Top Takeaways from the 2022 Sovos ShipCompliant Beverage Alcohol Summit

The 2022 Sovos ShipCompliant Beverage Alcohol Summit virtual event included in-depth data analysis, discussions on the latest regulatory updates and insightful thought leadership. Here are some Summit highlights and quick facts from our sessions.

Big picture industry updates

Alex Koral, regulatory general counsel, Sovos ShipCompliant, shared some observations about the role of regulations in the beverage alcohol industry. Though many of the rules in place may seem to border on ridiculous, they are there for a reason. It’s healthy to recognize the vital role these rules play to make the alcohol industry a healthier one and a positive force for society at large. The beverage alcohol industry must understand why those limits are there. However, a number of current rules are quickly becoming outdated in an ever-evolving market.

Of course, two-plus years of a global pandemic have had an impact on the industry:

• Danny Brager, Brager Beverage Alcohol Consulting, noted that online alcohol sales are over $6 billion, and have grown 182% since 2019.
• Due to the COVID-19 pandemic, there are 40,000 fewer accounts due to shuttered bars and restaurants. Dale Stratton, Azur Associates, added that now that most states allow DtC wine shipping, we will no longer see the large bursts in sales following a state “opening up.” In many ways, 2022 will be the baseline for DtC wine sales.

Key regulatory changes

Attorneys Christopher Riano, Holland & Knight LLP, and Kaj Rozga, Davis Wright Tremaine LLP, discussed the Executive Order on Promoting Competition in the American Economy, and how the beverage alcohol industry may be affected.

• The Biden Administration is looking to adjust the federal government’s overall approach towards competition, with a focus on enabling market access to smaller businesses, including in the beverage alcohol industry.
• The Treasury Department issued their Report in response to the Executive Order, recommending ways for federal agencies to review future mergers in the industry. This is notable in the wake of recent mega-mergers, such as the acquisitions by AB-InBev of SAB Miller and E.J. Gallo’s acquisition of more than 30 wine brands from Constellation. How the agencies actually will review future acquisitions, though, remains to be seen.
• In addition, the report recommended several ways for state governments to reduce barriers to market entry, such as removing strict brand/label registration requirements and extending DtC shipping permissions to breweries and distilleries.

Dave Wulf, Deputy Administrator, Alcohol and Tobacco Tax and Trade Bureau (TTB), and Chris Thiemann, Distilled Spirits Program Manager, TTB, explained priorities at the federal level.

• Ongoing implementation of the Craft Beverage Modernization Act is a big ticket item. The administrative tasks related to import claims payments will be transferred from Customs and Border Protection to the TTB starting on January 1, 2023.
• Permit modernization eases the burden of new entrants to the beverage alcohol industry. For example, once finalized, information regarding the plots of land that distilled spirits plants sit on will no longer be required.
• Permit issuance, label approval and formula approval service times have been cut 75% in the last few years.
• MyTTB, an online one-stop shop for labels, formulas, tax information, claims and permits is in the works.

Attorneys Adena Santiago, McDermott Will & Emery, and Ryan Malkin, Malkin Law, looked at alcohol regulations today and moving forward.

• Starting in the early days of the COVID-19 pandemic, sealed cocktails to go became the saving grace for many bars, restaurants and distilleries. Today, 17 states have allowed this trend to become permanent, while 10 states have decided to allow the continuation for a few more years.
• Ready to drink beverages (RTDs) are becoming increasingly popular. This new category includes hard seltzers and other low alcohol spirits with added flavor. Producers must be vigilant when it comes to laws surrounding brand registration, distribution, labeling, franchising and taxing. New markets bring lots of uncertainty, so staying up to date as legislation progresses is extremely important.

What’s next for beverage alcohol?

Margie Lehrman, CEO, American Craft Spirits Association, and Bob Budoff, Senior Vice President for State Regulatory Affairs, DISCUS, provided insight into the drive toward DtC spirits shipping. Many of the laws regarding alcohol sales reflect a market, and more broadly, a society that doesn’t exist anymore. Margie and Bob offered their takes on how the industry can move from a post-Prohibition mindset into the internet age.

• There is strong customer demand to order spirits for shipping directly from producers. IWSR surveyed consumers last year and they found that 80% of respondents strongly agreed that distillers should be allowed to directly ship their products to consumers.
• DtC shipping is compatible with and strengthens the three-tier system. Strong DtC sales can prove interest and market popularity to distributors.
• The DtC wine market has proven there are ready ways and means to ensure regulatory compliance for DtC shipping of spirits, such as tax remittances and preventing sales to minors. Indeed, those systems often create more awareness of how alcohol is being sold in the DtC market than with on-premises sales, which state legislatures should recognize as they look at future bills to establish DtC shipping of spirits.

Alexi Cashen, co-founder of Elenteny Imports and founder, chief revenue officer of St Hildie’s, discussed the importance of empathy in successfully growing a beverage alcohol business. She urged:

• Bring a human element to meetings through storytelling. KPIs are important, but so are check-ins. Model the types of responses you are looking for from your employees. By making room for this kind of human contact, workers feel seen and add value to the business.
• Customers, employees and vendors require customized and nuanced support from your organization. Focusing on the soft layers of a business is as important as focusing on the hard numbers.

For more information on the topics covered in the Sovos ShipCompliant Beverage Alcohol Summit, check out our blog. There, you’ll find updates on beverage industry trends, news and insights.  Additionally, all recordings from the 2022 Beverage Alcohol Summit are available to download.