DISTILLERY REPORT. Prepared for Colorado Distillers Guild

Transcription

1 DISTILLERY REPORT Prepared for Colorado Distillers Guild Consumer Insights and Business Innovation Center (CiBiC) Daniels College of Business, University of Denver Intern Researcher: Federica Bologna Faculty Supervisor: Melissa Akaka, CiBiC Co-Director 1

2 The Distillery Industry in the United States The Distillery Industry includes producers that distill, blend, and mix liquors. According to First Research, the distillery industry in the United States accounts for over $10 billion in annual revenues, and 90% of it is generated by the top 20 producers (First Research, 2017). The industry also relies on imports for $6 billion per year, especially from Mexico, Canada, UK, Ireland, and France. Exports represent 15% of revenues, especially to Mexico, Canada, Australia, UK, and Germany (First Research, 2017). The industry is considered seasonal, since most liquors need go through aging processes. The peaks in revenues are during summer and winter holidays (First Research, 2017). Spirits can be divided into two categories: white and dark spirits. White spirits include vodka (59%), rum (20%), tequila (13%), and gin (8%). Dark spirits include whiskey (82%), brandy, and cognac. White spirits are top sellers in terms of volumes, while dark spirits have started to gain traction (Mintel, 2016). In the dark spirit product category, whiskey has the highest market share (over 80%) (Mintel, 2016). Figure 1 shows revenues by product type. More specifically, whiskey and vodka alone represent the majority of revenues, followed by rum, tequila, and cordials. Brandy/cognac, gin, and mixed cocktails together count for 12% of revenues. Although whiskey generates the highest revenues, vodka is the most sold spirit in terms of volume (First Research, 2017). Figure 1: Distribution of Revenues by Product Type Brandy/Cognac 8% Gin 3% Mixed Cocktails 1% Cordials Whiskey 34% Tequila Rum Source: First Research, 2017 Vodka 24% 2

3 The distillery industry is highly regulated by both state and government laws. The agencies that regulate the distillery industry are the Alcohol and Tobacco Tax and Trade Bureau (TTB), the FTC, and the EPA. The industry is subject to internal as well as external competition. More specifically, domestic distilleries compete with beer and wine producers in addition to the international distilleries. According to the American Crafts Spirits Association, more than half of the country s craft distilleries are located in just 10 states, with California, Washington, New York, Texas, and Colorado leading the way (American Craft Spirits Association, 2016). Travelocity and the American Distilling Institute have ranked the Denver area in the top 10 craft spirits destination in the U.S. (Travelocity, 2017). Moreover, the same study ranked Boulder and Fort Collins in the top 10 small metro areas for spirit destinations (Travelocity, 2017). Target Audience The distillery market in the United States is very diverse. Different generations have different preferences, mostly driven by disposable income, family life cycle, gender, and type of spirit. According to Mintel, older Millennials, aged 25 years and older, are more inclined to experiment new combinations or new flavors if offered by a distillery. Older Millennials are also the ones more inclined to experiment cross consumption of spirits (Mintel, 2016). Income has been found to significantly impact consumption as well. In particular, when the household income increases, the consumption of spirits grows. Older Millennials that consume both white and dark spirits are mostly looking for premium sophisticated products and flavor experiences. The most profitable target audience for the Colorado Distillers Guild is represented by Older Millennials, aged 25-35, with no kids, and disposable income of $75,000+. As mentioned before, this generation is enthusiastic about cross consumption, new culinary experience, and flavor innovation. They are also looking for premium positioned products and a variety of flavors. When consuming spirits, they primarily do so during social gatherings. They are also interested in understanding the history behind the production itself. Millennials are keen to consume spirits on-premises, compared to other generations (Mintel, 2016). They value experience more than convenience, speed, and price. Finally, they can become product/brand ambassadors when interacting with friends and family (Mintel, 2016). Surrounding states could be attractive target markets for the Colorado Distillers Guild. These areas include Utah, North Dakota, and Texas, due to the high concentration of Millennials and the proximity to Colorado (Governing, 2014). Performance Measures The following list includes measures that the Colorado Distillers Guild could use in order to track the Spirits Trail s performance: - Number of visitors - Average amount spent per visit - Number of visitors who partially/fully complete the tour (based on number of stamps/visits) - Number of interested visitors that request information through phone calls/ s/website 3

4 - Pay per click on Google AdWords - Google Analytics on the Spirit Tour Website - Number of comments/likes/shares on social media platforms like Facebook - Number of visitors that were recommended by another visitor of the Spirits Trail When the business is launched, it is important that the Colorado Distillers Guild has an understanding of how visitors have been introduced to the Spirits Trail and how they decided to visit. In order to do so, the Colorado Distillers Guild should capture this information by conducting periodical research, including interviews and surveys. Economic Impact on the Travel Industry In order to get an understanding of the potential economic impact of the Spirits Trail, a comparison with the Kentucky Bourbon Trail should be taken into account. The Kentucky Bourbon Trail represents a good example of a successful business initiative in the distillery industry in the United States. In 2015, the business attracted almost 900,000 visitors and an average spending per capita of $1,000 (Distillery Trail, 2016). In 2016, the number of visitors exceeded 1 million guests visiting multiple distilleries. According to the Kentucky Distillery Association, the Kentucky Bourbon Trail highly influenced tourism with an increase in attendance of 300% in the last 10 years (Seattle Times, 2017). By promoting distilleries and the new tour, the Spirits Trail could have a significant impact on Colorado tourism. Visitors might include the Spirits Trail while coming to the state for other attractions, such as visiting national parks, enjoying the outdoors, or touring craft breweries. Another important factor to consider when looking at the economic impact of the initiative is the appeal of the state of Colorado as a destination. More specifically, Colorado is considered one of the top aspirational destinations in the United States (University of Colorado Boulder, 2017). In 2016, total travel spending in Colorado was over $19 billion, mostly from domestic visits. The most visited area was the Denver Metro area, followed by the Mountain Resorts area (Dean Runyan Associates, 2017). In 2015, Colorado had over 77 million visitors, with over 22% for leisure trips. Further, Colorado has experienced a large migratory flow of people moving to the state, mostly represented by young adults (Denver Post, 2016). Therefore, the Colorado Distillers Guild could improve its sales footprints by targeting visitors, including young tourists and migrants, interested in spirits. 4

5 References American Craft Spirits Association (2016). Report Finds More Than 1,280 Active Craft Spirits Producers in U.S.. March, Web Access: August 4, [ Dean Runyan Associates (2017). Colorado Travel Impact p. June Web. Access: August 7, [ Denver Post (2016). Colorado Has More People on the Move Than Any Other State. Web. Access: August 7, [ Distillery Trail (2016). Kentucky Bourbon Trail Traffic Booming with 900K Visitors in Web. Access: August 7, [ First Research (2017). Distilleries. July 31, Web. Access: August 3, [ Governing (2014). A State-by-State Look at Which Each Generations Lives. July 31, Web. Access: August 7, [ Mintel (2016). White Spirits. October, Web. Access: August 3, [ Mintel (2016). Dark Spirits. November, Web. Access: August 3, [ Mintel (2016). On-Premise Alcohol Trends. May, Web. Access: August 4, [ Seattle Times (2017). Kentucky Bourbon Trail Buzzing with More than 1M Visits. Web. Access: August 7, [ The Denver Post (2016). Colorado s Craft Beer Industry Boasts $1.7 Billion Impact. Web. Access: August 7, [ billion-impact/]. Travelocity (2017). Travelocity and the American Distilling Institute Name America s Top 20 Craft Spirits Tourism Destinations. Travelocity. April Web. Access: August 4, [ University of Colorado Boulder (2017). Colorado Economic Business Outlook Web. Access: August 7, [ 5