🔒CT’s craft distillery industry has grown, but distribution among key challenges

When Tom and LeLaneia Dubay founded their craft spirit distillery, Hartford Flavor Company, in 2014, it was a relatively uncrowded industry in Connecticut.

“I think our license was No. 12 in the state in all of history,” LeLaneia Dubay said.

Since 2014, the number of active craft spirit distilleries has grown. At one point there were 21, but two have since closed and two others, CoreBev and Continuum, have merged. A new distillery, 8th District Distilling Co., is scheduled to open soon in Manchester.

A lot has changed in the 10 years since Hartford Flavor was founded at 30 Arbor St., including the enactment in 2019 of a state law that allows distilleries to serve drinks in their own taprooms.

That helped spur the recent opening of Hartford Flavor’s new Cocktail Parlour in downtown Hartford, at 54 Pratt St., which debuted in July, serving a farm-to-table menu and its signature distilled products, including Wild Moon Liqueurs and HFC Vodka.

Overall, the company employs about 20 people, full- and part-time, including 12 at its distillery.

“We know we were early on the wave, and we’ve done a lot of work with the legislature to try to change the laws to make it a little easier to do business in the state,” LeLaneia Dubay said.

She added that the legislative changes have been positive, because now the company owns a restaurant and can sell at farmers’ markets, “which are a huge business,” among other changes.

That doesn’t mean there are no challenges left to conquer. One of the biggest issues the industry faces is distribution, and it’s stunted potential growth, experts say.

'Pretty darn flat'

Connecticut is not the only U.S. state to see growth in the number of craft spirit distilleries.

According to the Craft Spirits Data Project, produced last year by the American Craft Spirits Association (ACSA) and Park Street, an online platform that supports beverage companies, as of August 2023 there were 2,753 active craft distilleries nationwide, up 2.4% from a year earlier and up nearly 10% from 2017.

While the number of craft spirits distilleries has grown, the market continues to be dominated by just a handful of large producers. According to the data project, just 43, or 1.6%, of distilleries are responsible for 54% of the cases produced nationwide, while 89% of the distilleries are classified as small and produce just 11% of the cases.

Rebecca Harris, co-founder and co-owner of Catoctin Creek distillery in Virginia and a past president of the ACSA, says there is no question that the number of distilleries continues to grow nationwide, but that does not mean the industry is thriving.

Average sales per distillery, for example, have been flat the last couple of years.

“That’s not a healthy industry,” Harris said.

According to the data project, craft spirits sales overall have more than doubled, rising from $3.7 billion in 2017 to $7.9 billion in 2022. Sales rose 5.3% in 2022 from a year earlier.

But the average number of cases per distiller fell 4.1% to 5,191 in 2022 from a year earlier.

The sector’s growth is largely coming from an increase in the number of distilleries, “not from a growth in the size of existing businesses,” Harris said.

That may be one reason why, according to the ACSA, that at least 49 craft distilleries nationwide have closed since January 2023.

'Lost some traction'

A big issue for distillers is distribution, Harris said. When she and her husband founded Catoctin Creek in 2009, there were approximately 200 distilleries nationwide.

“Now we have 2,700 distilleries, but in that same time the number of distributors has consolidated by like a third,” Harris said. “Craft spirits specifically — more than wine, more than beer — need to go through wholesalers to get to consumers.”

While wineries have been allowed to ship directly to consumers nationwide, distilleries cannot. That explains why 69% of sales for large distilleries are outside of their home state, while just 6.9% of sales for small distilleries are out of state, according to the data project.

Harris said the ACSA recently conducted a survey of distilleries about distribution issues and the results were not encouraging.

“We found that a majority of craft distillers, 72%, have been seeking distribution in one or more states, but most of them, 51%, have been turned down, and 22% have entirely given up looking,” she said.

LeLaneia Dubay, of Hartford Flavor, said the pandemic also took a toll on her distillery’s distribution efforts.

“We lost some traction in some states because we actually couldn’t go there to sell,” she said.

In addition to Connecticut, Hartford Flavor distributes its products in Massachusetts, Rhode Island, New York, New Jersey, Florida, Montana, North Dakota, Colorado and California.

Tom Dubay said the ability to ship directly to consumers would help, “because the real challenge for small distilleries is a lack of avenues into wholesalers.”

Wholesale distributors will often “take a shot” on a distiller within the state “because they’re confident that a brand will work hard in their own surroundings,” he said. “But for the smaller distillery to invest in sales and marketing folks in farther-away places, it’s a little difficult.”

Tourist attractions

Stelios Stavrianos, founder and CEO of Waterbury-based The CoreBev Group — which in February acquired Continuum Distilling, also in Waterbury, and rebranded it as Connecticut Distilling — says allowing distilleries to ship direct to consumers would be “game-changing.”

“It doesn’t make any sense,” Stavrianos said. “Why can wine be shipped out nationally, with virtually zero limitations, but spirits can’t?”

He believes the issue boils down to money.

“There’s a lot of money that’s being made right now by a couple of key (distributors),” Stavrianos said. “You can ship nationally, but you have to sign on with one of the major national distributors.”

The CoreBev Group has been actively expanding in the past couple of years. The acquisition of Continuum was its second in two years, following its purchase of Connecticut-based The Cocktail Chemist Bev Co. last year.

Overall, the combined company employs 19 people, Stavrianos said.

In May of last year, CoreBev also announced the release of Kavo, described as the world’s first Greek rum. It is sold in Greece and Australia, as well as in Connecticut, New York, Texas and Massachusetts in the U.S., and in Ontario and British Columbia in Canada.

Stavrianos said it’s actually harder to add U.S. states for distribution than it is to expand internationally, because each state has its own set of laws.

“New York might be in the top three of the hardest states to get into,” he said. “We’ve grown internationally more than we’ve grown into New York, if you could believe that.”

Tom Dubay, of Hartford Flavor, said craft distilleries appear to be on a similar path to what craft breweries experienced over the past 10 or 15 years.

After seeing a spike in new craft breweries in Connecticut, the “industry is starting to reach some level of maturity, there are ones that have gone by the wayside for different reasons,” Dubay said. “In Connecticut, we’ve lost a few (breweries), we’ve gained a handful. There’s a little bit of a churn now, whereas 10 years ago everybody was brand new and nobody had gone away yet.”

He and his wife say the state could support craft spirit distilleries in a couple of additional ways, including allowing satellite tasting rooms and mobile bars.

At their core, all distilleries, breweries and wineries are based on tourism, the Dubays said.

“To have a satellite tasting room during the summertime down in Mystic, that would be a great thing,” Tom Dubay said. He noted that Cooperstown, New York, last year had a collaborative satellite tasting room, where “two or three distilleries at a time could do marketing and sales.”

“We’re a manufacturer, but we’re also tourism,” LeLaneia Dubay added. “Tourism is the key to be able to get people to come in.”