TheCraftDistilleryMarket2018

©MichaelKinstlickandCopperseaDistilling,LLC

MichaelKinstlickCEO,CopperseaDistillingADIResearchEconomist

DistilleryNamesWordCloud

Data:MichaelKinstlick ©MichaelKinstlickandCopperseaDistilling,LLC

DistilleryNamesGame:RealorImaginary?

Data:MichaelKinstlick ©MichaelKinstlickandCopperseaDistilling,LLC

1. SevenBearsSpirits2. WesternLibertySpirits3. GoldenEagleCraftDistillery4. SouthHollowDistilling5. HorseOakDistilling6. TwoBirdsArtisanSpirits7. GoldenHillDistillery8. Ironfish Distilling9. RedCedarSpirits10. BearCreekDistillery

A. SilverOwlDistillingB. CopperRidgeDistilleryC. IronBaySpiritsD. NorthernRanchCraftWhiskyE. BigWhiteCreekDistilleryF. BlackBearDistilleryG. HighRockDistillingH. BlackRockDistillingI. PineBluffsDistillingJ. FireOakDistillery

Thetopfivenamesinbothcolumnsareimaginary

CraftDistilleryMarketSnapshot2019• Databaseof3600UniqueSpiritsProducers2006-2018• 2900ListingsinTTBDSPpermitholdersfile(Dec2018).

• Plus370DroppedDSPs• And300No-DSPADIListings

• Approximately1700CraftProducersatyear-end2017.

• 1250Identified OperatingCraftDistilleriesasofyear-end2018• 250Estimated CraftDistillers(“HiddenEntrants”)• 200KnownandestimatedNon-distillerProducers

• Infusers,Rectifiers,Blenders

©MichaelKinstlickandCopperseaDistilling,LLC

Industriesfollow“Density-DependentProcess”

Data:TTB,MichaelKinstlick ©MichaelKinstlickandCopperseaDistilling,LLC

• Density=NumberofIndustryParticipants

• Legitimation– Processofsocialacceptance– Obscurityto“taken-for-grantedness.”– Legalchanges– State/locallicensing,FET– Increaseswithmoreentrants

• Competition– Accesstoresources(inputs,labor,customers)– Alsoincreaseswithmoreentrants

“Density-DependentProcesses”

Data:TTB,MichaelKinstlick ©MichaelKinstlickandCopperseaDistilling,LLC

• FoundingRateofNewEntrants– RiseswithincreasingLegitimation– FallswithIncreasingCompetition

• Death/ExitRateofExistingEntrants– FallswithincreasingLegitimation– RiseswithIncreasingCompetition

VitalRatesvsPopulationDensityFoundings Deaths

Density

Rate

Notbasedonactualdata

TotalActiveDSPs(2945on3/12/19)

Data:TTB,MichaelKinstlick ©MichaelKinstlickandCopperseaDistilling,LLC

0

500

1000

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3000

Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19

DSPTotal 2884

NewAddRatestillRobust.DropRateSteady.

Data:TTB,MichaelKinstlick ©MichaelKinstlickandCopperseaDistilling,LLC

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19

DSPMonthlyAdd/DropRate

adds drops

Add/DropRateas%ofExistingBase

Data:TTB,MichaelKinstlick ©MichaelKinstlickandCopperseaDistilling,LLC

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

9/1/11 3/1/12 9/1/12 3/1/13 9/1/13 3/1/14 9/1/14 3/1/15 9/1/15 3/1/16 9/1/16 3/1/17 9/1/17 3/1/18 9/1/18 3/1/19

MonthlyAdd/DropRateas%

AddRate DropRate

SupplyUp!

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

2010 2011 2012 2013 2014 2015 2016 2017

VolumeWithdrawn(PGs,millions)

0-10k 10k-100k 100k-750k 750k+

Growthinreleasevolumes750k+=TOTALreleasesof<750k

U.S.DistilleriesReleasesbySize(2017)

Data:TTB,ADI,MichaelKinstlick ©MichaelKinstlickandCopperseaDistilling,LLC

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Count WithdrawnSpirit

<10kPGs 10k-100kPGs 100k-750kPGs 750k+PGs

42

96%

SupplyComing…

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Count WithdrawnSpirit

AdditionalDiageo/BulleitVolume

<10kPGs 10k-100kPGs 100k-750kPGs 750k+PGs Diageo

Supply…andDemand• USProducersrevenue5.2%5-yearCAGR– Per-CaseRevenue2.8%CAGR– CaseVolumes2.3%CAGR

• SpiritsAdultBevSharenow37% (33%06-10)

• FromDISCUS2018EconomicReport…– “GrowthofCraftDistillersacrosscountryhelptomodernizelaws,buildexcitement,andincreasespiritsconsumerbase”

Source:DISCUS

U.S.ProductionCraftDistilleries,1982-2018

Data:TTB,ADI,MichaelKinstlick ©MichaelKinstlickandCopperseaDistilling,LLC

0

200

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1400

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1982

1983

1984

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1990 1991

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2018

In-Production Craft Distilleries

CraftDistilleriesvs.CraftBreweries

©MichaelKinstlickandCopperseaDistilling,LLC

Data:TTB,ADI,MichaelKinstlick,GlennCarroll,AnandSwaminathan,BartWatson/Brewer’sAssociation

0

1000

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7000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57

Craft Distilleries vs Microbrews by Industry Age (Microbrew start = 1961, Craft Distilleries = 1982)

MicroBreweries Craft Distilleries

Conclusion• AsCraftDistillersfollowtheBrewpubmodel,the

numberofpotentialentrantsbecomesverylarge.

• CraftDistillerieshavepassedthroughthelegitimationprocessandrevitalizedoneoftheoriginalAmericanindustries.

• CraftDistillersaretheleadingedgeofinnovation…buttheBigBoysstilldominatethelandscape.

©MichaelKinstlickandCopperseaDistilling,LLC

Data&Methods• WhatisaCraft-Distillery?

1. IndependentFirm• Belowacertainproductionvolume.(40-50k9Lcases,generally)

2. Distillingspiritsthemselves3. Bottling&Marketingthemdirectly

• OtherCraftProducersinclude…• Barrelers &Bottlers• Importers• Rectifiers• Infusers• ContractDistillers

• Data• ADIDirectories,2006-2019• TTBDSPpermitholdersfoia file(online,2010-2018)• StateGuildwebsites• DISCUSreports

©MichaelKinstlickandCopperseaDistilling,LLC

AbouttheAuthorMichaelKinstlick comestothespiritsindustryfroma20yearcareerinfinance,technology,andinsurance.Heco-foundedCoppersea Distillingin2011.Coppersea iscurrentlyproducingdistinctivewhiskiesusingitsheritage-methodsdistillingpractices.MichaelhasaBAinEconomicsfromColumbiaUniversity,aMSinIndustrialEngineeringfromNorthwestern,andaMBAfromtheHaasSchoolofBusinessatU.C.Berkeley.

©MichaelKinstlickandCopperseaDistilling,LLC