Craft whiskey has been among the most dynamic segments in the spirits industry for many years, but these days small-scale whiskey makers are struggling. Like many in the boutique spirits segments, small and independent whiskey distillers are seeing declining sales, rising operating costs, and increased difficulties in accessing new markets and customers. The whisk(e)y category overall enjoyed rising volume, revenue, and consumer interest for many years, but recently craft players have seen a changing tide, and it’s not in their favor.
Boutique whiskey distillers were integral to the resurgence of the whiskey category as a whole and are often leaders in innovation trends that ultimately affect larger whiskey makers as well. But now, many craft distillers feel they’re being left behind. The path to success and stability for small-scale whiskey-makers is fraught with difficulties.
“It’s a much tougher market for craft spirits now than it has been over the past five years,” says Kings County Distillery president Colin Spoelman. The Brooklyn, New York producer makes three Bourbons in its flagship range, as well as a full roster of specialty labels, ranging from flavored whiskeys and moonshine to limited-release ryes and higher-abv Bourbons. Spoelman notes there’s a sense of saturation in the whiskey space now and that, coupled with roadblocks to retail and increasing financial constraints, creates a somewhat bleak outlook for the near future.
“A lot of small companies put energy, enthusiasm, and creativity into an industry that was very staid,” Spoelman says of the craft whiskey space. “Our biggest challenge is access to markets. In most territories, we’re required to go through distributors and that creates a bottleneck for access. State laws create a patchwork of compliance requirements to try to build a national presence, which is daunting to a small brand. The goal should be to make the marketplace more open and fair.”
Changing Trends
These days, craft distillers say that simply maintaining current depletions is the new measure of success. Spoelman says Kings County’s sales have been roughly the same for 2022, 2023, and 2024. “We’ll see a little growth by dollars, and maybe 15% growth by volume, as we’ve introduced lower-priced whiskeys into the market. That’s the most telling statistic—we have to work a lot harder in sales and marketing than we did before.” He adds that Kings County benefits from its history—the company has been making whiskey for 15 years and has an established audience in New York—but that newer producers are likely feeling the more negative effects of the current economic and industry climate.
Inventory management is another difficulty for spirits producers, especially in the whiskey business. Spoelman says Kings County has about ten years of whiskey inventory in its facility, which requires a lot of financial backing, and financing is tough in this economy. He sits on the board of the American Craft Spirits Association, an advocacy group for small distillers, and one of that group’s top priorities is fighting for direct-to-consumer (DTC) shipping nationwide. A total of 47 states plus Washington, D.C. allow DTC shipping for wine, but only nine states plus Washington, D.C. allow DTC shipping for spirits.
“Direct shipping should be a legislative priority in each state,” Spoelman says. “It’s the only way to protect the fragile landscape of small, regional distillers. The pandemic proved it doesn’t harm anyone, as long as it’s limited to small distillers. New York and Kentucky are leading this effort, and it’s important for an industry that’s already selling online through retail. It would give distillers a privilege that wineries and retailers already have. Craft spirits are part of the culture of a city. It’s important to safeguard this piece of our culture when it’s feeling more precarious than ever.”
American Craft Spirits Association CEO Margie A.S. Lehrman notes that DTC sales by themselves would not solve all problems for craft distillers, but they’d be an excellent start. Her organization defines craft spirits producers as those who are not openly controlled by a larger supplier and have no more than 750,000 proof gallons—or roughly 394,300 9-liter cases—removed from bond annually. The association’s 2024 Craft Spirits Data Project found that the active number of craft distillers in the United States grew 11.5% in 2023 to 3,069 producers, but that craft spirits volume fell 3.6% to 13.5 million 9-liter cases and value fell 1.1% to $7.8 billion in sales. Further, craft spirits’ market share in the U.S. decreased to 4.6% in volume in 2023 from 4.9% in 2022. The leading states for craft distilleries are California, New York, Pennsylvania, Texas, and Washington.
“Craft distillers are small business people, and when the economy suffers small businesses can be particularly hard hit,” Lehrman says. “Many consumers have traded their spirits spending to less premium products, and craft spirits producers can’t make money competing at the bottom shelf, as the economies of scale prevent it. If the large spirits corporations are down 5%-10%, many of our craft producers will be down 10%-30%.”
Modernizing the spirits industry would also help, Lehrman adds. She notes that many small distillers can’t find traction for customer sampling outside of their own tasting rooms and they need to embrace modern sales techniques like DTC shipping to reach new consumers, retailers, and markets. In addition, she says many larger spirits players capitalize on the innovation happening in the craft space, noting that the big companies effectively use smaller distillers for research and development.
“The larger players continue to dominate the wholesale tier, which means opportunities for the next wave of innovations are finding it harder to break through the marketing muscle deployed by those same companies,” Lehrman says. “The largest corporations spend a ton of marketing dollars, making it tough for consumers to tell which brands are craft-produced and which are larger and corporate owned.”
If the craft spirits industry suffers further and distilleries fold, Lehrman predicts a ripple effect throughout the consumer goods industry. For example, craft whiskey producers support local agriculture by sourcing grain from nearby farms and working with local cooperages and malt houses, and those businesses may close too. She notes that craft distillers support regional agriculture in ways their larger counterparts cannot and adds that tourism will also suffer as small distilleries close and leave consumers with less options for distillery visits, a growing facet of the spirits business.
Unprecedented Times
Cedar Ridge Distillery in Iowa produces Bourbons, ryes, wheat whiskey, and a single malt, along with specialty labels made with different finishing options. Founder and CEO Jeff Quint says his company got accustomed to double-digit growth for many years and is now having to learn to survive in a flat economic environment, a first for Cedar Ridge. “We’re not taking as many risks as we have in the past,” Quint says. “We’re opening in fewer markets, and we’ve tightened our marketing focus down to the places where we’re already succeeding. It will be a couple of years before we resume any form of new market investment. It’s a new mindset for us after such a long span of growth.”
Cedar Ridge has been in business for 20 years, and Quint notes that many of his peers who started in the craft whiskey industry with him have since been swallowed up by larger players. In addition, he says competition has increased heavily as new craft spirits brands are launched. To stand out and help craft players survive, Quint says restaurateurs and retailers should focus more on the small distilleries and their new products.
Woodinville Whiskey Co. co-founder and CEO Orlin Sorensen agrees that competition among craft spirits producers has never been tougher. Located in Washington State, Woodinville touts itself as a grain-to-glass producer and makes a core Bourbon and rye, as well as specialty labels. The company has been producing whiskey for about 15 years, and Sorensen says that longevity is helping his business.
“With the American whiskey category essentially flat, brands are having to take market share from other companies to grow,” Sorensen explains, adding that Woodinville is well-positioned from a value-to-quality perspective. “We’re staying true to who we are and what got us here. There are a lot of brands struggling, and we hear about it every day. But consumers are more educated now than ever before, and that bodes very well for us.”
For Sorensen, the scene is not all doom and gloom. He agrees that DTC shipping would help the craft whiskey industry, as would tax breaks for new startup distilleries and better partnerships with distributors, retailers, and restaurateurs. But really, he says craft distillers have to focus on being craft distillers and drown out the background noise. “Now more than ever, craft whiskey has to hold up its promise of quality, innovation, and differentiation, and do so at a competitive price point,” Sorensen says. “It’s definitely not an easy road, but if you have all of those key points, you will eventually win.”
Forward Thinking
Castle & Key director of sales Jonathan Newton also sees promise amid the crisis, though he notes the immediate future is uncertain for craft distillers. Castle & Key makes several Bourbons and ryes at its Frankfurt, Kentucky distillery, as well as gin and vodka, and Newton says the company is in a strong position for positive momentum, though he admits that it didn’t fully meet its growth targets last year. “I feel the outlook for craft whiskey is very positive for brands that are positioned correctly,” Newton says. “Consumer demand for premium, small-batch spirits continues to be strong as people seek quality, authenticity, and unique offerings.”
From his perspective, some of the hidden pitfalls currently affecting craft whiskey include supply chain hurdles and looming tariffs for international buyers, and these are in addition to the more recognized difficulties that come with increased competition, distribution challenges, and changing consumer habits. “We’ve adjusted our strategy to focus more on targeted distribution, innovative product offerings, and strengthening customer relationships,” Newton explains. “We’re doubling down on what makes Castle & Key unique—our commitment to craftsmanship, innovation, and storytelling. We’re working closely with our distribution partners to optimize our presence in each market, and we’re embracing digital channels to better engage with consumers while enhancing our marketing efforts to build deeper connections with a new generation of whiskey drinkers. While these challenges are significant, they also present opportunities for us to adapt, refine our strategies, and strengthen our brand.”
Looking ahead, Newton says optimism is key. He fully expects 2025 to bring more consolidation in the spirits industry, though he adds that when the larger players invest in craft spirits, it has the potential to elevate the entire category. He hopes further work is done on direct shipping and that the spirits industry as a whole gets involved in advocating for fair legislation, including direct shipping and lower taxes, to create a level playing field for small distillers.
While there is uncertainty for craft whiskey makers in the months ahead, moderate growth is attainable, especially with the help of retailers and restaurateurs who can dedicate shelf space to craft whiskeys and highlight small and local brands on cocktail menus and with tasting events to engage consumers. “Prioritizing local and regional distillers helps promote small businesses, while exclusive offerings and collaborations create unique opportunities for craft brands,” Newton says. “Retailers and restaurateurs play a key role in helping craft distillers grow and thrive in a competitive market. Many whiskey drinkers understand the value of small-batch, handcrafted spirits, as well as the unique production processes, quality, and innovation that craft distilleries offer.”