ICYMI: CraftCo. Navigating Crowded Spirits Market, Tariffs

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2:02Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. I promised some alcohol, Carol, so some good news in the world of spirits today for those investors who are at least long. I mean, Davide Campari Milano. It's been a week. It's been a week. Yeah. This is the parent company of Campari, Aperol, Grand Marnier, Wild Turkey and more. Reported better than expected profit and revenue for the first half of the year. Shares rose 8 percent. Not out of the woods yet, though. And it's because of tariffs. The EU indicated that wine and spirits will face a 15 percent U.S.

2:42tariff starting August 7th. That's on an interim basis. While talks continue about an exemption for the sector. Campari flagged today that the impact from tariffs could range between$4.6 million to more than$50 million. That's a range. I was thinking about Grand Monnier and Margarita. I think it can make it extra special. Sorry. Yeah, so you didn't listen to any of that. All you were thinking about was that one drink. I know. Okay, that's fine. I know tariffs and trade are front and center. We're going to talk about that. I want to bring in Allie Anderson. She's CEO of Craftco. It's a company that has a portfolio that includes more than two dozen spirits and liqueurs.

3:16Think bourbon, gin, ready to drink cocktails and more. The company also does co-packing for other brands. Allie's back with us from Alexandria, Virginia. Allie, how are you? I'm doing great today. How are you, Carol and Tim? We're doing pretty well. I know Carol wants a drink after this week. Hey, I want to start with tariffs because you're known as a company that doesn't import and you do your own distilling here in the U.S. as a result of the tariffs that have been placed on imports of liquor from around the world? Have you seen an increase in your domestic sales? Well, I would like to say that I have, but the reality is that when the tariffs, the threat of tariffs, especially the back and forth on that, what it did was it caused U.S.

4:00distributors to use up that budget to purchase those imports out of fear that they wouldn't be able to get those going forward or get those at a different, at a higher price. So that didn't leave a whole lot of budget for craft suppliers like me to be able to get our products out there. So I think it's shaking out right now. I think we have lots of signs of hope on the horizon, but it definitely constrained things for a long time and does continue to affect our suppliers as well. Allie, jewel down a little bit. What does that mean in terms of the restrictions that you guys have had or your suppliers?

4:34What specifically? Well, things like packaging, bottles, which we do get overseas, glass bottles. We actually saw this coming and switched up our suppliers a little bit. And so imported barrels are another one. We actually would like to export more of our barrels. That's not going to be as easy to do, as you know. But even equipment abroad for us, there's some changes to our can line that we'd like to make. And some of that means we've got to look for different suppliers. So, you know, we're flexible, we're nimble, we're able to do that. I recognize that not all suppliers are able to do that. But, you know, we're seeing it and we're feeling it, but we're also adapting to it as well.

5:14So, you know, it's funny because I always I don't say I always forget. But but, you know, when I say something is actually made in the U.S., the things that you're bringing up are a lot of international products, whether that's barrels, uh, whether it's parts of the machinery that you need, whether it's parts of the cans, what, what is, what portion is actually made in the U S well, for us, uh, it's, it's, it's, everything is made in the U S it's bourbon. We do, we do mainly bourbon. Can all your ingredients, all your ingredients from the U S too? I think ours are definitely ours are, uh, but that doesn't have to be the case, right?

5:55You could import rye from Europe if you wanted. We don't happen to do that, but yeah, you absolutely could. Now for us, we're, you know, we get our labels. We keep as much local as we can from our boxes to our labels, our corks, but big things like glass, that can be a little tougher. I'm also curious about consumer spending. You guys are a great window into that. And we've gotten a couple of reads, certainly on spending this week. We even got some consumer sentiment from the UMICH, University of Michigan today. We did see sentiment actually go to a five-month high. A lot of that had to do with the rally that we saw recently in stocks.

6:36We saw inflation expectations easing. What's your read on the consumer right now? I think the consumer is fatigued. The consumer, you know, they want value. They want bang for the buck. They expect us to be very transparent with not just how things are made, but they want to know if you're selling a four pack, they want to know what goes into that. They're very savvy and they're tired. I think of, we hear a lot about shrinkflation as well. I think they're fatigued by that. So that's one thing that we definitely try to keep in mind when we're developing new products. We had this discussion on our editorial call today about whether or not we should consider alcohol a staple or a consumer discretionary item.

7:22And I guess it depends on, it kind of depends on the way you think about a drink after work. I don't know. I think it's person dependent. How do you view it as somebody who creates this product? Do you view it as something that, especially in the part of the market that you play in, do you view it as something that people will buy regardless of how the economy is, or is it a treat? I think it depends on the situation. It depends on so many factors, you know, socio-political economic factors, for one. It depends on how you were raised, where you come from, what your experience is, and how you view something like alcohol.

8:00Like, we're seeing all kinds of trends with the low and no proof, right? People trying to make different lifestyle choices. So, I think it's definitely situational with your relationship to spirits, to drinking, to alcohol, to how you celebrate, to how you mourn, to how you transition through life. Are you doing any nowhere low right now? We are. We are. We've got Thatcher's Organic liqueurs, which we're super proud to be organic. That's kind of a hard certification to get. So we've got organic liqueurs that are low proof. And personally, I like, you know, just a seltzer, like a LaCroix and a bit of Thatcher's Elderflower is a great way to just have a little bit of spirit, but not have to, you know, drink a hundred proof whiskey either.

8:42Now, there's a place for that. Don't get me wrong. But yeah, we do dabble in that. We recently reduced the proof on our canned cocktails because that's what the consumer wanted, right? They're looking to be more sessionable, to enjoy for a little bit longer. And so we listened to that and delivered. Well, that's what I wanted to ask you. Your portfolio, as Tim mentioned in the lead to you, more than two dozen spirits and liqueurs, bourbon, gin rye, ready to drink a lot and you are thinking about the low or no alcohol market, where's the growth? Where are you spending time in terms of, and you want to spend time, not only time, but money and effort when it comes to product development?

9:25The growth is really in innovation. Whatever your category is, what customers want is to be dazzled. They want something new. Like I said, they're fatigued. Sure, they're fatigued by price, but they also want something new to try. So I think if you're primarily into canned cocktails, I think you should be innovating around flavors. What's the culinary scene doing? Are you paying attention to that? What are you picking up from that? If you're into high-end whiskeys, which we very much are, we're looking at what kind of different finishes can we do? What kind of different blends can we do with higher-aged whiskeys?

10:00Because the consumers definitely want different. They want to continue to be kind of entertained at the shelf by what we're doing. I mentioned that you do co-packing. Can you explain that side of the business and what you're hearing from clients? If you watch Shark Tank, you would know what co-packers do, but I know what it is. Sorry. Go ahead. Well, they always do. They're like, do you have a co-packer yet? Or I've got a co-packer. Sorry. No, I know she's fine. Oh, rough, right? No, co-packing. Co-packing is honestly, it's a new part of our business. But when we looked at what our strengths were, it was in product development.

10:38We've developed products for the Lions, products for the Orlando Magic. We're pretty great at being nimble and developing new things for when people come to us and say, you know, I'd like to do this. We say, great, tell us more. We think we can help you out with that. And so co-packing is our response to utilizing our capacity. We had a little bit of excess capacity and being able to say, what do you want to create? We can help you navigate that. You know, alcohol is one of the most highly regulated industries in the United States. It's not easy to navigate that. And so we're able to kind of Sherpa new brands, new the world brand through the process, using our experience and our resources as well.

11:19You mentioned regulatory. What might come from the administration potentially that might help or hurt you guys beyond maybe what we've talked about tariffs and trade? Yeah, you know, I'm definitely not a policy expert here. What I'm just looking to do is really urge President Trump and the negotiators to just very quickly resolve the tariffs. You know, there's 1.7 million workers that depend on a very vibrant U.S. spirits industry. That's farmers, that's hospitality workers, that's drivers, that's us, right? I'm reopening my tap room here in September and I want to be able to do that successfully.

11:54I want people to come through those doors and be able to drink American spirits. Well, you mentioned workers on a day where we got some weakness in non-farm payroll creation. What are you seeing when it comes to the U.S. labor market? Are you guys hiring? Are you holding on to workers? Are you trimming back your workforce? What can you tell us? I'm hiring right now. Like I said, I'm opening our taproom, which has been closed now for several months by our own decision. We really just wanted to reimagine it to be something that was more in line with what Craftco is and who we are. But we're definitely looking to hire hourly staff.

12:31We just hired a taproom manager. We're hiring line cooks, bartenders. So we're definitely in a growth mode. But yeah, is it a little difficult to find that right fit in the labor force? Yeah, it is just a little bit. What kind of pricing power, just 30 seconds, do you have with your product line? Well, we're very diverse. So we've got very high-end whiskeys,$150 plus, all the way down to canned cocktails, which are$12.99 for a four-pack. So there's something for everybody in our line. And I think that speaks to where everybody is right now economically. You can find something for a deal for sure.

13:10Going to leave it there. Good stuff. Always appreciate getting some time with you. Allie, take care and have a good weekend. Allie Anderson, she's CEO of CraftCo. As we mentioned, they have quite a portfolio, spirits in the cores. Yeah, fun stuff. A great insight into an industry as well as a smaller business. She joined us from Alexandria, Virginia.

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