Microdistilleries on the rise

Yesterday I wrote about the exponential growth in microbreweries during the last decade. The trend toward small business activity in the brewery industry is an interesting case study because the rest of the economy is moving in the opposite direction—with industry consolidation on the rise and the rate of business formation near record lows.

That got me to thinking: what other industries are experiencing a similar trend of exponential rises in small business activity vis-a-vis large businesses? I crunched the numbers, and one industry easily stood out—distilleries. The distillery industry has undergone a small business expansion during the last decade similar to the brewery industry, though even larger in percentage terms. 

Let's have a look at the data. To begin, the chart below shows the overall rise in employment at U.S. distilleries between 2000 and 2015, with figures I estimated for 2016 and 2017 based on statistical techniques and benchmark data from a more timely industry employment series.


As these figures show, the distillery industry nearly doubled employment between 2009 and 2015 and easily cleared that hurdle by 2017 (at the industry-wide level, these figures have already been published, so it's not really an estimate in this chart).

In keeping with the theme of this article, the chart below plots employment figures that underlie the headline figures seen above—specifically, employment at U.S. distilleries by size of the enterprise (as opposed to the size of a single business location, which affects the analysis when business enterprises have multiple locations yet are centrally controlled by a parent entity—generally, this matters most for the biggest businesses).


These figures show a sharp increase after 2010 for the smallest distilleries—those with fewer than 100 employees. The rest of the firm size categories increase employment during this period, but at a pace far less than for the microdistillery segment. The table below provides more granular detail on those employment levels and growth rates.


Clearly, something unique is happening in the alcoholic beverage industry that runs counter to broader trends toward consolitation in the rest of the economy. In the article that inspired my two contributions, Derek Thompson of The Atlantic points to two key factors that explain the ability of small breweries to thrive: shifting consumer tastes (microbreweries produce better tasting beer) and long-standing industry regulation (which separates production, distribution, and retail).

I wonder if a revival in the "artisan economy" stretches beyond alcoholic beverages. I also wonder if it's the demand side factors that are driving the growth of microbreweries and microdistilleries, or if regulatory barriers to vertical integration have enabled small businesses to compete more effectively. Most likely, it's both. Either way, it's fun to see trends that I anecdotally feel to be true bearing out in the data. I also happen to love microbrews and craft American whiskey. Cheers, America!