New England craft beer sales are outperforming national trends, Bump Williams, president and CEO of Bump Williams Consulting (BWC), shared last week during the New England Craft Brew Summit in Portland, Maine.
The seventh annual beer conference, hosted by the Maine Brewers Guild, was attended by nearly 600 people, with the theme of “focusing on what you can control.”
The craft segment is the No. 1 dollar sales contributor to the beer category in NielsenIQ-tracked off-premise channels in New England, increasing sales +0.3% year-over-year (YoY) in 2022. Nationally, craft is the No. 3 contributor, although sales have declined -3.1% YoY.
Still, New England craft is feeling the pressure of increased competition from other segments, some of which have also performed above national trends. The region’s second largest contributing segment, domestic premiums (No. 1 nationally), increased dollar sales +3.4% YoY in off-premise channels (+2.3% nationally), while No. 3 imports increased dollar sales +6.5% (No. 2 nationally, +4.9%).
Similarly, hard cider increased dollar sales +3.4% in New England off-premise retailers, despite declining -2.1% nationally.
Non-alcoholic (NA) beer recorded the largest increase in the category (+45.8% YoY), also outperforming national trends (+24.1%). That growth is primarily due to Connecticut-based Athletic Brewing Co., Williams said.
Malt liquor posted the second largest dollar sales increase in the category (+19.4%), despite recording one of the smallest gains nationally (+0.6%). The segment is up as much as +60% in some states as “people feel squeezed” by inflationary pressures, Williams said.
“In the 44 years I’ve been looking at this industry, I’ve never seen malt liquor with a double-digit increase, never,” Williams said. “So, all these Wall Street analysts who say price doesn’t matter: Fuck that, price matters.”
Most breweries took price at least twice, if not multiple times, in 2022. Despite beer’s reputation of being “recession resistant,” trends suggest consumers are weighing price more into their buying decisions, Williams said.
To counteract beer losses, Williams predicted three things will happen:
- Retailers are going to reduce the price of beer “on their own” and “eat margin for the first time;”
- Big brewers will ask distributors to “eat margin and reduce prices back,” to “get their beer back on the floor and back on display;”
- And big brewers are going to take prices down themselves.
Williams’ warning to craft breweries: “Don’t get caught up in that price reduction war.”
“You won’t ever beat them on package efficiency, production efficiency or pricing; you can’t win that war,” Williams said. “You build brand equity, that’s what you’ve got to focus on.”
RTDs to Continue to Take Shelf Space
Spring resets have started to roll out and many craft breweries are expected to see a reduction in shelf space, Williams said.
Any increase in points of distribution (PODs) for craft breweries this spring will likely come at the loss of another craft producer’s space, Williams said. If a craft brewery’s PODs are flat, “that’s a big, big win.”
Spirits-based ready-to-drink cocktails (RTDs) will be one of the biggest gainers of shelf space this spring, as the category continues to record exponential growth. In New England, spirits-based RTDs increased dollar sales +84.8% in NielsenIQ-tracked off-premise channels through December 31, while the category increased +65.2% nationally. The category now has more than 2,300 SKUs, which are pulling space primarily from wine, ciders, premium beer and “the long tail of craft,” which now has more than 22,000 SKUs, Williams said.
“Don’t be surprised when spring sets come out,” Williams said. “They’re starting to trickle out now that you see a reduction in shelf space.”
Shelf space for seasonals is also expected to decrease in 2023, with some distributors ordering 15-20% less than in 2022, according to Williams. That space is expected to be replaced not only with RTDs, but also flavored malt beverages (FMBs) and imports.
Opportunity in Local and Convenience
With more than 16,000 craft brands in existence, gone are the days when distributors were asking for more craft breweries and craft products, Williams said.
“In the distributor network back then, they weren’t waiting for the craft brewers to knock on their door to say, ‘Do you want my brand?’” Williams said. “You didn’t have to call them, they were calling on you.”
Now, distributors are “so selective on the number of brands they take and the number of SKUs they take,” Williams said.
“If the three-tier laws don’t change, if the franchise laws don’t change, our runway for growth is limited by the way you go to market,” he continued.
The best way for craft breweries to be sustainable is still through taprooms, Williams said.
“The only money that I see the majority of our craft brewers making is from their tasting rooms,” he said. “Every time you sign an agreement that you give your brand exclusivity to a distributor partner – in perpetuity by the way – you lose two-thirds of your margin around the brand.”
Should a brewery go into distribution, it is still important to focus on its local market before expanding into new territories, Williams said.
“Before you think about expanding beyond your own backyard, you got to own that one first,” Williams said. “Don’t think about getting bigger. Don’t think about volume percent change numbers. That’s not a good way to measure success.”
Craft also has an opportunity in the convenience channel, particularly with single-serve cans, which will be the No. 1 package for craft “this year and next year,” Williams said.
In New England, 19.2 oz. single-serve cans increased dollar sales +95% in NielsenIQ-tracked channels through December 31. The package now has a 1.7% share of craft dollar sales in the region in off-premise channels, a +0.7% increase YoY. Two-packs of 16 oz. cans recorded the second largest percentage increase in dollar sales of the top 15 craft package formats in the region (+17.6% YoY), with a 0.3% share of craft (flat YoY).
Retailers will be taking some of the cold box space from 6-packs and 12-packs this year – space primarily taken by premium and below premium products – and giving it to single-serve and high-end products, including craft, FMBs and imports, Williams said.
“You’re gonna see more single-serve doors in convenience stores this year and next year and probably the year after that, because that’s where convenience store retailers’ greatest growth strategies [are],” Williams said.