Beer production and wholesaler supply levels have started to match up over the last 12-18 months, suggesting a divergence from the “out-of-whack” inventory trends that started in 2019, according to National Beer Wholesaler Association (NBWA) chief economist Lester Jones.
However, things could go off track again, should bev-alc production continue to outpace consumer demand.
“If you haven’t been paying attention, the industry is not doing well,” Jones said during a webinar last week.
Prior to the COVID-19 pandemic, the beer industry was already “running on a volume decline.” As of June 2023, the 12-month barrelage for beer in the marketplace was down to 16.2 million barrels, “one of our lowest numbers that we’ve seen in decades,” Jones said
That decline is “an atrocious number” and “has created a lot of angst in the brewing community,” Jones said.
“It’s quite disturbing to both the distributor community and the brewer and import community,” he continued.
The volume decline hasn’t been helped by the decline in retailers selling beer, which started in 2019. The amount of retailers peaked in 2017 at more than 644,000. Establishments have recovered slightly since the pandemic, but are still more than 20,000 below the peak, Jones said.
Meanwhile, producers continue to enter the industry. The amount of brewery permits in June either grew or were flat, with the exception of Nebraska (-1), adding 342 new permits to the market, Jones said, citing numbers from the Alcohol and Tobacco Tax and Trade Bureau (TTB). Brewery permits are now at nearly 14,500 through June, while the total number of permitted manufacturers of alcohol is now at 36,360.
“It is mind boggling to me that there’s so many people that continue to pour into this market,” Jones said. “Is anyone not paying attention that craft brewing is not winning right now?”
Additionally, more than 3,100 new bev-alc products were listed in July 2023, with more than 40,000 beer products approved by the TTB in the last 12 months.
What makes those numbers so “insane” is that there is a limit to the amount of ethanol consumers can drink, with new products not adding to consumption, but rather adding to market crowding, Jones said. When beer, wine and spirits are translated into gallons of pure ethanol, the amount of gallons per legal-drinking-age consumer has remained steady since 2000, at around 2.5 gallons.
What does change is the makeup of that ethanol consumption, with consumers “drinking much more equitably across the beer, wine, and distilled spirits,” Jones said.
“How we drink and where we drink is very different,” he continued. “But there’s still consistency and predictability in these numbers.”
The Positive in the Mess: Beer More ‘Valuable’ in 2022
Jones’ webinar wasn’t entirely negative. He pointed out that there is more consistency in wholesaler levels, with less “fear” over “supply chains crumbling and excessive inventories.”
“We’ve seen over the last 12-18 months this convergence,” Jones said. “What’s in the supply chain for the brewers and the importer tier is now slowly kind of matching what’s getting shipped into wholesalers.”
Jones referenced the Beer Purchasers’ Index (BPI), which has begun to normalize. The BPI for July showed “positive quarterly trends,” with the overall BPI expanding and at-risk inventory contracting. Jones expects those trends to continue, even with sales hurdles such as “the problem of Bud Light.”
“Look for more predictability moving forward, even though sales are down,” Jones said.
Beer sales could also regain some traction, Jones said. Beer recorded about $67.4 billion in sales to retailers (STRs) in 2022. Jones predicts that number will be the same or higher in 2023.
“I can bet you a buck that when I view these 2023 numbers it is going to be at or greater than $67.4 billion,” Jones said. “Even though we see these volumes decline, I think we’ll be able to get that close to this same value of STRs in 2023.”
Beer was also “more valuable” in 2022, despite declining sales. Price increases across beer increased the value of beer volume by about +3% in 2022, Jones said.
Those price increases aren’t deterring consumers either. Economist concerns of a recession have been moved to 2024, and real disposable income for consumers has been growing despite inflation, Jones said.
“If you look at where we are, in general, we’re doing pretty well and the American consumer’s doing pretty well,” Jones said. “And I think that’s really important for everyone to recognize.”
Jones is not concerned about “big risks” of significant turn down in the bev-alc market.
“I do stick with my thesis when it comes to alcohol beverages that we are consistent, moderate, predictable consumers of alcohol beverage,” he continued. “That plays out well for beer and beverage distributors, it plays out well for suppliers to a certain extent … and it plays out well for retailers.”