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Craft Spirits Continue Bull Run, With More M&A Activity On The Horizon

December 8, 2017

While craft spirits still represent only about 2% of the overall spirits market by volume, the segment is achieving rapid growth and is expected to continue its strong gains in the years ahead. According to Impact Databank, which defines a craft distiller as an independent producer with a maximum annual volume of 250,000 nine-liter cases, the craft spirits category has shown an average annual growth rate of 30% over the past five years. This year, U.S. craft spirits volumes are projected to rise by 20.3% to nearly 5.5 million cases, and by 2020, the burgeoning segment is expected to total over 9.5 million cases.

Amid such progress, the craft sector has attracted a wave of M&A activity. In October of 2016, Constellation Brands acquired Park City, Utah-based High West Distillery, and that was followed by three deals that closed in December: Rémy Cointreau’s purchase of Seattle-based Westland Distillery, Beam Suntory’s acquisition of U.K. craft gin brand Sipsmith, and Pernod Ricard’s deal for a majority stake in West Virginia’s Smooth Ambler Spirits Co.

“We’re all growing at such a rate that it eventually becomes more than most small entrepreneurs can handle,” explains John Little, head distiller and CEO at Smooth Ambler. “And there’s always the attraction of the resources that large companies can provide, which doesn’t necessarily just mean money. It means access to legal teams, accounting, compliance and distribution platforms.”

The craft spirits buying spree has continued into 2017, with William Grant & Sons—which acquired Tuthilltown Spirits’ Hudson Whiskey brand in 2010—opting to buy the entirety of Tuthilltown’s New York-based operations in April, and Moët Hennessy adding Washington state’s Woodinville Whiskey Co. in July. As industry heavyweights eye additional craft opportunities and small distillers fight to reach critical mass, M&A activity looks almost certain to continue.

“Not only is this the tip of the iceberg, it’s the tip of the tip of the iceberg,” says Thomas Mooney, co-owner and CEO of House Spirits, which sold off its Aviation gin label to New York-based Davos Brands in November 2016. “Spirits have always been a very scale-sensitive business, where it’s very challenging to be small. And the consolidation at the wholesale tier over the last few years has made things even more challenging. The path from 10,000 to 100,000 cases is very different from the path from zero to 10,000 cases.”

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