Since the craft distilling boom began, distillers faced a catch 22 when it came to getting their spirits on store shelves. This problem is rooted in the three-tier system.
Distributors are reluctant to take on a new spirit since they aren't sure there is customer demand for it, but how can customer demand be generated if the spirit is never on store shelves to begin with?
The craft distillers who found success earned their niche in a competitive market with blood, sweat, and tears. But perhaps the system will change. There's already momentum to overthrow the status quo and make direct-to-consumer a norm.
Changes Caused by COVID
When Covid hit it threw a wrench in distillery operations. Within a couple of months, the steady stream of tasting room visitors went away along with all of the sales that followed them. Some states, like Virginia, responded by relaxing restrictions on direct sales to better cope with the pandemic.
Most of the lucky craft distilleries which could make direct sales saw success. Unfortunately, many of these loosened restrictions are temporary and once the pandemic is over, it's back to the old model.
Benefits of Direct Sales
Keeping direct sales post-Covid and allowing it in more states is a battle worth fighting. Proponents of direct sales say everyone, including distributors, would feel the benefits.
Consumers would have an increased choice of craft spirits to choose from, eventually hitting their local liquor store for a bottle after finding a spirit they enjoy via direct sales. Distributors and wholesalers would also gain a better window into what brands sell to a given market segment.
The Struggle of Shipping
How direct sales are shipped directly to a consumer is another issue without an immediately clear answer. There are liability concerns on shipping spirits by carriers like UPS and FedEx. The USPS won't even ship alcohol, except under very limited circumstances, such as to a federal or state agency for testing purposes.
A contract and plenty of red tape is required to ship using UPS either interstate or intrastate. But UPS does seem to be relaxing some of the regulations compared to FedEx. UPS offers direct-to-consumer shipping as long as state regulations allow it. FedEx on the other hand, only allows wine to be shipped direct-to-consumer, at least for now.
Partnerships Formed from Direct Sales
Maybe one of the most exciting ideas to come from direct sales is the potential of partnering with local bars and restaurants. A business plan for opening a distillery that includes a steady number of sales per month to a customer would be music to any potential investor's ears.
Arrangements like this already exist under the current distribution systems, but direct sales would make for more efficient transactions for both parties. In the future, this could turn into a partnership between a restaurant or bar and distillery. The distillery could even consider crafting a house spirit unique to the establishment.
Politics of Direct Sales
Most states still don't allow direct sales, and it is a move opposed by powerful lobbying groups like the Wine and Spirits Wholesalers of America (WSWA). The WSWA gives reasons like direct sales being harmful to retailers or children, and underaged drinkers could more easily get their hands on spirits during delivery. When a big organization like the WSWA donates $10 million to politicians over a decade, it opens up a political battle.
The lobbying group also says that states would miss out on tax revenue on orders from out of state. Opponents to WSWA’s thinking argue that it isn't a complex problem to solve with the right excise tax software.
Direct shipping is definitely something to keep an eye on. Without a doubt, it will vary from state to state, and it will take some increased record keeping. But it certainly is something that you can look to come in the future of craft distilling distribution.