Eastside Distilling(EAST) - 2019 Q4 - Annual Report

Market Overview - The global spirits market generates total revenues exceeding $400 billion annually, growing at an estimated rate of 2-4%[22] - Distilled spirits sales in the U.S. increased by 5.3% in 2019, reaching a record $29 billion, with American whiskey sales up 10.8% to $4 billion[23] - The spirits industry gained market share over beer and wine sales, with revenues growing by 0.5% to 37.8% of the total beverage alcohol market in 2019[23] - The U.S. spirits industry has consolidated significantly, with eight major companies dominating the market, making it challenging for smaller companies to gain distributor recognition[50] Company Growth and Acquisitions - The company acquired 90% of Big Bottom Distilling in May 2017 and the remaining 10% in December 2018, enhancing its presence in the ultra-premium segment[20] - The Azuñia tequila brand was acquired in September 2019, complementing the company's portfolio in the high-growth tequila category[20] - The company aims to become a "house of brands" by acquiring and developing nascent brands for national distribution, targeting tier 1 producers for future sales[26] - The sales of premium brands have increased over 1,000% since 2010, reflecting the company's growth in the craft spirits market[35] Distribution and Sales Strategy - The company has developed a national distribution network with relationships in 49 U.S. states since the introduction of Redneck Riviera Whiskey in 2018[48] - The company has established relationships with wholesale distributors in 49 states, relying on them for sales and product placement[54] - The company aims to expand its distribution territories and register trademarks in additional markets as it grows[66] Product Focus and Market Position - The company focuses on premium and super-premium segments, which typically yield higher prices per case and gross profit margins[72] - The high-end and super-premium spirit products saw revenue increases of 7.6% and 7.9% respectively in 2019[24] Operational Changes - The company closed its four retail stores in the Portland area effective March 23, 2020, to streamline operations[55] - As of March 30, 2020, the company employed 89 full-time employees, with 23 in sales and marketing, 58 in production, and 8 in administration[79] Regulatory Environment - The company is subject to extensive federal and state regulations regarding the production, distribution, and marketing of alcoholic beverages[73] Supplier Relationships - The company utilizes a limited number of suppliers for sourcing spirit products, including a 20-year exclusive agreement with Agaveros Unidos de Amatitan for tequila[46][47] - The company utilizes Park Street Imports for back-office administrative and logistical services, enhancing cash flow through factoring services[59] Brand Development - The company has engaged Sandstrom Partners for brand development, resulting in the rebranding of key products and the launch of new brands like Hue Hue and Granny Rich[62]