Craft brewers should expect 2022 to be another year of disruptions due to a tumultuous supply chain and a wobbly return for draft beer sales, among other reasons, Brewers Association (BA) chief economist Bart Watson said during a Thursday webinar.
While elevated at-the-brewery sales remain a bright spot for the craft beer industry, distribution sales still lag particularly in the on-premise channel where craft beer over indexes. However, the segment will post volume growth relative to 2020, the first year in the modern craft beer era in which the industry shrank due to widespread closures of bars and restaurants.
“We’re going to see growth this year – very, very strong growth – but we’re not going to get back to the volume point that craft was at in 2019,” Watson said. “Not enough recovery has been made in the first half of the year; It was just a little too weak for craft.”
Below is a recap of Watson’s breakdown of six key drivers behind craft’s performance in 2021 with a look ahead to 2022.
Draft Sales Still Not Recovered
After the nationwide shutdown of bars, restaurants and venues for several months in 2020, spending at on-premise establishments has nearly matched spending at off-premise food and beverage retailers and reached pre-pandemic levels.
“We are now spending as much at bars, restaurants and breweries as we did before,” Watson said. “That said, we’ve seen a shift in how that spending has occurred, and the broader beer industry data showed us that, while sales have come back, the draft beer sales haven’t come back in quite as strong a way.”
At the end of 2020, when COVID-19 cases were surging, domestic and imported kegs were at slightly more than 60% off from 2019 levels. They reached their highest point in June 2021 at about 15% less than 2019 levels, but have plateaued.
“We’ve got a little bit of contrast here where total restaurant sales are back, but the draft beer sales are still 15-20% below where they were in 2019,” Watson said. “That’s a long-winded way of saying it’s a different on-premise than it was before. It’s one that continues to recover.”
Even as bars and restaurants have reopened, owners and managers have been reluctant to expand draft offerings, which has affected smaller brewers the most, Watson said.
“Broader distributed breweries have done a little bit better than the long tail in distributed draft,” he said. “I think the rationale talking to retailers there is they’re still a little gun shy about building out that huge draft wall and putting on niche things that don’t move, but they want fast-moving, slightly larger brands.”
Watson’s prediction for 2022: Draft beer will continue to lag behind the bar and restaurant industry’s recovery because many outlets have closed and the segment of the restaurant industry that’s growing is fast casual and fast food, which mostly do not sell beer.
At-the-Brewery Sales are Bouncing Back
A combination of factors point to very strong sales in the craft beer industry’s own-premise channel, including taxes paid on beer for premise use tracked by the U.S. Department of Treasury Alcohol Tax and Trade Bureau (TTB) and sales tracked by point-of-sale tech company Arryved, which includes data from more than 1,000 craft beverage makers.
In the second and third quarters of 2021, beer produced for premise use outpaced both 2020 and 2019, according to TTB figures Watson shared. Traffic and revenue at breweries surpassed January 2020 levels in September and October of 2021, according to Arryved data.
Average check size at breweries has come down from its peak of $37.17 in spring 2020 when consumers were stockpiling and staying home, but remains elevated above its pre-pandemic level ($21.16 in September 2018) at $25.68 in September 2021 (adjusted for inflation).
“It still remains above where it was pre-COVID,” Watson said. “I think that reflects a different set of clientele, so different people visiting, but also different purchases.”
Watson’s prediction for 2022: At-the-brewery sales will continue to grow in total, though overall growth may outpace that of individual breweries’ growth.
2021 Distributed Packaged Beer Sales Above 2019 Levels but Below 2020
With a shuttered on-premise, off-premise craft beer sales boomed in 2020; however, with the return of bars and restaurants, craft beer sales in 2021 are in the red compared to the prior year.
A more complete picture develops when 2019 sales data is also taken into account.
“If we’re comparing to 2019, we’re still seeing elevated sales levels,” Watson said. “The total packaged sales for BA[-defined] craft remain elevated. At no point did they cross below where they were in 2019.”
Craft beer’s share of total beer category off-premise sales on a rolling four-week average has remained fairly stable across 2019, 2020 and 2021, hovering between 8.5% and 10% throughout most of the calendar year.
“If you’re an optimist, this is a good sign – things haven’t really been damaged too much in share terms through COVID,” Watson said. “If you’re a pessimist, the bad sign here is that craft’s share has really been stagnant for three years, that craft has not grown its share of packaged beer, which it was doing pretty consistently for many years.”
Cans remain the package of choice for craft brewers, accounting for more than 60% of BA-defined craft beer sales for much of the spring and summer of 2021. However, supply chain constraints and new ordering procedures at Ball Corporation, the largest manufacturer of aluminum beverage cans, may hamper cans’ ability to continue growing share, Watson said.
Those constraints could add up to craft brewers increasing the price of packaged beer.
Watson’s prediction for 2022: Craft may gain dollar share in distributed packaged beer sales, but may not gain volume share.
Overall Craft Segment Projected to Grow 7% in 2021
Craft beer volume will end the year 7% above 2020, which was down 9% from 2019, Watson said, revising his mid-year projection between 7-8% growth to the lower end of the range.
Last year’s 9% decline after years of steady increases may represent “lost growth potential,” Watson said. He expects 2022 to include more growth for BA-defined craft, but not enough to make up for the losses of 2020.
“We’re going to see more growth in 2022, and faster growth than we were seeing prior to COVID, so maybe more like 5% growth in 2022,” Watson said. “But we’re still not going to catch up to where we could have been.”
Watson’s prediction for 2022: BA-defined craft beer will grow about 5%, but will remain below 2019 levels.
“We’re closing the gap, but we’re not making it all up,” he said.
Supply Chain to Remain Stressed in 2022
The swing in spending from the on-premise to the off-premise channel in 2020 created increased demand for packaged beer, and draft’s slower recovery meant that demand did not abate in 2021.
“We’ve learned here that the supply chain is very interrelated and more fragile than we expected,” Watson said. “If I’m going to make a specific prediction, there’s going to be something in 2022 that we’re not talking about now that is going to pose problems for brewers. So the further out you can think about your supply chain and the more you can think about the weak points – if I don’t have X, it’s going to cause me real problems, and build some robustness there – the better.”
In addition to the global inventory of cans being several billion units less than demand, supply chain disruptions due to backlogs and bottlenecks at ports and other pinch points, and climate-driven disruptions, such as hurricanes and fires, will continue to affect the overall beer industry.
Both the U.S. and Canada recorded barley yields one-third smaller than expected, which will drive up cost, as will the aforementioned changes to can supply.
“Brewers have a choice of seeing margins eroded or to raise prices to match those input sides going forward,” Watson said.
Watson’s prediction for 2022: Supply chain constraints will ease, but not by much.
“We have a horrible conflagration this year, and next year maybe it’s only going to be a minor fire, but this isn’t going to disappear overnight,” he said.
Some Changes in the Labor Market Will be Permanent
The employment-to-population ratio took about 10 years to recover after the Great Recession, the last large-scale economic crisis to hit the U.S. before the pandemic, so it should not be surprising that the return is taking longer this time, Watson said.
“I think our expectations about how fast the labor market could bounce back, the economy could bounce back, were maybe a little bit overly rosy,” he said.
The open jobs rate in the food service and accommodation sectors remain “at historic highs” and the quit rate in those industries is outpacing increases in wages, pointing to the fact that increased wages may not be enough to encourage people to stay in their jobs.
“People are still afraid of the pandemic,” Watson said. “They don’t have childcare. It’s just very difficult to work in some of these industries right now for a variety of reasons.”
Watson noted that most evidence suggests that enhanced unemployment benefits, which were available in 2020, are not a driver in people’s decisions not to return to the workforce.
“This data in totality shows it’s a complex market right now,” he said. “Workers are different. They have different reasons for leaving jobs or for staying out of the market entirely.”
He encouraged craft breweries to develop strong recruitment and retention strategies.
Watson’s prediction for 2022: Work has fundamentally changed and some jobs may not be going back to the way they were before the pandemic.
“Some of those shifts are just going to be permanent because enough workplaces have changed how they accommodate those workers,” he said. “Workers are going to have enough exit options that there’s going to be some kind of permanent disruption here.”