The wine industry has a saying: it takes a lot of beer to make good wine. When it comes to spirits, there is actual truth in the saying. Distilling and brewing share a common production core, one that is synergistic in ways that are less applicable to wine. The commonality has intrigued many brewers and the industry has seen many beer and spirit operations open around the country. There are some hurdles to the process, unsurprising in the world of beverage alcohol, but the potential for expanding markets beyond beer are worth exploring.
The beer industry has been mired in sub-par growth in recent years and industry analysts are not optimistic about future prospects. In his keynote address at the recent Craft Brewers Conference in Nashville, Bart Watson, the Chief Economist for the Brewers Association, laid out the grim state of play for the assembled crowd. He noted that the craft brewing industry had only grown at 1.2 percent over the past six years in comparison to double digit growth of old.
He somberly advised, “Those years of double-digit growth are clearly well in the rearview mirror. And unless something changes, I don’t think we’re going to see them again anytime soon.”
Watson did advise brewers to consider new strategies and avenues for sales and for connecting with customers One option is the possibility of developing a spirits program. In contrast to beer, the spirits industry is on the upswing. Its revenue market share has grown nearly 15 percent in the past twenty years, while beer is on the downswing.
Let’s look at some considerations for breweries thinking about adding a distillery to their operation.
Basics of Distilling
The first step in the distilling process is fermentation, where the producer uses raw materials such as barley, rye, or corn, mixed with water and yeast to convert sugars into alcohol and create a low-alcohol liquid called “wash.” If this process sounds familiar, it should. It’s essentially the early stages of brewing beer. Distillers then take this mash and use a still to separate the alcohol from the fermented liquid, helping concentrate the alcohol content into a spirit.
Similar Origins, Differing Paths
While roughly half the process involves overlap between brewing beer and distilling, offering some equipment and workforce synergies, things diverge quickly from there. Adding a distilling operation to an existing brewing business on paper looks like a smart and obvious diversification option. But there are a number of factors to consider before undertaking such a plan, including local, state, and federal licensing and operational rules, equipment cost, and distribution and taxation issues. Many states heavily regulate the production of both distill
In Massachusetts, breweries looking to add a distilling operation must operate each business on separate and distinct parts of the property and the premises for production cannot overlap. Other states, such as Alabama, do not require brewers to have separate facilities housing distilling operations. Whether you can transfer mash between the two operations may also dictate whether you decide to add a distillery or need to carefully consider how the footprint or expansion would work.
While brewers already have a basic understanding of a substantial portion of the distilling process due to their brewing responsibilities, owners will have to invest in additional education of proper dilution and still safety if they plan to have their brewers run both operations.
Planning For Growth
After you get a handle on what laws and regulations will govern your distilling operations, you’ll need to plan the space for operations. While brewing and distilling offer some synergies in terms of equipment, distilling will require space for a still, a bottling operation (likely separate from what you use for packaging beer), and even barrels depending on the type of spirit you’re producing. Having extra warehouse space is helpful for barrel aging and for storing packaged product.
If you’re planning on producing rum, whiskey, or other aged spirits, having an offsite warehouse for storage may make sense.
Another common refrain among brewers that opened distilleries is that they wish they had started with a larger still in the beginning as they’ve had to ramp up.
Many brewers are understandably concerned with over-extending themselves but later find the reverse to be true: they went too small, demand and growth exceeded their expectations, and they now need to reconfigure and upgrade their operations.
RTDs Are Straight Fire
In the past five years, one category has crushed almost every other in growth. The ready-to-drink (RTD) market shows no signs of slowing as this category offers a lot of opportunities for brewers. RTDs include malt based products, like many hard seltzers, but also spirit based seltzers and canned cocktails.
They are hugely popular for both on and off-premise consumption and the ability to distill and can smaller batch spirit offerings should be top of mind for brewers considering expanding into distilling.
Connecting With New Audiences
It’s no secret that craft brewers are having trouble attracting younger drinkers. Spirits, whether in traditional form or in canned RTDs or cocktails, are a hit with a younger subset of the drinking population. A year ago at the Craft Brewers Conference, Watson told the pandemic jarred audience to consider their individual identities in deciding whether to move beyond beer.
“What does craft want to be?” Watson asked. “I’ll start by saying, I’m never going to tell an entrepreneur what they should do with their business. That’s your choice. Some brewers are clearly going to move into these other beverage products, moving into the fourth category and trying to grow like the large brewers into wine, hard liquor, or other beverages. Others are going to try to stay in beer. I think we’re reaching a call-to-action moment for those who really want to grow the beer category.”
The hurdles for craft beer in the near and long term, combined with the sure growth force of spirits and RTDs, counsel brewers to take time and consider whether it makes sense to take the educated leap into producing a new era of beverage alcohol.