The leveling up of Millennials and Generation Z consumers is a bright spot on the horizon for craft beer, the beer industry’s leading economists said during last week’s Brewers Association Collab Hour webinar.
“There’s really good tailwinds for craft,” Brewers Association (BA) chief economist Bart Watson said. “I’m really bullish about not just craft, but the high end in beer over the next 10 years, because we’re seeing drinkers who typically drink some craft — not a ton — in their early 20s. Then, they drink more as they move into their late 20s, and they hold that index very, very well as they move into their 30s and 40s. That’s a time when people get a little bit more income.”
Lester Jones, chief economist for the National Beer Wholesalers Association, joined Watson on the webinar titled “Economics and Demographics of the Alcohol Beverage Consumer.”
In 2019, about 75% of the U.S. population was of legal drinking age. Within those three quarters, the two largest generations — Millennials and Baby Boomers — are at turning points in their lives. Millennials are settling into established careers, while Boomers are retiring.
“We’ve said this a long time: This is a good time to be in the alcoholic beverage market — period,” Jones said. “We have still a great opportunity to take part in a very large total revenue pool, as our Millennial generation ages, gets more experience, earns more money and grows into a new phase of their lives. So I see it as a very optimistic world.”
As Millennials age, they have more money to spend on alcohol. In 2010, the 21- to 24-year-old age group, then the younger portion of the Millennial generation, spent an average of $406 on alcohol annually. In 2019, average spending on alcohol for the 25- to 34-year-old and 35- to 44-year-old age cohorts, which both contained Millennials, increased to $525 and $544, up from $473 and $497 in 2010, respectively.
The only age cohort with a decline in alcohol spending between 2010 and 2019 was the 21- to 24-year-old age bracket, mostly composed of Gen Z in 2019. Their spending declined $79, to $327 in 2019, which is to be expected, Jones said.
“Given the cost of rent, given the cost of paying for your college education and all these other things that it takes to form a household, this is not a surprise,” he said. “So, it’s a dynamic situation.”
Millennials’ drive for outside-the-box experiences created a sea change at the retail level. Since 2001, the number of government-defined “drinking places” — bars, taverns and the like — have declined steadily, but the country has gained about 100,000 more retailers where alcohol is sold.
“We have a world where there’s fewer places just about drinking and more places than ever before to drink, which increases the competition, but also increases the opportunity,” Watson said.
When Millennials buy craft beer, 40% of the time it’s at an off-premise retailer, 37% of the time it’s at a traditional on-premise establishment, such as a bar or restaurant, but 23% of the time it’s at a “third space channel.” This channel includes brewery taprooms, concert venues, sporting events and similar activities, which Watson described as “experiential drinking.”
“What this data shows is that for craft, for Millennials, things that aren’t neatly falling into the off-premise or on-premise are about a quarter of their total drinking occasions,” he said.
Although the COVID-19 pandemic has canceled or drastically reduced the attendance of such events and spaces, more craft drinkers than ever before have indicated they visit brewery taprooms more than ever. In the Craft Beer Insights Poll (CBIP), which the BA commissions annually from market research firms Nielsen and Harris, the number of drinkers who have visited breweries within two hours of their home five times or more increased considerably over 2019.
Another indicator of brewery traffic, Google searches for “brewery near me,” has begun to rebound, after declining 84% below its baseline in March. In August, “brewery near me” searches were 35% below their baseline, which accounted for a 30-40% year-over-year increase, which had been the search’s trend.
On-site draft sales at breweries were down an average of 25% in Q3, according to a survey Watson recently conducted. Couple that with the decline in Google searches and tourism’s impact on craft breweries’ own-site sales comes into view.
“Maybe that’s the difference between tourists and your regulars, but clearly this has been a market that’s been hit pretty hard,” Watson said.
Still, 66% of craft drinkers said they plan to visit breweries as much or more as they visited pre-pandemic, according to the CBIP. And 73% of weekly drinkers, those who aren’t loyal to craft but consume alcohol regularly, said the same.
“People are ready to come back,” Watson said. “They’re hungry to come back to the breweries, once they feel safe.”
Total Beer Industry Volume in Decline
Contrary to the narrative that booming off-premise retail sales have lined all alcohol producers’ pockets, the total volume of beer sold in the U.S. has declined 2.7% year-to-date compared to 2019, according to data from the U.S Department of Treasury’s Tax and Trade Bureau.
“All in all, we’re down a lot of barrels in the industry,” Jones said. “Losing the keg float in March like we did really took out of commission a lot of containers that ferry beer from breweries to distributors to retailers to consumers.”
Draft service at bars, restaurants, sports arenas, taprooms and other venues normally accounts for 8-10% of the country’s total beer. When those draft lines dried up in March, the volume shifted to packaged beer, which has created a nationwide can shortage. Rather than drinking more, consumers are drinking differently, as they stay home and buy more beer at off-premise retailers.
“A lot of the opportunity to drink away from home has now switched to drinking at home, which left just a tremendous amount of pressure on packaged beers on cans and bottles,” Jones said.
However, craft breweries rely more on sales to on-premise retailers than large breweries do, and the loss of revenue from that channel has been catastrophic for some. Craft beer sales-to-retailers have rebounded from March and April, when they drastically declined relative to 2019 depletions. Keg depletions, which lean toward craft, are on a slow upward incline and are “a little bit more than halfway recovered,” Jones said.
“We’re pretty confident that in this stage of the recovery, the beer industry is recovering right along with the economy,” he said. “It’s just slow.”