Q & A on DtC
Q: Why are craft-distilleries unable to ship direct-to-consumer like wineries are?
A: Craft-distilleries still fall under Tied House Laws which were laws created after prohibition (in 1933) to set up a 3-tier distribution system.
Tier 1: Alcohol producers sells to distributors
Tier 2: Distributors sell to retailers/restaurants
Tier 3: Retailers/restaurants sell to consumers
Wineries have been successfully modifying these laws over the past several decades and now have the ability to sell direct to distributors, retailers, restaurants, AND consumers. Since wineries do not have to rely solely on the distribution model (which takes ½ of their profit), they can keep their businesses small with a direct-to-consumer model.
Q: How many California craft-distilleries are poised to lose the ability to ship direct-to-consumer come December 31, 2021?
A: All 153 craft distilleries in the state of California stand to lose everything when they lose access to sell their legally permitted spirits direct-to-consumer. Craft distilleries are defined as distilleries producing no more than 41,000 cases of spirits annually. An overwhelming majority of the distilleries in California produce a tiny fraction of this amount.
Q: Why don’t craft-distilleries just sell to distributors?
A: Small distilleries do not have the marketing budgets to create and produce point-of-purchase displays, fund sales incentive programs, to advertise, or employ “brand ambassadors,” or in-house mixologists to help distributors place their brands. The small guys are unable to compete against the marketing purse and name recognition of the national brands, therefore distributors choose not to add craft brands to their portfolios. If they do, they often don’t put much energy behind selling the smaller brands so the product just sits in the distributor’s warehouse.
It is extremely hard for small distilleries to make their businesses pencil out on the distribution model because the middle man takes ½ the profit right off the bat. On top of the 50% discount on goods, it requires the marketing budget (mentioned above) to be successful. When running a small business, costs are too high to compete because the craft-distilleries are not buying their goods (glass, labels, corks, etc.) in bulk like the international brands.
Q: If a craft-distillery doesn’t have a distributor, how can they sell their spirits?
A: Prior to March, 2020 and starting again in 2022, they will only be allowed to sell their spirits to people who are physically present in their tasting rooms. And, even then, they are limited to selling 2.25 liters (3 – 750ml bottles) to any one person in a given day. So, if you are buying spirits for a wedding, you will need to visit that distillery multiple times in order to purchase enough for your celebration. Or, if you visited a distillery and would like to replace that bottle of [name the spirit] you bought, you would not be able to do so without another visit to the distillery.
Q: Why haven’t the Tied House laws been modified for distilleries like they have been for wineries?
A: Up until ten years ago, there were very few small California distilleries because the barrier of entry was too big due to the inability to sell direct to consumers. Now that distilleries can sell their spirits at their tasting rooms, a craft-distillery boom has been created. Now, the little guys have banned together to make changes in the archaic shipping laws. However, the purse of 154 craft-distilleries does not match up with the lobbying purse of the large distributors and the unions.
Q: Who is against giving craft-distilleries the ability to ship direct-to-consumer?
A: Big business. The distributors and the labor unions whose employees work for them wish to continue to own the distribution channel for spirits. It is a multi-billion industry in the State of California and they do not wish to lose market-share. Consumer choice is bad for their bottom line.