So far, 2020 has defied definition for brewers. For many, the loss of sales inside their own taprooms and at bars and restaurants has been devastating. For others, pivoting to packaged beer sales has been successful but not enough to replace the lost on-premise revenue.
“There’s no singular story that we can tell,” Brewers Association chief economist Bart Watson said during his midyear recap presentation last week.
Nevertheless, Watson offered some insights on the craft landscape six months into 2020.
The Channels: On-Premise, Off-Premise, At the Brewery
With the on-premise channel almost completely shut down in the early days of the COVID-19 pandemic and distribution in grocery stores and big box retailers difficult to attain for small craft brewers, at-the-brewery sales have become a distinct third channel.
“It’s worth remembering that this is going to hit different breweries very differently,” Watson noted. “The smallest brewers are going to be very heavily skewed toward that on-site and distributed keg model, whereas if you move up in the craft ranks and start talking about regional craft brewers, they’re going to look more like the numbers that we get from scans.”
In the first two and a half months of 2020, purchasing activity in both the grocery stores channel and restaurant/accommodations industry were flat compared to 2019, according to data Watson shared from Affinity and Opportunity Insights. In mid-March, they diverged drastically, with grocery store sales soaring to nearly 80% over their baselines, and restaurant sales dipping almost 60% below baseline.
“It’s really been a tale of two channels in the on- vs. off-premise this year,” Watson said, referencing Charles Dickens’ A Tale of Two Cities. “One spiked during that pandemic stock up period, and has remained elevated beyond where we would have expected, at about a 10% level for the remainder of the year. The other cratered and is slowly coming back up.”
For craft breweries, the third channel of “own-premise” sales has cemented its position of importance; 94.4% of survey respondents told the BA they now offer to-go sales from their taprooms, an increase of 8.2%.
At-the-brewery sales account for half of small breweries’ volume, according to data Watson shared from the California Board of Equalization. For those breweries, which produce fewer than 1,000 barrels annually and account for 75% of the nation’s craft breweries, at-the-brewery sales are down 65%. Sales of kegs into the on-premise channel, which account for 44% of small breweries’ volume, are down 95%. Packaged beer sold into the off-premise channel makes up just 6% of these breweries’ sales and is up 10-15%. Total sales across all three channels for small breweries are down 70-75%.
So, what are small craft breweries to do? Many have pivoted their business model to newly opened channels, such as delivery. The number of breweries offering delivery straight to consumers’ homes has increased 30.5%, making it the most popular pivot of the COVID-19 era.
Breweries offering delivery via third-party services have increased 3.8%. Drizly, the most popular e-commerce on-demand delivery platform, connects consumers with liquor stores.
Nearly 5% of breweries told the BA they had begun offering direct-to-consumer shipping in states where the practice is legal.
The only sales avenue to see its participation decline was distribution — 11.5% of respondents stopped distributing during the pandemic. Before the pandemic, 77.1% of respondents distributed their beer through a wholesaler or via self-distribution.
Changes to Consumer Behavior
These pivots align with current consumer behavior, Watson said, pointing to a survey by the North Carolina Craft Brewers Guild that found consumers who are unlikely to return to taprooms for onsite consumption are very likely to continue using curbside pickup or home delivery to purchase beer from local breweries.
“There’s a ton of people who aren’t coming back but are maybe ready to buy to-go, delivery, get beer DTC from their favorite brewery,” Watson said.
Nielsen CGA, the market research firm’s on-premise arm, found that 36% of consumers do not want to return to bars and restaurants until there is a vaccine or treatment. As states began allowing restaurants to reopen earlier this summer, sales velocity picked up, but has since plateaued to a range of 27-36% below last year, Nielsen CGA found, indicating that more consumers won’t return to the on-premise for the time being.
Delivery and other lifelines, such as to-go sales of alcohol from bars and restaurants, were granted as temporary relaxations of laws to support small businesses during the pandemic, but Watson said he expects a push to keep them on the books.
“We’re going to see a lot of regulatory and legislative activity over the next couple of years to figure out what’s the balance of what we want to keep from some of these changes that have been temporary and make them permanent,” he said.
Consumers have also adjusted to purchasing alcoholic beverages online. At the start of 2020, just 2% of beverage alcohol purchases took place online. Estimates now place that figure at 10% and growing.
“I think we’re going to see a bump here long-term for e-commerce in general,” Watson said.
With their ability to visit on-premise establishments for drinking occasions reduced, consumers have funneled their dollars into the off-premise, boosting craft beer dollar sales into double-digit growth. Nevertheless, these skyrocketing off-premise sales have not made up to the loss of on-premise revenue.
In the COVID era, which Watson defined as the weeks between March 7 and August 15, total craft dollar sales were up 15.4% at Nielsen-tracked off-premise retailers. Local craft dollar sales were up slightly less at 13.6%. Both are out-pacing dollar sales in the 52 weeks that ended June 6, which saw total craft up 4.4% and local craft up 6.8%.
Brewery Closures
With such challenging business conditions, 118 breweries have permanently closed their doors in the first half of 2020, Watson said.
“It’s still surprisingly low,” he said. “One of the things that shows us how resilient, small business owners have been.”
However, with all states allowing on-premise establishments — including breweries — to reopen in some capacity, breweries have been buoyed by the ability to expand into outdoor spaces and sell draft beer on-site. It is feasible to continue this in warmer climates, but breweries in northern states will have to curtail on-premise sales when winter arrives.
“I also worry that [the number of brewery closures] has stayed low because we’ve been in arguably the best period of the year for breweries, and that we’re about to exit,” Watson said.
In the COVID-19 period, breweries have received 2.44% of their annual visitors each week. The rest of the year, visitor traffic drops to 1.54% of annual visitors.
“I do worry that we’re about to be entering a challenging period as traffic drops naturally, and as some of the outdoor space that breweries are able to utilize becomes less feasible,” Watson said.