Slower growth and increased competition are the “new normal,” Brewers Association (BA) leaders hammered home on the second day of the trade group’s annual Craft Brewers Conference (CBC).
“This is not a blip,” BA chief economist Bart Watson said during Wednesday’s State of the Industry presentation. “This is the new normal.”
Watson and senior vice president of the professional brewing division Paul Gatza took a deeper dive into craft beer growth numbers released earlier this month. According to Watson, craft’s 4 percent volume growth — about 1 million barrels — last year was the lowest per brewer growth rate since the late 1990s and early 2000s.
“This is where the pain point really is,” he said. “That’s not a lot of growth and many companies built brands and business models that built in the idea that there would be more growth than this.”
Watson suggested that brewery owners look beyond craft’s existing 13 percent share of the market to capture the other 87 percent of non-craft consumers. If they don’t, the per brewer growth rate will continue to decline, he added.
“If we can get 1 million new craft drinkers to drink one pint a week, that’s 200,000 incremental barrels,” he added. “Five million new drinkers drinking just one pint a week of small and independent brewed beer is a million barrels.”
Future growth is likely to be sliced up even more thinly as an increasing number of breweries open up shop. Last year, 1,049 breweries opened and an estimated 2,500 breweries are in planning, Watson said.
“This is a trend that’s not going away,” he said. “It’s a reality that everyone should be prepared for.”
Nevertheless, the 219 brewery closures in 2018 were an all-time high, Watson said. However, the three percent closure rate is still “shockingly low,” even if the number of closures are expected to rise as the industry becomes more competitive and new breweries open.
Over the last three years, 3,194 new breweries have opened. Much of craft’s growth is coming from those breweries that opened between 2015 and 2018. Last year, those companies grew by a collective 872,000 barrels.
As for breweries that opened in 2014 or earlier, those companies grew by just 105,000 barrels, Watson said.
Microbreweries (breweries making fewer than 15,000 barrels) continued to be the fastest growing set of breweries, Watson said. Those companies increased production 16 percent last year, to more than 5.8 million barrels. Meanwhile, brewpubs have maintained steady growth, increasing production 13 percent, to 1.6 million barrels.
The BA’s newly created taproom brewery class (companies that sell more than 25 percent of their volume on-site and do not offer significant food service) grew 40.2 percent — to 809,000 barrels in 2018 — and represented 24 percent of total craft growth.
Growth was flat for regional breweries (companies producing more than 15,000 barrels) last year, as those companies produced more than 18.1 million barrels. Watson called 2018 the “slowest growth for distribution of craft in a long time,” which he attributed to retailers not expanding shelf space and bars and restaurants not adding tap handles.
According to Watson, established brewers need to think about building “flagships of today and tomorrow, not of yesterday” in an effort to meet consumer desires.
Meanwhile, Gatza implored brewers to invest in safety and quality and better understand state and federal regulations. He added that breweries need to create “emotionally safe workplaces” free of harassment and discrimination.
“These issues have persisted but are now less likely to be ignored,” he said. “It’s always an appropriate show of leadership for the individuals in this room to communicate when safe environments are compromised.”
During the general session’s opening address, BA craft beer program director Julia Herz said breweries need to “deliberately welcome” a more diverse customer base.
Other notes from Day Two:
- About 90 percent of the 3.1 million barrels of beer sold through brewery taprooms was sold on draft, Watson said. About 15 percent of draft beer in the U.S. is now being sold directly at breweries and brewpubs, he added. Those sales make brewers a “target” for retailers crying foul and scrutinizing taproom-based business models, Watson said.
- Although the production-to-capacity ratio remained largely unchanged, Watson urged brewers considering expansions to consider lower-risk, lower-capital options.
- The average case price of BA-defined craft beer sold off-premise was $38.88 last year, up 1.6 percent or $0.61, according to market research firm IRI. Watson called last year “the slowest pricing growth … in a long time.”
- On-premise pricing increased 1.4 percent, according to Nielsen CGA.
- Herz, wearing a “independent craft” temporary tattoo on her left arm, said 4,200 craft brewing companies, representing 85 percent of the U.S. craft volume, have adopted the BA’s independence seal.
- Herz also shared results from a BA survey in January that found 48 percent of people polled said they have seen the seal, while 53 said independence holds some importance to them. She added that consumers are demanding the seal be placed on packaging, menus and at breweries.
- The BA presented the F.X. Matt Defense of the Industry Award to Illinois Craft Brewers Guild executive director Danielle D’Alessandro and the Russell Schehrer Award for Innovation in Craft Brewing to New Belgium Brewing wood cellar director Lauren Woods Limbach.