Craft Distillers Are Struggling; Why Not DtC?

Alex Koral
August 21, 2024

This blog was last updated on August 27, 2024

As craft distillers work to grow their business and market presence, they must contend with innumerable challenges, not least of which is simply being able to access consumers across the country due to restrictive state laws. To help relieve these headwinds, industry groups along with consumer advocacy organizations have taken to supporting efforts to expand distillery access to direct-to-consumer (DtC) shipping privileges. 

Any such efforts to grow the DtC shipping map, however, have been met with implacable opposition, which regularly trots out a parade of horribles that could (but never actually seem to) happen if DtC is permitted to exist. Recently, the Wine & Spirits Wholesalers of America (WSWA), an industry trade group representing some of the largest players in the beverage alcohol industry, has brought up a new talking point that simply does not seem to be grounded in logic. 

In its recent response to the American Craft Spirits Association (which supports greater DtC options), WSWA argues that DtC spirits shipping should not be expanded beyond the eight states where it is currently allowed because “data shows DTC sales in the wine and spirits sector have been declining year over year.” Seemingly, because DtC shipping won’t make every distillery a billion dollars, it’s not worth even trying?  

This argument, however, both grossly misrepresents the reality of the DtC market over the last decade and, if taken seriously, would undermine the value of any market that has faced a downturn, including the three-tier system itself. 

Faulty logic

A central flaw in the claim that declining sales means craft distillers shouldn’t be allowed to try to grow their DtC shipping options is that it’s a willful skewing of the data. Since it is likely that the latest Sovos ShipCompliant/WineBusiness Analytics Direct-to-Consumer Wine Shipping Report is the source of these claims, we look to it to correct the record. 

Now, it is true that the last two years have seen a decline in the DtC wine shipping market (we have found that the DtC spirits market is too limited due to restrictive state laws for there to be sufficient sales data to work from). In 2022 and 2023, the volume of wine shipped DtC dropped 10.3% and 6.5%, respectively; the value of the wine DtC market declined 1.6% in 2022 but was effectively even in 2023. Year-to-date data also show that the market is below 2023 numbers, though the busy holiday season is yet to come. 

So true, the channel has experienced decreases. But these are hardly disastrous numbers, and they must be put in context of the extreme growth the market saw in 2020 and 2021, where the value of wine shipments grew 14.9% and 13.4% respectively. Returning to normal after the pandemic years does not signal a worthless market. This is especially true when considering the past 10 years, wherein DtC wine shipments doubled in terms of volume and tripled in value to annual sales of $4 billion. 

While it is difficult to predict the future of any market, it is a near guarantee that if more states (perhaps New York soon?) were to grant craft distillers DtC shipping privileges, the DtC spirits shipping channel would grow in volume and value. Certainly, whenever a new state opened to DtC wine shipping, the effect was immediately noticeable in the market, such as in 2016 when the market grew in value by 18.5% after Pennsylvania began allowing DtC shipping of wine. 

Even if the DtC spirits shipping market is not as successful as the DtC wine shipping market (for one, there are many fewer distilleries out there than wineries, which would limit the market size), an extra billion or two dollars in annual sales is not something to sneeze at. And it is important to keep in mind that any growth in DtC spirits would be extra sales, as trends suggest that DtC sales have been largely additive to the overall wine market. 

Not a silver bullet, but certainly an option

Where the opposition to DtC shipping often falls flat is that it so often frames the alcohol market in black and white terms. If DtC is allowed to expand, it must do so at the expense of the three-tier system—and so any attempts to expand DtC availability must be completely rebuffed or else the three-tier system will collapse. This all-or-nothing mindset, however, leaves those opponents to adopt arguments that often fail the sniff test. 

This is unfortunate as the anti-DtC contingent is broadly alone in thinking that DtC shipping should (or even could) replace the existing system. Even those who do advocate for an end to the strict three-tier market don’t think that wholesalers should not (or, again, even could not) be part of the beverage alcohol market—they simply don’t think that wholesalers need to depend on restrictive state laws that force producers and retailers to use them. If wholesalers bring value to the brands they distribute, then they shouldn’t need the law to shore them up. 

Indeed, DtC shipping of alcohol can and should work hand-in-hand with the three-tier system. Numerous wineries have established and grown wholesale distributions based on their DtC sales. With their DtC sales data, those wineries were able to demonstrate to prospective wholesalers that they had an established market in a state and so should be carried in local liquor stores and restaurants.  

Yes, DtC shipping of alcohol can be difficult and expensive, and it is not a panacea that will make all producers rich. But it is an option; one that, with clear and effective laws, can be made safe, healthy and compliant; one that lets consumers access the thousands of small craft distillers that are so often excluded from the three-tier system. 

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Alex Koral

Alex Koral is Senior Regulatory Counsel for Sovos ShipCompliant in the company’s Boulder, Colorado office. He actively researches beverage alcohol regulations and market developments to inform development of Sovos’ ShipCompliant product and help educate the industry on compliance issues. Alex has been in the beverage alcohol arena since 2015, after receiving his J.D. from the University of Colorado Law School.
Share this post

california bottle bill compliance
North America ShipCompliant
December 13, 2024
California Bottle Bill: Compliance Updates for Wine and Spirits

This blog was last updated on December 13, 2024 California’s bottle bill got a major upgrade earlier this year, and it’s changed the rules for wineries, distilleries and beverage distributors in a big way. For the first time, wine and spirits manufacturers will need to register with CalRecycle, report sales and pay California Redemption Value […]

unclaimed property compliance for wineries
North America ShipCompliant
December 12, 2024
Unclaimed Property Compliance: What Wineries and Wine Clubs Need to Know

This blog was last updated on December 12, 2024 Although hard to believe, unclaimed property obligations impact ALL industries, including wineries and other wine clubs. While most companies typically only associate unclaimed property with outstanding checks, including accounts payable and payroll, there are other exposures for wineries and wine clubs to consider. Understanding these risks […]

retail delivery fees for alcohol shipping
North America ShipCompliant
December 5, 2024
Navigating Retail Delivery Fees: A Guide for DtC Alcohol Sellers

This blog was last updated on December 5, 2024 Direct-to-consumer (DtC) alcohol shippers are no strangers to navigating a complex regulatory landscape. However, recently, a new challenge has emerged—the rise of retail delivery fees. From excise taxes to shipping restrictions, the industry has long dealt with a maze of state-specific rules that require careful attention […]

form 1099-k reporting
North America Tax Information Reporting
November 25, 2024
Form 1099-K Reporting: What TPSOs Should Know

This blog was last updated on November 27, 2024 As tax year 2024 approaches, third-party settlement organizations (TPSOs) are keeping a close watch on IRS guidance regarding their obligations under the IRS’s Form 1099-K reporting requirements. Recent changes to the 1099-K reporting threshold, coupled with delayed enforcement and conflicting guidance, have left many TPSOs uncertain […]

2025 tax filing season
North America Tax Information Reporting
November 21, 2024
Top 5 FAQs to Prepare for the 2025 Tax Filing Season

This blog was last updated on November 21, 2024 While “spooky season” may be over for most of us, the scariest time of year for many businesses is right around the corner: tax filing season. As they brace themselves for the flood of forms, regulatory updates, and tight deadlines, the fear of missing a critical […]