Industry Overview: Liquor and Distilleries 2022

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The liquor and distilleries industry comprises establishments primarily engaged in distilling liquor, except brandy; blending liquor; or blending and mixing liquor and other ingredients. It often places importance on the quality of ingredients used in the manufacturing process and the transparency of the process itself. The distilling industry is a world-class and multinational industry; in fact, several Canadian distilled spirits products are internationally renowned for quality and consistency.

Key Takeaways

• Market Size: There are over 170 small- and medium-sized distilleries across Canada, with British Columbia boasting the second-highest number with 45 distilleries in the province as of January 2022 (StatCan, Canadian Business Counts, 2022).
• Huge Growth: Between 2017 and 2022, the Canadian liquor and distilleries industry’s revenue grew at an annualized rate of 6.0% to over $2 billion USD per year (McGrath, Distilleries in Canada, 2022). 
• Modest Outlook: Between 2022 and 2027, the Canadian liquor and distilleries market is expected to grow at an average rate of 1.4% per year (McGrath, Distilleries in Canada, 2022). 
• A Thirst for Crafted Spirits: Cultural changes, including the rise of a cocktail culture favoring clear spirits, paired with growing disposable income, has led to a shift in Canadian consumer taste toward crafted distilled liquor (McGrath, Distilleries in Canada, 2022). 
• Regulatory Challenges: The profitability margin for Canadian distillers shrank from 11.2% in 2017 to 7.9% in 2022 due to provincial alcoholic beverage retail price floors; while distilleries can benefit from receiving a portion of the price hike, the markups also make alcoholic beverages substitutes more competitive (McGrath, Distilleries in Canada, 2022). 

Industry Performance Snapshot 

During the time period 2017-2022:

• The liquor and distilleries industry experienced strong expansion, despite falling per capita consumption of alcohol from 102 litres/year to 99.1 litres/year (McGrath, Distilleries in Canada, 2022). 
• Retail sales in the liquor and distilleries industry grew from  $991 million USD to $1.02 billion USD (Statista Research, Industry Revenue, 2022). 
• Competition in the industry within the country grew as Canadian craft distilleries expanded from a total of 94 establishments in 2015 to over 170 in 2022 (FCC, Annual Beverage Report, 2022). 
• The industry also faced fierce external competition as the revenue for imported spirits and liquors rose from $1.2 billion USD in 2017 to $1.5 billion USD in 2022 (McGrath, Distilleries in Canada, 2022). 
• The number of people employed in the Distilleries industry in Canada increased 12.4% on average year over year,, bringing the total number of people employed in liquor and distilleries to 3,508 employees (McGrath, Distilleries in Canada, 2022). 
• Vodka and other clear spirits, which are generally not aged and therefore decrease the time-to-market of the product, proved popular amongst tried-and-true offerings like whiskey. (McGrath, Distilleries in Canada, 2022). 

Source: IBISWorld. (2022). Distilleries in Canada. Canada Industry (NAICS) Report 31214CA / Manufacturing in Canada. IBISWorld. Retrieved from IBISWorld database.

Industry Outlook

For the period 2023-2027:

• Industry revenue is expected to grow at an annualized rate of 1.4% to $2.1 billion over the five years to 2027, as the economy normalizes from the COVID-19 pandemic. (McGrath, Distilleries in Canada, 2022). 
• The expansion of Canada’s craft distilleries and their offerings will continue; along with successful innovation and marketing techniques, per capita alcohol consumption will increase (McGrath, Distilleries in Canada, 2022). 
• Imports are anticipated to increase an annualized 0.6% to $1.7 billion over the five years to 2027, satisfying 58.8% of domestic demand in 2027. (McGrath, Distilleries in Canada, 2022). 

Source: IBISWorld. (2022). Distilleries in Canada. Canada Industry (NAICS) Report 31214CA / Manufacturing in Canada. IBISWorld. Retrieved from IBISWorld database.

Retail Market for Alcoholic Beverages Across Canada

• The craft distiller and craft liquor market follow in the footsteps of the craft brewery market, which experienced an explosion in popularity between 2010 and 2020. (FCC, Annual Beverage Report, 2022). 
• In the retail year 2020-2021, liquor retail sales grew 14.3% across Canada. Sales growth was led by spirit coolers, whisky and liqueurs (FCC, Annual Beverage Report, 2022).
• Volume of liquor sold grew 28.7%, spurred by a shift to a smaller price point and more convenient products. (FCC, Annual Beverage Report, 2022).
• Beer lost 2.1% of its market share in the fiscal year 2020/2021, as spirits gained 0.9% of total market share and ciders and coolers gained 1.8% (The Daily, Control and sale of alcoholic beverages, April 1, 2020 to March 31, 2021, 2022).
• The spirit with the highest growth over the preceding decade (2010/11-2020/21) was gin, rising 81.8% over those ten years. Quebec and Ontario were the largest contributors to increased gin sales. (The Daily, Control and sale of alcoholic beverages, April 1, 2020 to March 31, 2021, 2022).

Source: FCC Annual Beverage Report via Statistics Canada. Top Alcoholic Beverages by Province. Retrieved from https://www.fcc-fac.ca/en/knowledge/economics/2022-beverage-report.html

Retail Market Breakdown in British Columbia

• Whisky (29.6%), vodka (24.6%) and rum (14.9%) were the most popular spirits sold in 2020/2021, accounting for over two-thirds (69.0%) of total spirit sales (The Daily, Control and sale of alcoholic beverages, April 1, 2020 to March 31, 2021, 2022).
• In British Columbia, whiskey led the way in retail sales with $269 million CAD worth of sales, followed by vodka and then various clear distilled liqueurs (Statista, BCLDB Quarterly Market Review, March 2022).

Source: BCLDB Quarterly Market Research Review, March 2022. Leading types of spirits sold in British Columbia (BC) in fiscal year 2021/22, by retail sales. Retrieved from Statista database. 

Business Locations

In 2022, small and medium-sized distilleries were located in the provinces of Ontario and British Columbia. Ontario boasted 45 distilleries, while British Columbia trailed only slightly with 43 establishments and counting. 

Source: Statistics Canada. Table 33-10-0493-01  Canadian Business Counts, with employees, December 2021. Retrieved from Statista database. 

Industry Trends and Challenges

Differentiation of products

• Imports grew over 16% in the fiscal year 2021-2022, at the expense of domestic sales. Craft distillers and small-to-medium liquor producers must consider differentiating their products to stem this trend (FCC, Annual Beverage Report, 2022).
• Strategies for differentiation could include boosting unique attributes, value propositions including premium quality, the convenience of drinking the spirit, or being part of a “local” community to elevate the experience of drinking the spirit (FCC, Annual Beverage Report, 2022).
• Hosting events, tasting rooms, and distillery tours can further drive home the authenticity of the product and increase brand loyalty by establishing consumer trust (McLennan, 2017).
• Distillers and liquor producers can also emphasize the transparency of the distilling process and the quality of the ingredients used to appeal to health-conscious consumers (McLennan, 2017). 
• The usage of specialty liquors used in cocktails form an important part of a local “cocktail” culture. Successful entry into this market can help craft distillers and liquor producers to differentiate their product, and benefit from the post-pandemic rebound in bar and restaurant sales (FCC, Annual Beverage Report, 2022). 

Depreciating Canadian dollar and intensifying competition

• A depreciating Canadian dollar drives export growth, which is expected to represent 42.8% of industry revenue in 2027. The United States is the largest importer of Canadian distilled spirits, meaning that Canadian distillers will depend on external demand from the U.S market to grow (McGrath, Distilleries in Canada, 2022). 
• The growth of disposable income and the decline of excise tax in the United States will drive exports and industry revenue growth over the five years to 2027 (McGrath, Distilleries in Canada, 2022).
• Depreciation will make domestic goods less expensive in comparison to imported goods, which will counteract the competition Canadian distillers will likely see from international brands as supply chains rebuild. However, imports are still projected to increase an annualized 0.6% to 2027, and satisfy 58.8% of domestic demand by 2027. (McGrath, Distilleries in Canada, 2022).

Maturation and slowing of market 

• There is a wholehearted acceptance of craft distilled spirits in the Canadian market. The range of products is well-established, and the industry is characterized by minimal change in technology, making it a mature market (McGrath, Distilleries in Canada, 2022). 
• The industry is furthermore characterized by a long trend of government regulation founded on Canadian ideas and traditions. Regulatory boards have long sought to minimize the social harms of alcohol by implementing price floors. These floors may drive some consumers to seek mass-produced, cheaper alcohol (McGrath, Distilleries in Canada, 2022).

For a more in-depth look at secondary market research for the liquor and distilleries industry, including:

• how to find info on the industry from sources including library databases, government websites, trade journals, and even podcasts,
• how to write a business plan, including examples and templates,
• why knowing your customer is important to your success,

...visit our newly revised Liquor and Distilleries Industry Guide!

Good luck with building your business, and happy brewing!

Sources

BCLDB Quarterly Market Research Review, March 2022. Leading types of spirits sold in British Columbia (BC) in fiscal year 2021/22, by retail sales. Retrieved from Statista database. Retrieved from https://www-statista-com.eu1.proxy.openathens.net/statistics/457027/leading-types-of-spirits-sold-in-bc-by-retail-sales-canada/.

The Daily. (2022, February). “Control and sale of alcoholic beverages, April 1, 2020 to March 31, 2021. Statistics Canada. Retrieved from Statistics Canada database. Retrieved from https://www150.statcan.gc.ca/n1/daily-quotidien/220215/dq220215a-eng.htm .

FCC. (2022, June 23). Annual Beverage Report 2022. Farm Credit Canada. Retrieved from https://www.fcc-fac.ca/fcc/resources/e-2022-beverage-report.pdf. 

McGrath, S. (2022, February). Distilleries in Canada / Canada Industry (NAICS) Report 31214CA ? Manufacturing in Canada. IBISWorld. Retrieved from IBISWorld database. Retrieved from https://my.ibisworld.com/ca/en/industry/31214ca/about .

McLennan, E. (2017, July 4). The spirit of craft: how can distillers tap into the artisan movement? Drinks Insight Network. Retrieved from https://www.drinks-insight-network.com/features/featurethe-spirit-of-craft-how-can-distillers-tap-into-the-artisan-movement-5860996/ . 

Statista Research Department. (2021, September 30). Industry Revenue of Distilleries in Canada 2012-2014. StatCan. Retrieved from Statista database. Retrieved from https://www-statista-com.eu1.proxy.openathens.net/forecasts/410093/distilleries-revenue-in-canada .

Statistics Canada. (2022, February). Table 33-10-0493-01, Canadian Business Counts, 2022. Statistics Canada. Retrieved from Statistics Canada database. Retrieved from https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3310049301&pickMembers%5B0%5D=2.1&pickMembers%5B1%5D=3.606 .