2018 Craft Beer Report: Craft beer market experiencing marginal growth
IPAs, local experiences drive segment
Merriam-Webster defines the word “craft” as an occupation or trade requiring manual dexterity or artistic skill. Although craft beer most likely wasn’t considered in the original definition, the beer segment is nothing short of an artistic skill. Local experiences, along with a throng of beer styles and aesthetic packaging fuel the industry for craft brewers and beer enthusiasts alike.
Since the early 2000s, the craft beer market was a booming business. Despite the fact that overall beer sales decreased by 1 percent, by volume in 2017, craft brewer sales continued to grow at a rate of 5 percent by volume, reaching 12.7 percent of the U.S. beer market by volume, according to the Boulder, Colo.-based Brewers Association (BA).
Retail dollar sales of craft beer grew 8 percent, reaching $26 billion, accounting for more than 23 percent of the total $111.4 billion U.S. beer market, BA statistics show. Microbreweries accounted for 22.4 percent of the 2017 U.S. beer production volume, with brewpubs accounting for 5.9 percent and contract brewing companies for 1.1 percent.
The National Beer Wholesalers Association, Alexandria, Va., refers to the craft beer boom as a sort of revolution. “Over the past 10 years, the high-end beer market has grown share from 25 to 40 percent, primarily at the expense of premium-priced beer volumes that have fallen from 50 to 38 percent,” the company says in its “Beer Industry Update: Fall 2018” insight.
“This same period has seen the ‘rise and fall’ of hard sodas and the ‘rise of fall again’ of ciders,” it continues. “In addition, there are new craft brands and styles from thousands of small brewers. The import segment has grown from 13 to 17 percent share with Mexican brands accounting for two-thirds of all imports … Mexican imports added 9.4 million barrels since 2008, while the balance of the import category lost 3.6 million barrels.”
Historically, craft beer was almost exclusively consumed by hobbyists and homebrewers, says Meghan Guattery, retail industry analyst at IBISWorld, New York. This has changed significantly during the past decade as craft beer drinkers also now include a large portion of consumers who previously opted for traditional beer brands, with craft beer production revenue growing more than 300 percent since 2007, and reaching $6.1 billion in 2017, she adds.
“During this time, style preferences have expanded almost as quickly as craft brewers’ consumer base,” she continues. “The industry’s most dedicated consumers have also begun to value craft beers for the attention to detail, range of beer styles, quality ingredients, high degree of expertise and overall freshness that craft brewers offer, drastically increasing competition across the space.”
IBISWorld’s May report titled “Breweries in the US Industry” highlights the shift in consumer craft beer preferences, noting a revenue spike of 10.8 percent since 2013. “Small-scale craft breweries are largely responsible for the massive establishment growth that has occurred in recent years,” it says. “As a result of numerous craft breweries emerging across the United States over the five years,  to 2018, the number of industry enterprises is expected to increase at an annualized rate of 18.7 percent to 6,392 breweries.”
|DOLLAR SALES||% CHANGE VS. PRIOR YEAR||CASE SALES||% CHANGE VS. PRIOR YEAR|
Source: Information Resources Inc. (IRI), Chicago. Total U.S. supermarkets, drug stores, mass merchandisers, gas and convenience stores, military commissaries, and select club and dollar retail chains for the 52 weeks ending Sept. 9, 2018.
The locality factor
According to Chicago-based Information Resources Inc. (IRI), the overall craft beer market dollar sales is nearly $4.2 billion in total U.S. multi-outlets and convenience stores for the 52 weeks ending Sept. 9, marking a 3.3 percent increase over the previous year.
The Northeast region of the U.S. strongest, with an increase of 4.1 percent during that same timeframe, says Patrick Livingston, director of client insights, beverage and alcohol, at IRI. The Southeast region shows the weakest volume trends, with a decrease of 2.5 percent within that timeframe, he adds.
The Blue Moon brand family, which is part of MillerCoors Tenth and Blake division, leads the craft beer market with $338 million in dollar sales, while The Boston Beer Co.’s Samuel Adams brand and Sierra Nevada Brewing Co.’s brand represent Nos. 2 and 3, respectively, achieving dollar sales of $263 million and $247 million, respectively, according to IRI data. According to Chicago-based Euromonitor International’s June report titled “Beer in the US,” 2016 marked the first year since the 2000s that the craft beer industry did not experience double-digit growth. In fact, it was the first time it did not exhibit consequential growth at all, it says.
“Masked by this figure is an important factor; new breweries continue to open at an astonishing rate,” the report says. “In 2016, there was a 17 percent increase in total U.S. breweries. Where some of the largest craft breweries such as The Boston Beer Co., Yuengling and Son Inc. and Sierra Nevada Brewing Co. are losing volume sales, small craft breweries catering to local demands are flourishing.
“Fueling small breweries is a growing consumer appetite for the experience and support of small, local businesses, which allows consumers not only the opportunity to drink unique beer and see firsthand where they were crafted, but to socialize with the person who made it and others who have a shared passion for beer,” it continues.
The locality factor plays a pivotal part in the craft beer industry, experts note. “The biggest trend in the craft market is the dramatic movement to local breweries, including taprooms,” says Brian Sudano, managing partner at Beverage Marketing Corporation (BMC), New York.
“The movement to more localized products has been happening for the past three years in both food and beverage,” he says. “You also see this in niche non-alcohol beverages as consumers seek greater authenticity, freshness and quality in the products they consume.
“With nearly 1,000 new breweries opening up in 2017 and similar numbers in years prior, we see this trend continuing at least for the next couple years,” he continues. “In total, local breweries with 25 percent of volume sold on-premise account for nearly 40 percent of the new brewery openings and microbreweries, with less than 200,000 cases, accounting for most of the remaining.”
Experts agree that interest in craft beer stems from not just the beer itself, but the overall experience.
“Craft is the ‘new premium’ in beer, and consumers are happy to pay more for smaller-batch, more hand-crafted options, rather than those that are mass-produced,” said Jonny Forsyth, associate director of Food & Drink at Chicago-based Mintel, in a statement. “For these consumers, craft beer taps into their desire for new experiences with a nod to the past for inspiration, offering new beer styles that they have never drunk before.”
BMC’s Sudano also notes the experience draw of craft beer. Younger consumers, like millennials, seek new experiences, which craft plays into, he says.
IPA all day
As some craft beer enthusiasts relish in the unique experience, other industry experts note the consumer focus on availability. Jim McCabe, owner of Milwaukee (MKE) Brewing Co., Milwaukee, highlights the success of global brewery acquisitions. “The growth in [this] category means reaching consumers that perhaps aren’t as focused on small, local authenticity and care more about availability.”
Mintel’s October 2017 report titled “Beer and Craft Beer – US” also acknowledges the impact acquisitions and availability can have on the craft beer market. “[Only] a low percentage of ‘true craft’ drinkers see craft acquisitions as impacting the quality of beer,” it says. “Larger companies that acquire small craft brands may benefit from marketing messages that focus on the respect for the small brand, and a desire to get it into more consumer glasses at a lower cost, while taking a hands-off approach in terms of recipe formulations and ingredient quality,”
MKE Brewing’s McCabe notes that the rapid growth and popularity of light style craft beers that still have the craft taste also contribute to the availability factor. “Both of these trends confirm the arc to a mature point in the craft beer category,” he says.
“Craft beer used to be a small enthusiastic consumer that really drove the big, bold flavors that revolutionized the American beer industry,” he continues. “Craft beer now has a much broader reach and many consumers appreciate retail availability of larger brands, and light profiles that are calorie conscious. Successes are being seen in larger conglomerate craft, and small and independent local craft, while medium-to-large independent [brewers] are trending flat.”
To effectively compete in the market, craft brewers tap into their creativity by developing distinctive styles and tastes. “Greater popularity of once uncommon regional styles such as saisons, barleywines and gluten-free sorghum beers have been on the rise and are expected to continue to make up the largest share of the industry,” ISBISWorld’s Guattery says. “Although these more obscure beers make up the majority of the industry, a few specific styles stand out on their own.
“IPAs [India Pale Ales] make up nearly a quarter of the craft beer production industry, the largest share for a single style by a fairly large margin,” she continues. “These typically moderate flavored beers appeal to all sorts of beer lovers, enthusiasts and casual drinkers alike. A close second are seasonal beers, which, thanks to their unique flavors, packaging and ingredients, have become a significant revenue generator for craft brewers. Lagers, particularly the pilsner style, have also increased in popularity among craftier brewers.”
MKE Brewing’s McCabe also highlights the steady popularity of IPA-style beers. “IPA still rules the day, many breweries package several different IPAs,” he says. “The supply of hops continues to be a concern as the newer hybrids dominate the style. In addition to IPAs, the sessionable, lower alcohol-blood-volume beers, are growing significantly.”
Along with Guattery and McCabe, IRI’s Livingston acknowledges the strong presence of IPAs, as well as other craft styles. “American IPAs continue to be the No. 1 seller in terms of volume sales and trend,” he says. “Growing craft beer styles continue to include IPAs, such as American IPA and Imperial IPA, but also lighter and more sessionable styles such as Blonde Ale, Session IPA and American Lager.”
With the stable popularity of IPA-style beers, supply chain challenges likely will be a factor going forward, McCabe notes. “Supply chains have had to mature with the industry … Agricultural ingredients are the toughest, starting with the supply of popular hops,” he says. “Smaller brewers have a particular challenge because they aren’t contracted long- term, and pricing in [this area of] the supply chain can be volatile.”
IBISWorld’s June report echoes similar sentiments on the challenges smaller craft brewers face within the supply chain. Craft brewers are not always able to take advantage of mass production techniques and do not have the ability to negotiate the larger supply contracts that often come with economies of scale, it says. As a result, craft breweries frequently must charge higher prices to pay for higher per-unit labor, ingredient and utility costs, it adds.
A behemoth category
Packaging also plays a noteworthy role within the craft industry. “As with any consumer product, customers are drawn to great and innovative packaging,” MKE Brewing’s McCabe says. “Brand association can often be driven by a customer’s love of the label. Creative and efficient packaging can be a significant differentiator.”
IBISWorld’s Guattery also highlights the importance of packaging. “While craft breweries compete on the more obvious bases of quality, taste and price, they must also appeal to consumers’ aesthetic tastes through branding, packaging and marketing,” she says. “By finding innovative and attractive ways to label, hold and display their products, breweries can portray individual identities and personalities for their brand and styles, helping them stand out in an increasingly crowded industry.”
Although packaging can differentiate brands, the market remains competitive. “Access to retail space is very competitive due to the number of brands available,” BMC’s Sudano says. “[To overcome this] creating consumer demand via Internet sales where legal and sampling via taprooms, is a start. An integrated communication strategy that includes digital to reinforce awareness of brands also should be pursued. Through consumer pull and requests, retailers will carry craft [beer] brands.”
Although the brewery boom is expected to eventually taper off, the craving for local craft and experiences will not totally lose its allure. Beer is a behemoth category that’s not going away anytime soon, Mintel’s report says. Its affordability, accessibility and variety will keep it relevant to a wide consumer base, it adds.
“As the craft beer fad continues, breweries are anticipated to continue benefiting from product innovation and changing consumer preferences, while expanding the number of facilities operated, the volume of beer produced and the regions to which the beer is distributed,” IBISWorld’s Guattery says.
“Craft brewers are also expected to play an increasingly prominent role in the global beer market as the country is redefined as a growing region for a vibrant range of beers,” she continues. “However, craft brewers are also expected to experience considerable challenges from other alcohol beverage industries, particularly wine as it continues to increase as an alcoholic beverage of choice among consumers.”
IRI’s Livingston also notes the possible challenges from other alcohol beverage markets. “The next phase of the craft beer evolution may include further craft beer strategies to achieve a broad platform to compete with declining premiums (Bud Light, Miller Lite, Coors Light) and efforts to achieve broader “better-for-you offerings,” he says. “Craft brewers may begin to transform their breweries to layer in growth segments beyond craft beer, such as hard seltzers, cold brew coffees and even cannabis products," Livingston notes. BI