Direct-to-consumer (DTC) alcohol sales have spiked during COVID-19, and alcohol beverage companies with quick reflexes or previously established DTC infrastructure are now reaping the rewards of their foresight. With organizations like Nielsen and Forbes reporting double digit increases in DTC sales both before and during the pandemic — the latter predicting continued growth for the foreseeable future — it’s easy to see why so many craft spirits companies have embraced the model as a major revenue source.
“[Our] e-commerce sales were up 240% in Q2 (April-June) 2020, and that growth jumped to 459% in Q3 (July-September),” says Neil Grosscup, CEO and master blender of Tanteo Tequila. He explains that Tanteo’s DTC e-commerce efforts are still quite small compared to their total sales, but growth numbers like that demonstrate a need for continued commitment to consumer convenience, which remain most easily achieved by DTC channels. Rochester, New York-based Black Button Distilling has also experienced impressive growth in 2020, which founder Jason Barrett attributes at least in part to their nationwide e-commerce distribution launch, which has led to a projected 40% growth rate this year alone.
Craft spirits companies with existing and robust DTC networks within the three-tier system required little adjustment when the novel coronavirus upended the economy, but others saw an opportunity, if not necessity, to initiate new DTC channels in order to survive. Umberto Luchini, founder of Wolf Spirit Distillery in Eugene, Oregon, says when they were forced to close down direct sales from the brewery early on in the pandemic, they began to focus exclusively on e-commerce sales by adding that functionality to their website. “[We] did reasonable business during the summer months,” he says.
Some have also tried to replicate the bartender experience at home, offering specialized packages like Round Turn Distilling’s “RTD Cocktail Club,” which owner/distiller Darren Case describes as their more individualized solution to satiating existing customers. “As a young spirit brand, we rely heavily on bartenders across the country to give customers an expertly curated and informative experience using our products,” he explains, calling them their “best sales force.” “We needed to figure out a way to recreate the magic of sitting in front of a bartender and feeling like you’ve received a special, personalized experience. The Cocktail Club format is showing a lot of promise on a local scale.” This desire to cultivate seemingly one-on-one encounters with drinkers is echoed by Tanteo, who partners with Thirstie (an e-commerce platform that enables DTC sales for alcohol brands while remaining three-tier compliant) in order to “deliver a better customer experience and build deeper relationships with our fans,” according to Grosscup. But some brands have gone above and beyond traditional e-commerce routes to reach people directly. Pinhook, a Kentucky-based whiskey and rye producer, launched a text-based ordering system this summer, which CEO Alice Peterson adamantly calls “not an app.”
“The whole idea is that getting a bottle of Pinhook is as easy as sending a text,” says Peterson. “You don’t need to install anything on your phone, you don’t need to find your way to a special website, you don’t need to fill out forms — it’s much more conversational.” All an aspiring customer needs to do is text a photo, screenshot, or description of the bottle they’d like to PINHOOK (926-848). A representative at Breeze, Pinhook’s text-to-shop partner will locate the bottle (or bottles) requested and ship it directly to the customer. “It’s almost like an impulse buy,” explains Peterson. “You’re able to make it happen right then and there. And the other great thing about it is that once we have somebody in that channel, we can message them. Recently, we released the five year installment of a bourbon series that we have. We just sent a simple little JPG image to all of the people who have enrolled in that channel and said, ‘Be the first to get this.’ We had something like 32% of the folks received that text, all they needed to do was reply ‘yes’ to have it sent to them. And that’s exactly what they did.”
This direct, opt-in messaging minimizing the steps required to purchase is just one prong of Pinhook’s sales approach. Another is their specifically targeted collaborations outside the alcohol industry, partnering with tangentially-related retailers like a cigar bar who offered a cigar and bourbon package to its existing clientele. “That’s a way for us to not just be talking to ourselves, not just be talking to our own database or our own set of social media followers, but to be bringing Pinhook to a much broader audience,” according to Peterson. In short, it’s finding new or potential customers and making it as simple as possible to purchase their products directly.
Craft spirits brands that prefer more conventional DTC platforms certainly have no shortage to choose from. “Speakeasy, Caskers, Bar Cart, Reserve Bar, Thirstie, Drizly, to name a few… there are a number of options available for producers to get their products to the consumers that want them, utilizing content, digital marketing and retail fulfillment,” says Cheryl Durzy, founder and CEO of LibDib, a web-based wholesale distributor. Thanks to (or perhaps in spite of) the pandemic, Durzy predicts that the demand for easier access to craft spirits will only increase. “Consumers have taken to the experience,” she continues. “We think it is here to stay. When it comes to spirits and DTC, there are challenges when it comes to shipping compliantly to adult consumers; however, with technology it can be done.”
Challenges range from scalability to compliance with different state regulations, but Durzy hopes that discovering new craft spirits brands isn’t one of those challenges. “Prior to Covid, brands were built on-premise or off-premise,” she says. “During the pandemic we have seen the on-premise market stall and off-premise grocery stores surging. However, tried and true brands at grocery are up huge. People are going to the store, grabbing what they know, and getting out. Discovery is not happening here. It’s happening online.” The additional cost of shipping can also cause sticker shock for certain customers accustomed to a certain shelf price. “Shipping costs [are] a big hurdle for consumers to cross when making purchase decisions,” says Luchini, calling it one of their biggest challenges in DTC sales. Tanteo aims to soothe this necessary price disparity by offering things like variety packs and promotions like free shipping for orders over a certain size, but Grosscup describes these deals as a small price to pay when considering the far-reaching future of DTC sales.
Despite said challenges, many craft spirits companies remain optimistic and satisfied with the current trajectory of DTC sales channels. “We can communicate directly with our consumer base, establishing a one-to-one relationship that goes far beyond the purchase of a bottle,” says Luchini. “Within the three-tier system, this is a great opportunity for small players to gain direct access to consumers without having to invest big money.” That ability to gain uninterrupted access to a highly engaged audience may very well prove to be the saving grace for lesser known or newer entrants in the craft spirits market. “Flaviar [an online spirits membership club] is seeing increased interest from spirits brands looking to make up for lost sales and consumer engagement opportunities,” says CEO and co-founder Jugoslav Petkovic. “This DtC model is only going to become more important to producers as the pandemic continues into winter.” Ryan Small, chief editor for Beer and Wine Geek, thinks its importance will extend far beyond 2020. “I have one client with direct to consumer ability, and I think that they will eventually sell more that way than traditional channels,” he predicts.
Even with direct-to-consumer sales remaining a critical facet of overall revenue, it’s not a complete replacement for an in-person sale, according to Peterson. “We really believe in the power of the hand sale. We really see that there are retailers who are excited about our products, who are sharing that story with people. So, while we’re a growing brand, I would be sad to see everything go to ecommerce. I think that act of walking into your store and having someone suggest something to you is really powerful.” She’s quick to call e-commerce an integral part of their overall strategy, but at the end of the day, “it’s all about creating accessibility and options… our goal is to allow people to access Pinhook more easily.” The more convenient sales opportunities available, the better.