10 October 2017

How craft distillers took on the gin giants

The once unfashionable spirit is experiencing a renaissance and it's the new entrants who are responsible.

The past few years have been a boom time for those who make or sell booze. But rather than benefitting the handful of major drinks groups, which for decades have enjoyed an uncontested hold over the market, its been a new set of challenger brands leading the charge.

Companies such as Diageo, Bacardi and Pernod Ricard benefit not only from brand recognition but also their long-established retail deals and vast manufacturing plants. Yet, despite their scale and history in the sector, theyve long failed to persuade younger people to drink gin.

Which is where a new wave of craft distilleries have stepped in.

Changing tastes

Last years 16% rise in gin sales saw the spirit transcend the £1bn barrier for the first time in the UK, led by a raft of new brands and changing consumer appetites. In 2010 there were 116 gin distilleries in the UK. Now, there are 273, with several more aspiring individuals hatching plans to add to that tally before the year is out. Walk into Waitrose and youll see shelf after shelf of buzz brands with vibrant labels offering their unique take on what is sometimes referred to as mothers ruin.

Spirits startups have employed a canny methodology to make a dent in the booze market by selling the idea of drinking gin (and in some cases whisky) to young people. To use the companies’ lingo: its all a question of storytelling.

And while their backstories of artisanship, provenance and process often verge on parody, the growth of this modern luxury drinks category is a remarkable tale.

Rise from the ruins

Prior to the emergence of the first craft gin producers in 2008 — impressively, in the height of the financial crisis — gin had long fallen out of favour with consumers. The launch of Hendricks by Scottish whisky company William Grant & Sons in 1999 was the only notable development in the industry.

That all changed when Sipsmith began its assault on London in 2009, a year after the Chase Distillery had set up in Herefordshire. The two brands appeared to mark a watershed moment in the spirits industry, creating a blueprint for how to go from idea to success, and small distilleries began popping up all over the country.

The next generation

Many followed by applying the same playbook; appealing to consumers’ growing interest in authenticity and provenance, which was resonating across sectors as diverse as food, clothing, homeware and beer. In the past, where a gin had come from, or the botanicals it used, was relatively irrelevant,’ says the Wine and Spirit Trade Associations Harriet Talbot. Consumers are more interested now and it can influence choice.

Spirits startups could satisfy this seemingly insatiable consumer curiosity by offering a sense of place, hand-crafted methods, quality ingredients and more. And in many cases they proved capable of creating demand where there hadnt been any. Often sold at a premium, these new, cool spirits brands also tallied with a shift in consumer attitudes to spending, which big brands seemed deaf to. Shoppers are looking to decrease what they spend,’ says Nielsens Helen Stares. But when they do treat themselves, they want to get something better.

The timing suited the bar industry, too. Here was a set of fresh brands, rising up together, resonating with consumers and potentially bringing people back into bars. Bartenders welcomed the rich vein of geekery around craft brands as it meant they could talk with authority to people who were listening for the first time.

Retailers followed suit, with Majestic Wine and Waitrose leading the charge. According to Tescos spirits buyer Andrew Hargreaves: It has been important to follow the trend in bars and offer a good selection of innovative and craft gins alongside the staples.

Lower barriers to entry

The options of starting a micro-distillery using relatively cheap glass equipment (rather than German-made copper stills), as home distillers Sacred Spirits Company did in 2008, or going through a third party contract distiller, as a number of Londons new gin brands quietly have, have made starting a gin brand relatively easy.

A major obstacle for prospective spirits startups was diminished when Sipsmith successfully obtained a distilling licence from HMRC, the first of its kind in London in over 180 years.

Gin production doesnt incur the same expensive and onerous processes demanded when making whisky, which needs storing and ageing for at least three years – crucial for those trying to launch on a shoestring. You can distil it today, bottle it tomorrow and flog it the next day,’ says Charles Maxwell of Thames Distillers, a contractor which makes a number of London gins including Little Bird. You dont need biinventories and you can feel your way into the marketplace.’ And for those who do encounter unprecedented demand, scaling up is quick and easy.

However, those hurdles havent stopped a number of whisky startups from getting involved too; most notable are the East London Liquor Company and The London Distillery Company. Early entrant Kilchoman set up alongside the big Scotch players on Islay, such as Laphroaig and Lagavulin, in 2005, launching its first single malt in 2009.

Continued growth

Spirits startups have achieved extraordinary success despite being up against some of the biggest and most efficiently run multinationals in the world. But, remarkably, both the startup and premium mainstream brands (such as Hendricks and Bombay Sapphire) have been reaping the rewards of the craft-triggered gin boom.

Theres only a handful of gin brands that havent seen growth in the last year,’ says Nielsens Helen Stares. Its not that craft gin is necessarily taking sales away from the big brands. Its that the whole category is exploding.

This growth is to a large extent thanks to the creativity of outsiders to the sector — most of the craft founders have not come from a spirits background. Theyve not only punched through but appear to be reaching a new, younger audience. Their next challenge is whether they can do it for a longer period of time, and take their storytelling skills to new places around the world.

Industry challenges

Despite the number of new entrants in the market, setting up a spirits brand is not without its hurdles.

Licence. Obtaining a licence can prove to be a drawn-out process. ‘It’s a hodgepodge of archaic requirements,’ says Alan Powell of the British Distillers Alliance.

Equipment. Manufacturers have been inundated with demand in recent years, creating long waiting lists as more and more distilleries are set up.

Alcohol duty. The UK has the fourth-highest duty rates on spirits in the EU. For companies paying duty on neutral spirit they buy in, it works out as a charge of about £8.05 on every 70cl bottle of 40% abv alcohol produced.

Uniqueness. Creating a product that stands out is becoming increasingly difficult. There are hordes of startups to compete with, alongside multinational brands, which can be extremely competitive when it comes to price and product quality.

Growing sales. Provided a new spirit can get into a few wholesalers and bars, the challenge is to ensure it’s sold rather than gathering dust. Whereas a few years ago bars were amassing vast collections of gin, many are now keeping a more curated list, reducing shelf space for new entrants.

First appeared in issue 18, Aug/Sept

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