Reopening a boon to North Coast distilleries

With the unknown how the new, more contagious strain of the coronavirus will change things, a return of customers to bars, restaurants and other businesses has been a boon to North Coast craft distillers, with spirits leading as the beverage of choice.

At Ukiah-based Charbay Distillery, over three-quarters of sales are from on-premises brands, so the closure of those venues under public health orders intended to slow the pandemic was “super painful” for the small-scale producer, according to Jenni Karakasevic, director of operations.

North Coast wineries that also positioned themselves heavily in the on-premise market have told the Business Journal that they similarly saw a big hit to sales.

“As far as distributor sales go, we're bouncing back. We're definitely seeing a huge uptick every month, which is great,” she said. “Now that on-promise (establishments are) opening back up, we're seeing much, much, much better increase in sales, getting back to where they normally would be. We're definitely well over what we did last year, year to date.”

But Karakasevic is saddened about the venues that won’t return.

“It's been a brutal ride, and many of our favorites had to shut their doors forever,” she said.

At Spirit Works Distillery in Sebastopol, the business was hit by the double blow of not being able to operate its tasting room in The Barlow commercial complex until earlier this year as well as sell to restaurants and bars across the state.

“And as markets have been opening up, certainly in the City (San Francisco), we've started to see distribution numbers start to pick up,” said Timo Marshall, co-owner and distiller. “We expect them to start hitting their pre-pandemic numbers in due course. We’re thrilled that things are opening up in that way safely.”

A lifeline for Spirit Works has been a pandemic dispensation from the state Department of Alcoholic Beverage Control to be able to sell spirits directly to consumers in the state, an allowance currently extended through the end of this year. Marshall is hoping that legislators extend that provision.

Online sales also helped keep Alley 6 Craft Distillery in Healdsburg afloat while its tasting room was closed and wholesale orders stalled, according to co-owner and creative director Krystle Jorgensen. While the first week or so after the shelter-at-home orders of March 2020 resulted in good sales for home mixologists, the 2,000-gallon-a-year operation started hearing from club members that they needed to back off from consumption after imbibing so much. So the distillery went into making hand sanitizer and converted the tasting room to an order fulfillment center.

“Once we were able to ship, there was a huge increase in sales,” Jorgensen said.

But with the reopening of California in the past few months, online orders have tapered off, and tasting room visits are ramping up. The distillery is sticking with the pandemic best practice of by-appointment visits to better plan for staffing, Jorgensen said. That’s something a number of North Coast wineries also have been considering.

Alley 6 at the beginning of this year switched national distributors to Southern Glazer’s Wine & Spirits, but now the small operation is having to plan for ramping up production to satisfy demand, as its signature whiskey has sold out.

“We’re maxing out what we can do with production with the staffing we have,” Jorgensen said. She and her distiller husband, Jason, have been the only employees for the past year, but another was hired in production this year. “We can only do so much.”

While the data on what’s happening with adult beverage consumption on premises with the reopening nationwide isn’t totally clear yet, it seems that consumers that are venturing back out are reaching for spirits more than other libations, according to Jon Moramarco, editor of the Gomberg Fredrikson Report and managing director of industry consultancy BW166.

“The spirits business is benefiting a bit more from on-premise (venue) reopening than wine or beer, but it's a challenge for what spirits products they carry, because restaurants are being more conservative on how many items they are pouring, to conserve cash,” Moramarco said. “I think restaurants are trying to work off existing inventory.”

Last year’s sales pace wouldn’t be tough to beat, said Karakasevic of Charbay.

Sales plummeted after restaurants and bars closed in mid-March 2020. Charbay, like a number of distilleries in the North Coast and elsewhere, jumped into producing hand sanitizer. It took the distillery 30 days to ramp-up the sanitizer business, complying with Food & Drug Administration rules, sourcing materials for the World Health Organization–approved recipe, locating bottles and packaging, and setting up online sales.

Sanitizer sales allowed the distillery to stay operational as an essential business and keep expenses covered and employees paid, but those sales evaporated at the end of last year, as low-cost sanitizer options started flooding the market. But that’s when vaccine distribution started, and some states started reopening.

Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.