US craft distillers facing numerous headwinds as whiskey tariffs loom: 'We're not celebrating'

Craft distillers around the country are being hit by higher distilling input costs caused by inflation and looming tariffs on American whiskey, according to Distilled Spirits Council (DISCUS) CEO Chris Swonger.

"Consumers are still willing to spend a little more for that special bottle of spirits, but they are feeling the pinch in their wallets and are much more price conscious with their reduced discretionary dollars," Swonger told FOX Business.

For the first time in more than a decade of being in operation, Jeff Quint, founder of Cedar Ridge Distillery in Swisher, Iowa, said he won't see double-digit sales growth. This year, he's projecting sales to his distributors will be flat.

"That's new to us," Quint said.

Meanwhile, Sonat Birnecker Hart, the founder of Koval Distillery, told FOX Business she has faced a "rocky road of challenges since 2018."

Birnecker Hart said her distillery, which still hasn't reached the pre-pandemic levels of growth and velocity, has seen a "dip in business" over the past year – something she said has been seen across the industry.

"We're in the industry of celebration... But right now, we're seeing less to celebrate."

- Sonat Birnecker Hart, Koval Distillery founder

But "as a craft brand, we see it very dramatically. Keep in mind, we're always competing against very large legacy brands that have a lot more money for marketing," she added. "The entire craft industry has experienced a lot of issues related to that."

She is concerned not only about the decline in demand but also about potential tariffs on American whiskey exports to Europe and a possible liquor tax increase proposed by Chicago Mayor Brandon Johnson in his 2025 budget.

"We're not celebrating right now... we're in the industry of celebration. We're in celebration of local agriculture and celebration of local craftsmanship," Birnecker Hart said. "But right now, we're seeing less to celebrate."

Swonger described the pandemic as an "extraordinary time" for the industry, as consumers were left with more discretionary income for small luxuries due to lockdown orders and other restrictions. Many of them chose to "treat themselves by purchasing high-end spirits products, building out their home bars and exploring different spirits categories," Swonger said.

Now, Swonger noted that the sector is beginning to normalize after "a period of phenomenal sales growth."

"Consumers have tightened their spending due to higher inflation and interest rates and retailers have slowed down restocking as they reduce the inventory build-ups that occurred when there was increased consumer demand," he said.

According to data from DISCUS, spirits supplier sales grew at twice the pre-pandemic rate in 2020 and 2021.

Currently, tequila volume sales are up by more than 5%, while most other categories, including American whiskey, cordials and vodka, are experiencing declines of less than 2%. Categories such as brandy, cognac, rum and gin are down around 4%.

Aside from the decline in sales, Swonger also cautioned that distillers could face additional challenges in the near future, notably the potential return and doubling of the European Union's retaliatory tariffs on American whiskey by the end of March 2025.

The EU's tariffs on American whiskey were suspended in 2022, paving the way for U.S. whiskey exports to the European Union to surge by more than 60%.

If these tariffs were to return, they would reverse this "much needed rebound in U.S. spirits exports," Swonger said. He said a 50% tariff on American whiskey in the industry's largest export market would "be a devastating blow" at a time when U.S. spirits sales have slowed.

A bright spot in the industry, however, has been the strong growth of spirits-based ready-to-drink products, which offer lower alcohol content options for consumers, and growing interest in low- or non-alcoholic products.

According to DISCUS data, volume sales of cocktail and spirits-based ready-to-drink products continue to grow robustly, with spirits-based ready-to-drink products seeing a growth of around 15%.

Henry Tarmy, who co-founded California-based Ventura Spirits 10 years ago, is capitalizing on shifting trends, which has helped the company avoid a dip in sales.

"There are certain categories that are bright spots even in a challenging climate for alcohol," Tarmy told FOX Business.

Among its vast portfolio, Tarmy noted a surge in demand for the company's bottled amaro. He said there is also strong demand for Angeleno Spritz, a ready-to-drink variation of the classic Aperol Spritz.

Tarmy said the company's strategy has been about identifying where the bright spots are and "making sure that we adjust accordingly."