A Confluence of Forces Is Rewriting the Economics of the Global Spirits Industry

The global spirits industry is facing significant pressure as oversupply, lower demand and other market forces destabilize the value of spirits inventories. Demographic trends, shifting views on health, increased competition from alternative beverage categories and an extended period of overproduction have contributed to the current environment.

Years of overinvestment in the U.S. whiskey market have left many producers with lower cash reserves and higher levels of inventory-based debt, making them more vulnerable to declining asset values. Distillers and the institutions that finance them face growing risks in this environment. Understanding how these trends impact inventory values, liquidity and borrowing is essential for evaluating risk and making informed business decisions.

Supply Is Up, Demand Is Down and Costs Are Rising

Until relatively recently, conditions in the spirits industry were far more favorable. In the 2010s, consumer demand significantly outpaced production capacity. This environment spurred a considerable increase in production capacity as record numbers of new distilleries came online and existing distilleries made capital investments to improve capacity. However, by the early 2020s, production ultimately outpaced demand, creating major oversupply.

For a time, the COVID-19 pandemic-era consumption spike helped absorb excess production. With restaurants and entertainment venues closed, consumers purchased more liquor for at-home consumption, with many trading up to premium brands and experimenting with new ready-to-drink (RTD) products. In response, distillers increased production further and added RTD product lines. As new labels and product forms reached retail shelves, stronger sales and a broader product mix drove distributor inventories to record highs.

As economies reopened and consumer behavior returned to pre-pandemic patterns, demand normalized, leaving companies with substantial oversupply. This drop was exacerbated by long-term demographic trends and a broader cultural shift away from alcohol. A 2025 Gallup survey found that just 54% of Americans drank alcohol, the lowest level on record, while 53% considered even moderate consumption unhealthy.¹ This shift is most pronounced among younger consumers, suggesting the trend may continue.² Greater availability of legal alternatives, like cannabis and CBD products, are also drawing younger and older consumers away from alcohol. Meanwhile, rising living costs are making buyers more price conscious and limiting discretionary spending.

Over the last decade, medical guidance has increasingly emphasized moderation and the health risks associated with alcohol consumption. Advice touting red wine’s heart benefits 20 years ago has long been reversed and the latest findings recommend further limits on daily alcohol intake. Although last-minute political interference kept the surgeon general’s recommended levels unchanged in the latest published guidelines, general practitioners following American Medical Association guidance now recommend lower intake than five years ago and describe alcohol products “as a major public health risk and a leading preventable cause of death.” The growing use of GLP-1 and other weight-loss drugs are further reducing spirits demand, creating another headwind for the industry.

Against this backdrop, distillers have sought additional outlets for excess supply, accepting lower margins to sell products through store brands and lower-priced blends. While these channels can help reduce inventories, they also illustrate the increasing pressure on producers to balance volume with profitability.

At the same time, producers are confronting higher and more volatile input costs. More frequent extreme weather events and geopolitical uncertainty threaten the supply of grapes, grains, sugarcane, glass and energy all essential to spirit production.

U.S. Tariffs and Retaliatory Pressures Weigh on Industry

Shifting trade policies and ongoing conflicts across multiple markets have heightened uncertainty for the global spirits industry. Although evolving U.S. trade policy and fluctuating duties and barriers across trading partners leave tariffs’ full impact uncertain, recent policy changes have disproportionately harmed the U.S. spirits industry.

Between 2019-2021, a 25% levy on single malt Scotch whisky cost producers over £600 million in lost U.S. exports. Tariffs imposed in 2025 again weighed on the industry, with Scotch exports to the U.S. declining 15% by volume and 7% by value from May through December 2025.³

Exports play an important role in the U.S. spirits industry. In 2024, U.S. producers exported a record $2.4 billion in spirits, with about half destined for the European Union, while domestic sales totaled $37.2 billion.⁴ By 2025, that momentum reversed as U.S. spirits exports declined 3.8% to $2.37 billion. American whiskey represented just 45% of total U.S. spirits exports—its lowest share since 1996.⁵

Retaliatory measures have intensified the pressure. In Canada, American whiskey was removed from some liquor stores while promoting a “Buy Canadian Instead” campaign, contributing to a surge in domestic whisky sales. Between March and December 2025, U.S. exports to Canada fell over 70%.⁶

Ongoing trade policy uncertainty and potential future tariffs continue to create volatility across the spirits industry. While tariffs generally raise costs and pressure margins, the effects can vary considerably by category. Tequila, now the second-largest spirits category in the U.S. by revenue and volume, remains heavily dependent on imports while higher import costs could create opportunities for U.S. producers. However, weaker demand and broader economic uncertainty make the long-term impact difficult to predict.

The effects of trade pressures extend beyond exports. Because domestic manufacturing capacity cannot meet demand, the U.S. spirits industry relies heavily on imported glass and cork. Tariffs increase these material costs, further pressuring margins and consumer prices regardless of where the products are sold.

Distribution Disruption Adds to Industry Pressures

Distribution network disruption has further complicated an already complex environment. Republic National Distributing Company’s (RNDC) exit from key markets and loss of major supplier relationships has had a far-reaching effect across the industry. In response, producers are increasingly pursuing more diversified, state-by-state or regional distribution strategies rather than relying heavily on a single partner. As RNDC is dismantled, excess distributor inventory is entering the market and existing distribution networks are being sold to different buyers.

While distributors face many of the same pressures as spirits producers and the broader alcohol space, inflation and tighter household budgets have undermined premiumization—the practice of encouraging consumers to purchase higher-priced, top-shelf liquor—as buyers switch to cheaper brands or buy less frequently. Sales of high-margin traditional categories such as Scotch and wine have also plummeted, often replaced by lower-margin RTD canned cocktails. Together, these shifts are forcing producers to rethink not only where they sell, but how they manage costs, inventory and routes to market in an increasingly uncertain operating environment.

Oversupply and Financial Distress

Many of today’s challenges stem from years of production expansion. According to the Kentucky Distillers’ Association, production of Kentucky Bourbon in 2024 was 135% higher than in 2004.⁷ Distillers have invested heavily in aging inventories to meet anticipated future growth. By 2025, a record 16.1 million barrels of bourbon were aging in Kentucky warehouses. Excess supply and slower consumption have placed growing pressure on producers across the market.⁸

Several whiskey and spirits producers have faced restructuring challenges, while larger industry participants have announced layoffs and cost-cutting measures in response to slower sales and elevated inventories. In 2025, premium bourbon brand Kentucky Owl and its parent company, Stoli Group, entered bankruptcy proceedings. Brown-Forman and Diageo also announced downsizing and cost-reduction measures. Financial pressure has not been limited to larger producers: the American Craft Spirits Association (ACSA) reported that one-quarter of all craft distilleries closed between September 2024 and September 2025.⁹

While headline barrel counts point to broad oversupply, volume alone does not tell the full story. A significant portion of the current barrel inventory is relatively young, with 70% of Kentucky’s inventory—11.4 million barrels—under four years old, while only 3% is more than eight years old.¹⁰ This reflects, in part, the typical aging cycle for whiskey. But it can also create near-term liquidity pressure for holders that are expected to monetize inventory sooner. Realizable value remains in select mash bills, age ranges and quality profiles, especially where the inventory aligns with buyer specifications, has clear ownership documentation and can be marketed through established bulk or branded channels.

Production Cuts and Distillery Closures

The current whiskey glut is affecting both bourbon and Scotch producers, prompting distillers to reduce production and reassess expansion plans implemented during the post-pandemic boom. Major producers have announced temporary production suspensions, workforce reductions and facility rationalizations as they work to better align supply with changing demand.

In Kentucky, Jim Beam paused production at its flagship Clermont distillery to help rebalance inventories and modernize operations. Similar actions have been taken across Scotland, where softer demand and export pressures have led to production slowdowns and temporary closures. These measures underscore a broader industry effort to preserve margins, manage inventories and maintain financial flexibility as producers adapt to evolving market conditions.

The situation has drawn comparisons to the “Whisky Loch” of the 1980s, when years of overproduction led to a prolonged downturn and widespread Scotch distillery closures. While current market dynamics differ, excess inventories, slowing consumption and rising uncertainty are similarly prompting producers to adjust expectations and reevaluate long-term growth strategies. The Whisky Loch illustrates the potential long-term value of aging inventory: despite depressed demand and widespread disruption at the time, some whiskies from that era are now praised for their quality and command premium prices. It also highlights the industry’s lengthy recovery from that bubble.

Aging inventory can create both risk and optionality. Time in barrel may improve quality and support future premium positioning, but that upside depends on the owner’s ability to fund carrying costs and wait for a viable route to market. For distressed producers or investment vehicles with limited liquidity, the same aging profile that may support long-term value can also create near-term pressure if barrels must be sold before reaching optimal maturity.

The Impact for Distillers & Lenders

The convergence of these trends is placing pressure on inventory values and profitability across the spirits industry. Producers holding high-quality, ultra-premium inventory should be somewhat better positioned to withstand market volatility. By contrast, distillers with large inventories or in slowing categories may face greater pressure on asset values and liquidity. Industry challenges are preventing both stronger and weaker brands from accessing additional liquidity.¹¹

Distillers have long been an imperfect fit for asset-backed lending, given the unique factors that influence inventory values. Declining market prices for new fill and aged spirits in distillers’ inventory may limit producers’ abilities to secure new inventory-backed financing. At the same time, oversupply in the bulk spirits market, declining barrel values and rising inventory liquidations have made refinancing more difficult.

These challenges come even as many distillers continue to hold high levels of inventory accumulated during the pandemic-era spirits boom, often financed when demand expectations and asset values were at their peak. Perhaps the most vulnerable situations are those backed by investment vehicles that lack a formal business plan beyond buying and holding barrels with no clear path to monetization. As market conditions reset, future access to capital will be increasingly tied to inventory quality, brand strength, distribution capabilities and demonstrated cash-flow generation rather than barrel holdings alone.

What Does Restructuring Mean for the Future of the Spirits Industry?

Recent restructuring activity highlights the importance of disciplined inventory management, operational flexibility and strategic adaptation. Producers are streamlining costs, optimizing inventory, focusing on leading edge products and brands and diversifying distribution channels. Greater agility is helping companies respond to shifting trade dynamics, regulatory developments and evolving consumer preferences. While the current environment presents near-term challenges, it is also helping to build a more resilient, disciplined and strategically positioned industry.

From an asset valuation and monetization perspective, we have seen how recoveries can vary meaningfully based on the characteristics and control of the inventory. Barrel age, mash bill, product quality and the ability to sell inventory as branded finished goods or bulk liquid can influence value. Practical considerations, including ownership documentation, warehousing agreements and access to a viable route to market can be equally important.

Early assessment of inventory composition, legal control, buyer appetite and sale alternatives can help preserve flexibility before a liquidity event. This is particularly important given state-by-state differences in regulatory frameworks, franchise laws, distributor relationships and transfer or discounting requirements. These factors can extend the cash conversion cycle and limit bottled inventory discounting, making it increasingly necessary for lenders, investors and companies to understand their rights, control over inventory and preferred sale or refinancing structures before a forced liquidity event occurs.

As asset experts in the wine and spirits industries, Gordon Brothers can support lenders, investors and operators through periods of market disruption and asset value volatility. Our team provides deep insight across inventory, vineyards, distilleries, production facilities, and machinery and equipment to help assess changing values, uncover potential areas of overexposure and identify appropriate next steps.

We can also serve as a strategic partner for future sales, appraisals, consolidations or winddowns, helping clients evaluate options and execute with greater confidence. To learn more, please reach out to one of our experts.