SHUT DOWN, SIP LESS?

How the US government’s shut down is wreaking havoc with the spirits industry
By Francine Cohe
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Washington DC with monument in background quiet

Think that just because you’re not one of the 800,000 “non-essential personnel” furloughed during the government shut down this week that you and your hospitality/liquor industry brethren and the customers you serve won’t feel the sting? Think again.

While you’re all still expected to be at your job as normal, and it doesn’t seem evident that anything much has changed on a day to day basis, OND sales numbers, product innovation, and revenue (brand and tax revenue) is going to be down this year. Not to mention the possibility of product shortages. There’s no telling yet just how hard we’ll be hit. But it’s certain you’ll see the impact in some way.

Though it is highly unlikely you’re in the same boat as Allison Evanow of Square One Organic Spirits (www.squareoneorganicspirits.com) and Brian Facquet of Prohibition Distillery (www.prohibitiondistillery.com), two craft distillers in the delegation organized by the Distilled Spirits Council of the United States (www.discus.org) to present their handcrafted products to VIPs at Berlin’s Bar Convent next week who were just notified that the venue had changed from the American Embassy to the Berlin Hilton thanks to our legislators not coming to consensus, the impact of this government shut down won’t go unnoticed.

Maybe it’ll be noticeable bare spots on your shelves because imported products are tied up at port. That’s a problem that Lizzie Asher, President of Macchu Pisco (www.macchupisco.com), is presently facing. Or maybe you’re a retailer awaiting holiday VAPs to fill your shelves in one of the busiest selling seasons of the year and those new products simply aren’t available. Producers who live and breathe for those on and off premise account sales are certainly feeling it now. Jason Johnstone-Yellin of Single Cask Nation (www.singlecasknation.com) notes, “Single Cask Nation has product sitting at the Glenfarclas distillery that cannot be imported before TTB approval is received. Further, our US-sourced Chanukah releases are delayed while we wait to apply for label approval. We’re concerned that the backlog upon re-opening of the TTB approval process will delay us even further. None of this bodes well for the holiday season.”

Over at Anchor Distilling Company (www.anchordistilling.com) Karl du Hoffman, Brand Development Manager, is anticipating similar holiday blues thanks to the halt in processing that’s taken place at the TTB (Alcohol and Tobacco Tax and Trade Bureau- www.ttb.gov). He remarks, “We have items that were planned for holiday release and our labels are at the TTB waiting approval. We already missed November sales and could miss December. SOND accounts for 50 percent of sales typically so losing two months of the high traffic months is devastating to profits.”

More than just seeing a profit downturn, it seems there is risk ahead for the entire craft spirit industry as Nicole Austin of Kings County Distillery (www.kingscountydistillery.com) and the President of the New York State Distillers Guild sounds the alarm, “The shutdown of the TTB has put a halt on the growth of the craft distilling industry. The inability to get formula and label approvals is stifling the innovation that defines the craft distilling movement, right as we are preparing our fall and Christmas releases. For many, it will keep their businesses from even opening the doors as they wait for approval of DSPs. The full impact of this is yet to be realized, but most of our businesses are less than 4 years old and we are still fighting every day to keep the lights on. This shutdown will slow down our growing small businesses, as well as the farmers, coopers and orchards we buy from. We cannot afford to lose momentum at this pivotal moment in the craft distilling industry; we implore Congress to do their jobs and keep us moving forward.”

Facquet, a member of the NY Distilled Spirits Guild and the co-founder of Prohibition Distillery, fears a hit on both the finance and the innovation side. Like many others he knows that producers working on new innovations and who require inspections are also feeling the pinch. Facquet is developing a whiskey that was supposed to be released this fall but with nobody available to review his recipe he may just have to dump the contents and wait for Congress to come back in session. He comments, “From a brand development standpoint from a small guy- I was counting on that for cash flow. Now have to go find loans. How am I going to cover operational costs? ”

Across the country in Denver, Colorado operations haven’t even fully begun at Leopold Brothers (www.leopoldbros.com) new distillery expansion- the government shut down has forced work on the new facility to come to a halt. And it’s not just the distillery that feels it, but the local economy too. Todd Leopold explains, “We will have two new spirits launches delayed because of the shutdown, but more importantly, we are in the middle of building a brand new distillery, which we need to have inspected before we get a new DSP (distilled spirits permit).

He continues, “Depending on how long this lasts, this could really alter our plans, and will hamper our ability to hire new employees.”

Employees and business partners are feeling the pinch at Sonja Kassebaum’s North Shore Distillery (www.northshoredistillery.com). She notes, “The federal government shutdown has thrown a substantial wrench into our plans for the next few months and we are currently reassessing our plans. We are hoping to introduce a new product, as well as a holiday gift item that we are creating in partnership with a local woodworker, but we are now uncertain about whether we will receive the needed regulatory approvals in time to release these items for the holidays. Label approvals were already taking about 30 days or so, and with this work stoppage the timeframe will most certainly increase. We have already seen substantial delays and problems from the sequester, as well, and those problems will only get worse with this shutdown – it used to take about 2 weeks to receive approval of a new product formula, and our latest submissions took over three months to get the required approvals. That delay already has caused us to defer releasing a product until next year, and we may have to make that decision again now. We are dead in the water if we cannot obtain formula and label approvals, which means we cannot introduce new products and generate the related revenue from those items, nor the applicable taxes for the government and revenue for businesses that we work with to obtain raw materials and related supplies.”

Everyone expects their supply of Tuthilltown’s products to show up a day or so after orders are placed but while current supplies may still be available their new stuff in the innovation pipeline has been stymied for now. As for how much longer? Nobody knows. Gable Erenzo (www.tuthilltown.com) comments, “Tuthilltown has been waiting on two formula approvals that should have been coming through by the end of the month, with another two COLAs scheduled to be submitted this week. How long the TTB shutdown will delay these processes is yet to be seen. We do expect a longer processing time which translates to delayed product releases, tied up capital, adjusted sales forecasts and most likely a loss of revenue. And based on discussions with other distillers, we are not alone. We hope that things will get back on track ASAP and that the shutdown will not create compounding delays with TTB processing.”

For the immediate future delays are all that we can expect with only option to be drinking/serving what you have on hand and hoping this all wraps up quickly and its back to business as normal soon enough. Allen Katz of New York Distilling Company (www.nydistilling.com) concludes, “The TTB shutdown means that we are in limbo with formula and COLA filings. For our brands and our company it means delays in getting new products to market and obviously the associated revenues. We are very compassionate toward the TTB. They are working hard with ever increasing caseloads of filings and it is a shame that irresponsible legislators are unable to act like grown-ups to resolve and uphold our national responsibilities.”

This entry was posted on Friday, October 4th, 2013 at 10:24 am

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