How Craft Brands Can Succeed in the Covid-19 Era

Craft brands have been in the spotlight across wine, beer, and spirits in recent years, with products from small producers becoming increasingly sought after over mass-marketed products. Consumers are seeking out fresh discoveries, and are increasingly prioritizing the production methods, ingredients, and stories behind craft beverages.

But the onset of Covid-19 has presented a new challenge: While consumers are increasing their home consumption and retail alcohol sales are up, most craft wine and spirits brands have not benefited. As much of the on-premise sector remains shuttered and many consumers turn to e-commerce to limit in-store purchasing, there is no salesperson or sommelier to champion small brands or encourage the consumer to try something new.

ACQUIRING NEW RETAIL PLACEMENTS

While stay-home mandates and on-premise closures have resulted in retail sales spikes — as of June 13, off-premise sales were up 26 percent year-over-year for the entire Covid-affected time period — retailers are still working to manage this unexpected business shift.

“They’re still in survival mode,” says Nicolas Palazzi, the owner of PM Spirits in New York, an importer and distributor specializing in artisanal spirits brands. “They have no energy or time to do any outreach or take sales calls. They’re reacting to demand, and that demand is for mainstream brands because that’s what people know.” In the first six to eight weeks of the pandemic, most of Palazzi’s sales through existing retail accounts were for inexpensive items.

How Importers and Distributors are Adapting to a New Reality Without Restaurants and Bars

It’s no secret that retail alcohol sales have boomed during the Covid-19 pandemic. Most notably, the wine and spirits sectors have seen significant growth. Between March 1 and May 5, retail wine sales increased more than 30 percent compared to the same period last year, according to an IRI data report. Spirits sales, meanwhile, experienced 44.1 percent YOY growth during the same period.

While the percentages are positive, not all wine and spirits importers and distributors are enjoying the spoils of the retail boom. In terms of wine, it’s bottles priced between $8 and $15 that have overwhelmingly driven sales growth. This demand has been much less beneficial to businesses that focus on the on-premise sector because they typically carry higher volumes of more expensive offerings. Spirits importers and distributors that work with small-scale craft brands are also feeling the pinch, because their portfolios are similarly catered toward bars and restaurants.

ADAPTING TO CONSUMER DEMAND

On March 15, the day New York State enforced bar and restaurant closures, New York City-based artisanal spirits importer and wholesaler PM Spirits lost 60 percent of its clients overnight. Those closures meant the company had 34 days’ worth of invoices that would likely go unpaid until on-premise businesses reopened, says Nicolas Palazzi, PM Spirits’ owner.

But with retail sales continuing, Palazzi has had to keep ordering from his suppliers to meet demand. In some instances, where Palazzi has outstanding financial commitments, he’s worked with suppliers to pay out of pocket, so that each business can continue functioning.

Operationally, Palazzi says Covid-19 disruptions have changed every aspect of his business. Products that were previously in high demand from the on-premise sector are no longer as viable. And because his business focuses on artisanal spirits, Palazzi hasn’t been able to switch to offering “value” brands. Convincing retailers to consider a broader range of his existing products has been complicated by the fact that delivering samples and conducting in-person tastings is not possible. “Every step of the process that used to be straightforward becomes very complicated,” he says.