State of the Bourbon 2020

For Bourbon Heritage Month, our annual State of the Bourbon address

Bourbon Heritage Month is celebrated each year in September, marking the anniversary, now in its 13th year, that bourbon was declared “America’s native spirit.”

But this is not a lucky 13. Bourbon is having a rough year, although the important thing to remember is that bourbon has been through rough times in the past (Prohibition, the Great Depression, a general popularity slump, etc.) and has always held on. Distilleries still feeling the pinch of the ongoing European tariff trade war that began in 2018 were then blindsided by the pandemic that shuttered tourism across the world, halting all the whiskey festivals to boot. Bars and restaurants have been forced to close or offer carryout service only, or serve at a minimum capacity or only outdoors, undercutting on-premise sales. Distilleries and brands have rallied around out-of-work bartenders and restaurant workers while also working to make hand sanitizer to protect their communities and starting initiatives to promote diversity within the industry.

2020 is far from over and already it has handed the bourbon and larger distilling industries a decade’s worth of problems. But there’s no time like tough times to learn what you’re made of, and bourbon comes from tough stock.

security footage of the Golden Moon mask attack

Distilleries are being hit hard

Sometimes literally. At Golden Moon Distillery in Golden, Colorado, proprietor Stephen Gould says an employee who was recently physically assaulted for asking a patron at the company’s tasting room to wear a mask in accordance with local laws in place because of the pandemic.

“As a result of this incident, my employee was badly bruised,” Gould said. “He would have been hurt far worse if our other customers had not interceded. My property was damaged—he pushed my employee so hard that the force of my employee hitting the door latch on our entrance door broke the cement behind the door frame. We’ve temporarily repaired it but will likely need to remove the door frame and repair the cement behind it at some point.”

In Minneapolis, the Black-owned Du Nord Distillery was ransacked and set ablaze after rioters took advantage of the city’s protests. According to an interview published by NPR, Founder Chris Montana had joined the Black Lives Matter protestors after the killing of George Floyd, setting up a table in front of his business to hand out water and hand sanitizer before realizing that the city was filling with partiers and later with rioters. He put a note in his window that said “Back Owned Business” and locked the doors, hoping for the best. He returned the next day to find most of his inventory stolen and small fires still burning in his business. Rioters also completely burned down several businesses in his area.

As if distilleries didn’t have enough problems right now.

“In the U.S. it’s true that the pandemic is hitting the craft distillers a lot harder, but internationally the larger guys are all international businesses,” reports David Ozgo, Chief Economist, Distilled Spirits Council of the US (DISCUS). “Off-premise sales in the U.S. make up about 80% of sales typically, while on-premise make up about 20%. Overseas it’s more like 50/50. As a result, overseas the large guys are really getting hammered. While you can look at the domestic market and say ‘hey the big guys are doing fine’, you have to realize these are international companies and if you look at their overall picture it’s not as rosy as it is here in the United States.”

“A big factor here is whether the federal excise tax will be extended or made permanent. If that doesn’t happen by the end of the year the craft distillers will be hit with a 400% tax increase come January and that could easily be the final blow for many of these small guys,” says Lisa Hawkins of DISCUS.

Many craft distilleries are mom and pop businesses that are struggling to stay alive during the pandemic, but even the larger distilleries don’t have it easy right now.

“Margie Lehrman with ACSA has told me stories and concerns of distilleries across the country laying off or shutting down” says Kentucky Distillers’ Association President Eric Gregory. “Here in Kentucky, thankfully, to my knowledge, we have not had any distilleries being forced to close because of the pandemic. Are they taking hits like any other business? Of course they are. But they are doing a good job of managing those… Communication has really benefited the industry here in Kentucky. They’re all taking a hit but we haven’t had anyone shut down as far as we know.”

Of course, if the pandemic infection rate continues to grow, distilleries will be forced to close again with every spike. The KDA has sought the expert advice of an infectious disease specialist at the University of Kentucky to make recommendations about how to handle tourism and other related issues including production safely, and one of his main recommendations is to always be prepared to roll everything back in 24 hours.

“From a tourism standpoint, the tourism industry in Kentucky has just been decimated this year,” Gregory says. “We were looking forward to the 21st birthday of the Kentucky Bourbon Trail this year. We had parties and events and private barrel selections and you name it from May through September planned, and those all got cancelled. When we cancelled the Kentucky Bourbon Affair we weren’t even sure if some of our retail partners would be open. We knew it was something we would have to cancel and that our distilleries needed to focus on their core business and producing hand sanitizer. I really feel for our partners in Lexington and Louisville, there’s no horse racing, it has just been a nightmare for them. A lot of distilleries have been moving toward events and that has all been cancelled.”

The pandemic, has, at least, provided distilleries an opportunity to focus on other areas of their businesses. “Because so much of branding has been moved online, that has really forced us to look at things through a new lens,” Gregory says.

Bars are being hit especially hard

At bars and restaurants across the United States, proprietors and employees alike have been sounding alarm bells from day one of lockdown, knowing the tiny margins restaurants run on to begin with. For bars that specialize in whiskey selections, there is a whole subset of challenges. Brand ambassadors and distributor reps, who also lost their jobs, are no longer working with them to receive their annual allocations of certain special releases. This could have a further impact on a bar’s recovery down the road because they will lose business from customers who still expect them to carry those bottlings.

Early on, companies like Brown-Forman, Maker's Mark, and Independent Stave began supporting programs like Chef Ed Lee’s Lee Initiative that is providing relief to bar and restaurant workers during shutdowns.

In the first weeks of the pandemic, both Larry Rice at Louisville’s The Silver Dollar and Bill Thomas at Washington, D.C.’s Jack Rose Dining Saloon began to sell off their extensive whiskey inventory in an attempt to help support staff and stay in business.

In other places, a shift to takeout cocktails and cocktail kits gave bars the opportunity to run through some of their fresh ingredients while retaining a portion of their pre-pandemic sales. Though laws surrounding this bandaid measure differ around the country.

“The way the alcohol laws are here, we cannot sell alcohol until the lift of the bar service [ban],” says Louisville’s Trouble Bar co-Founder Nic Stippy. “That differs from state to state, but in Kentucky you can only sell to-go cocktails if you are selling food or if you are a restaurant.” So Stippy and her business partner, Kaitlyn Owens, began to hold “Lemonade Stands” where they would sell cocktail kits sans alcohol along with instructions patrons could take home and easily follow to make their own craft cocktail pitchers.

In some states, brands are partnering with bars to create to-go cocktail kits, while other bars, such as San Francisco’s Elixir Bar, have been focusing on drink mixers. As some bars open to outdoor service, an additional lifeline has been cast to them, but as the weather begins to turn cool this lifeline is likely to snap back.

The popularity of ordering your favorite drinks to-go has led to calls for legalizing to-go cocktails and alcohol delivery across the board on a more permanent basis.

Some legislative wins

“One thing that is really helping a lot of the small guys out is those states that are now allowing direct consumer shipping,” reports Ozgo. “There are a lot of people who are not going to travel right now, so if that customer is not going to come into that tasting room, your tasting room can go to them, so to speak. That’s one way that a state can really help out, by realizing that the consumer is largely homebound, so businesses need a way to get into their home. We are all using things like Amazon and Instacart to order things like groceries and things we need on a day-to-day basis, so by allowing direct-to-consumer shipping, which has been shown to be able to be done safely with ID checks and all that, that’s one way that a state can help out.”

“Necessity is the mother of invention, Ozgo continues. “I suspect that once states realize that this is something the consumer wants anyway after we did it under emergency conditions and were able to do it safely, then where is the harm, let’s move into 2020 and let’s not stay in 1960 and let’s allow direct-to-consumer shipping. We have had it for wine almost nationwide since 2005 and there have been no negative impacts either on the wine market or with underage drinking, which has been declining since then. Clearly the market knows how to do this safely and efficiently, we know how to collect the taxes and all that, so it makes sense to make this more permanent once the emergency is no longer with us.”

In Kentucky there have been major legislative wins in the matters of preventing drunk driving, interstate shipping of spirits, and beer sales in distillery gift shops.

“We had some other good legislative wins,” says Gregory. “I never would have thought that tourists would be asking us to sell collaborative beers in our gift shops, but we started getting calls from visitor center managers saying they were doing collaborations with breweries—as Jim Beam had done one with Budweiser—and they wanted to know why they couldn’t get it in our gift shop. Now you can get that in a gift shop if there is a jointly branded collaboration. It doesn’t do much for us other than helps our visitors, but we were happy to do it because it gives our partners in the microbrewing industry high-profile access to our gift shops, which get hundreds of thousands of visits a year.”

Across the country emergency legislation allowing for intrastate shipping of spirits as well as to-go cocktails has been a godsend for many of the small craft distilleries and bars within those states. The action has been so popular that in many states efforts to make the changes permanent in the next legislative session are underway.

Already in Georgia the Governor has approved delivery of package spirits and tasting kits from stores, while Massachusetts has extended to-go cocktails until February 2021 or until the emergency order is lifted. Similar laws have passed in New York, Colorado, Maine, Ohio, Kansas, Michigan, Texas, and more. The to-go cocktail law has been made permanent in Iowa, the first state to do so.

In a stunning move, the Ohio House has passed legislation that would, if signed into law, allow for Sunday alcohol sales in the state, ending a Repeal-of-Prohibition-era relic.

Diversity and inclusion come to the forefront

As the nation has erupted in protests over the killings of George Floyd, Breonna Taylor, David McAtee, and countless others, the distilling industry has again stepped up to the plate.

Brown-Forman partnered with Uncle Nearest to form the Nearest Initiative, which will include The Nearest Green School of Distilling as well as a leadership acceleration apprenticeship, both of which aim to increase diversity in the distilling industry.

“We have really been upset by the deaths of George Floyd and Breonna Taylor in our own back yard,” says Gregory. “That has really forced us and given us the opportunity to start looking at an industry that has predominantly for two centuries been driven by white men, and we have to do better. There are some points in history where you look back and say that was an opportunity for broad change and this is one of those. We are looking at scholarships. We will have an advisory panel in place in the next few weeks to help us make those decisions and steer us in the right direction. It’s going to bring about fundamental change.”

Groups like the Black Bourbon Society and the Kentucky Black Bourbon Guild bolster these efforts by making whiskey fandom accessible to all.

Looking toward the future

Bourbon has been through tough times before. In fact, many of the antiquated laws we are still working through today are a result of Prohibition, which ended 87 years ago. But there are new challenges now, such as regaining consumer confidence and getting people back to work so they will have disposable income again before the industry can start firing on all cylinders again.

“As soon as the consumer gets out there and is willing to venture outside with confidence you can at least return to your previous sales level likely within a few months,” says Ozgo. “It all depends on how quickly that consumer regains that confidence they aren’t going to get sick or infect their family. But how long does it take to replace those lost sales? It will take a long time to dig out of that hole.”

The industry is likely to feel the scars of 2020 for decades to come.

“We are just like any other industry where we have been impacted by COVID-19, Ozgo says. “We are doing all we can to keep the business healthy. We found that by switching a lot of production to hand sanitizer that we are doing all we can to continue to employ people and we’re trying to keep the public healthy as well. Hopefully we will find an end to this virus and the entire economy can begin to recover together.”

If we can make it through Prohibition, we can make it through anything. Here’s hoping for a better 2021 for all of us.