Distillers
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Industry Overview
The US distillers industry includes about 80 companies with combined annual revenue of $6 billion. Major companies include Beam Global Spirits & Wine, Brown-Foreman, Constellation Brands, and Heaven Hill Distilleries. The industry is highly concentrated: the top 25 companies account for 90 percent of industry revenue.
The industry includes businesses that distill, blend, or mix liquors. Some businesses distill alcohol onsite; others take neutral spirits and infuse alcohol with flavoring agents.
Competitive Landscape
Demand is driven primarily by trends in alcohol consumption and personal income. The profitability of individual companies depends on efficient operations and strong distribution channels. Large companies have advantages in brand recognition and economies of scale. Small operations can compete effectively by specializing in high-end or unusual spirits. The industry is capital-intensive: Average annual revenue per employee is about $1 million.
US distilleries compete with wine and beer producers and with global spirits companies for alcohol spending.
Products, Operations & Technology
Major products include whiskey and bourbon (30 percent of industry revenues); vodka (10 percent); cordials and liqueurs (10 percent); bottled cocktails (10 percent); gin (5 percent); and distillers dried grains used for animal feed (5 percent). Other products include unflavored (neutral) spirits and unclassified or specialty liquors.
Making liquor involves six steps: mashing, fermenting, distilling, maturing, filtering, and bottling. A distiller first cooks (mashes) sweet or starchy raw materials to convert starch to sugar. With whiskey, the mash is corn with a blend of barley, rye, or wheat. The mash is strained and the resulting sweet liquid (wort) is cooled and transferred to fermenting tanks. Leftover wet grains are dried and sold as animal feed.
The cooled wort is inoculated with yeast in fermentation tanks at around 85°F. Yeast converts the grain sugars into water, alcohol, and carbon dioxide. The yeast also produces congeners -- flavor and aroma compounds such as higher alcohols, esters, and tannins that impart unique characteristics on the final product. Fermentation typically lasts three to 10 days. The final fermented grain alcohol mixture, called "beer," is transferred to a beer well until it's distilled.
Distillation separates and concentrates alcohol from the fermented beer mash. Water, alcohol, and fuel oils have different boiling points that separate when heated. As the beer is heated, alcohol vapors rise into a condenser, where circulating cool water causes the vapors to return to liquid form, falling into a flask. The distiller removes undesirable runoffs. "Heads" are lighter, often poisonous alcohols; "tails" are low-boiling-point compounds below the minimum acceptable proof level. The number of rounds of distilling depends on the taste the distiller desires. Additional rounds of distilling produce a smoother, purer product.
Maturation is the storing and aging of distilled alcohol in barrels. By law, whiskey and bourbon are aged for at least two years in new oak barrels that have been first charred on the inside. Aging imparts distinct aroma, flavor, and color; unaged, or "green," whiskey is as clear as a grain neutral spirit like vodka. Seasonal temperature changes cause the whiskey to expand and contract, creating a chemical reaction and extraction between whiskey and wood, and turns the clear alcohol a golden hue. Hotter and more extreme temperatures allow Tennessee and Kentucky whiskeys to mature much more rapidly than those distilled in Canada, Ireland, or Scotland. The longer a whiskey or bourbon is aged, the more flavor it takes from the wood. Several dozen whiskeys and bourbons are aged more than 20 years.
After aging in the warehouse, the distilled liquor is emptied into tanks, filtered, and bottled. Tennessee whiskey is simply bourbon that has been filtered through 10 feet of charcoal made from sugar maple. A distiller may add demineralized water to lower the proof to acceptable or legal standards. Some companies don't distill onsite, but infuse spirits from other ethanol companies and then age and bottle the final product. Such companies are still considered distilleries.
Most distilleries produce liquor at a single facility. A distillery is often owned by a holding company that has controlling interest in several other distilleries and liquor manufacturers. A small-batch distiller typically produces around 1,250 to 2,500 barrels (250,000 to 500,000 liters) of liquor annually; the largest distillers annually produce 40,000 to 50,000 barrels (8 to 10 million liters).
Common inputs include water, natural gas, malted grains, glass, and cartons. A whiskey producer needs around 100 kilograms of grain to produce 600 liters of liquor. High-proof, fruit-infused gins require around 90 kilograms of fruit to produce 600 liters.
Major food inputs depend on the final product. Vodka is a neutral spirit made from rye, wheat, corn, beets, or potatoes; gin is vodka flavored with botanicals; and cordials can be made from coffee beans, fruit, or herbs. Federal regulations can also drive inputs: by law, bourbon mash must be at least 51 percent corn and the final liquid must be aged in charred new oak barrels.
Technological advances include increased bottling and packaging efficiencies. The industry has reduced the weight of glass bottles and is expanding the use of containers made from polyethylene terephthalate (PET), a thermoplastic polymer. The distillation process hasn't changed much over the years, though improved yeast strains have helped create more consistent and efficient fermented mash. Distilleries aren't being converted from potable alcohol manufacturing to fuel ethanol plants, in spite of growing demand for ethanol fuel. Fuel ethanol plants are much bigger than most distilleries, and a converted distillery simply wouldn't have the size or scale to compete against large fuel manufacturing plants.
