GETHSEMANE, KY. — As pandemic lockdowns closed businesses around the nation last year, craft distilleries braced for the worst. Their business, after all, was built on the intimacy of sampling spirits in person.
Yet despite financial pain that put several distilleries out of business, the industry expanded in 2020, thanks to a combination of federal aid, consumer demand, changes in state regulations and a reduction in federal liquor taxes.
The number of craft distilleries climbed to 2,265 last year, a nearly 11 percent increase, according to a report from the American Craft Spirits Association, a trade group. Annual national sales reached $6.1 billion in 2019 and are expected to have increased in 2020.
As the sector grows, craft distilleries are becoming more creative, expanding their business model by adding entertainment, recreation and lodging in an effort to offer a broader experience for visitors.
“If I’ve been waiting for anything, it’s a family-friendly destination where I can also enjoy bourbon,” Gov. Andy Beshear of Kentucky told a small gathering last month at the opening of the tasting room of the Log Still Distillery, the state’s newest craft distillery.
The ribbon-cutting, here in the Knob Hills of central Kentucky, celebrated one of the state’s prominent bourbon-making families. With its big glass windows and views of expansive farm fields, the 4,600-square-foot tasting room has attracted more than 2,000 customers in its first month. John Wallace Dant III, whose family first distilled whiskey in a hollowed-out poplar log seven generations ago in 1836, expects hundreds of thousands more.
That’s because the distillery is more than an emphatic statement about the economic virtues of good liquor, inviting design and entrepreneurial ingenuity that have distinguished craft distilling since it took off in the United States a decade ago, when craft distilleries numbered fewer than 300. As the centerpiece of Dant Crossing, a $30 million recreation, food, lodging and entertainment destination on 350 acres of forest and farmland, the Log Still Distillery is setting new trends in the business, say industry authorities.
When it is completed next year, Dant Crossing will include a 7,300-square-foot restaurant, a 22,000-square-foot events venue, bed-and-breakfast lodging, a 2,000-seat amphitheater, a trail around a 12-acre lake and, of course, a 21,000-square-foot distillery capable of producing 15,000 barrels of bourbon annually. Rickhouses will store barrels of the family’s Monk’s Road bourbon, named for the road that leads to the distillery from the 173-year-old Abbey of Gethsemani, the Cistercian monastery that was home to the monk and social activist Thomas Merton. Mr. Dant, the president, anticipates hiring 130 people.
Call it a whiskey resort. “It’s the first like it in Kentucky with this vision and scale,” said Seth DeBolt, director of the James B. Beam Institute for Kentucky Spirits at the University of Kentucky. “Making bourbon. Drinking bourbon. Staying overnight. Going to a concert. A handful of others are moving in that direction to capture an experiential opportunity around this space.”
Although states differ in their guidelines for craft distilleries, they are generally distinguished in two ways: producing batches of spirits smaller than those of commercial distilleries, and selling them at premium prices in tasting rooms and beyond.
When businesses were ordered to shutter last year during the pandemic, no one knew how much damage the closures would cause to the sector, which employed 40,000 people across the country. The revenue numbers were worrisome. Liquor production typically provides half or more of annual revenue. Sales of craft spirits dropped $700 million in the first six months of 2020, a 41 percent decline, according to the Distilled Spirits Council of the United States, a trade group.
Almost half of the distilleries lost at least a quarter of their sales. The Distilled Spirits Council identified eight craft distilleries in the country that closed.
But other craft distillers reported having a highly profitable year thanks in part to government assistance. Distillery owners say Paycheck Protection Program loans and other aid to businesses kept core production and marketing staffs in place. After years of consideration and debate, Congress approved legislation that helped small producers by lowering the federal tax for the first 100,000 gallons of alcohol to $2.70 a gallon from $13.50.
State governments helped as well. Kentucky permitted craft distillers to ship directly to customers. New York and seven other states approved temporary measures to make it easier for craft distillers to market their spirits to consumers, bypassing stricter licensing and distribution requirements that had been in place since the end of Prohibition in 1933.
In northern Michigan, Iron Fish Distillery in Manistee County received a $130,000 P.P.P. loan to cover operating costs for three months. It also spent $30,000 to move retail sales of spirits and food from the tight quarters of its tasting room to tents and fire pits outside.
One of seven craft distilleries in the region around Traverse City, Iron Fish is on a 120-acre farm that harvests wheat and rye for its whiskeys. A $2.5 million renovation project started with building a 4,800-square-foot distillery, overhauling a barn to become an event venue, and adding oak barrels that cost $300 to $500 each and equipment to run the farm.
The distillery had its best year for sales in its five-year history as it made the switch to outdoor service. “Our guests loved it,” said Richard Anderson, chief operating officer and one of the distillery’s four founders. “At night in the winter they were outside, drinking bourbon, staying warm, looking at the stars.”
In western Kentucky, Thomas Bard and his wife, Kim, paid $45,000 in 2015 for the long-shuttered 60,000-square-foot Graham High School in Muhlenberg County with plans to convert it into the Bard Distillery, a $5.2 million craft distillery, tasting room and event venue.
In December 2019, the couple opened the tasting room in the nearly 90-year-old school building. But in March 2020, it closed under state order. A federal disaster loan and a separate federal restaurant revitalization grant paid expenses and enabled the couple to market their Cinder & Smoke Bourbon and Muhlenberg line of whiskeys and liqueurs.
The tasting room reopened in June, and the event venue is scheduled to open in the fall. “In a way, we were lucky,” said Mr. Bard. “We bootstrapped most of our project, so we hadn’t yet taken on a lot of debt or overhead expenses.”
The pandemic has not slowed down the get-big-or-get-out strategy becoming more common among craft distillers. Hard Truth Distillery, in Nashville, Ind., is a $25 million, 325-acre, three-year-old distillery that includes a tour center, a tasting room, a restaurant, an outdoor amphitheater, an event venue, and rickhouses for its rye whiskey and bourbon barrels. A $1.2 million rickhouse, a smokehouse and a larger amphitheater are under construction, and the distillery is planning to add an 80-room lodge.
By expanding its outdoor seating spaces, Hard Truth served 400,000 customers in 2020, 100,000 more than in 2019, said Jeff McCabe, one of the distillery’s four partners. “One objective is for our distillery to be a destination for our brand,” he said. “Experiences are fundamental to establishing our brand identity.”
Log Still is another craft distillery that thinks big. Mr. Dant, the president, noted that Maker’s Mark, one of the 18 commercial distilleries on Kentucky’s famed Bourbon Trail, the heart of the state’s nearly $9 billion bourbon industry, is six miles away and attracts more than 100,000 visitors annually.
Kentucky tourist agencies also promote a bourbon trail for 19 craft distilleries, and Mr. Dant plans to be the trail’s 20th featured distillery. “When it comes to bourbon in this part of Kentucky, all roads lead to the same destination,” he said. “We think we’re in the right place.”
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