predicted 265 set to open in 2025 alone.

In both value and volume terms, the craft spirits sector is projected to continue to take share of total spirits, with craft’s value share reaching the double–digit milestone in 2024, at 12%, a dramatic improvement from 2% in 2015.

“The craft category has benefited from premiumization as higher average prices help U/S. consumers become accustomed to premium–plus offerings,” says Lee.

By 2025, craft spirits are forecasted to increase their volume market share to nearly 10%, and over 13% in market share value. Driving this will be brands’ national distribution expansion, some of which will be the result of acquisitions by larger groups.

Dominant craft categories
All craft spirits categories are predicted to post growth in the years to 2025. Even categories that are seeing declines in the total market are forecasted to post positive gains in craft. Rum is a prime example – the total US rum category is expected to see a 2020–2025 CAGR volume decline of 1%, while craft rum is forecasted to grow +12% in the five–year period.

The biggest category in U.S. craft spirits is U.S. whiskey, which has a 36% share. Sub–categories such as Tennessee and blended whiskey are expected to hold the greatest volume growth potential within total U.S. whiskey. However, craft gin is forecasted to post the greatest growth in total spirits over the forecast period. In 2020, craft gin only possessed a 9% share of the total US craft spirits market, but the category is forecasted to register a CAGR of +23% from 2020 to 2025. This compares to a +2% CAGR for total gin in the U.S. over the same period.

Craft gin benefits from a significant price premium: while the average retail price of a 750ml bottle of gin sold in the US last year was $16.77, the average craft gin retails for more than $30. “Brands are also driving up their popularity with consumers by leveraging regional botanicals, aged  expressions, flavors and other innovations,” says Lee.