Beer Institute: Beer Category Opportunities in Chains, On-Premise Retailers

Beer contributed more than $400 billion to the U.S. economy in 2022, Beer Institute (BI) VP of research Danelle Kosmal shared this week in the trade group’s annual state of the industry webinar.

Further details on the economic impact of beer will be shared later this year in the biennial Beer Serves America report, commissioned by the BI and the National Beer Wholesalers Association (NBWA). Until then, Kosmal provided insights into how beer is performing so far in 2023, and what opportunities the category has, including the on-premise and chain retailers.

Kosmal also provided context on segment trends such as flavored-malt-beverages (FMBs) and spirits-based ready-to-drink cocktails (RTDs).

On-Premise ‘Most Important Channel’ for Beer

While beer is widely considered to be “recession resistant,” the category may still be feeling the pressures of inflation with the economy’s impact on the on-premise, Kosmal said.

In a March Harris Poll, conducted on half of the BI, the majority of respondents (64%) said they are going out to bars and restaurants less as a result of inflation. The response is a slight increase over survey results in 2022, with on-premise visits remaining the No. 1 activity impacted by inflationary pressures, followed by traveling for leisure (44%) and attending live music or sporting events (35%).

“This just continues to be a word of caution and the rallying cry for all of us that bars and restaurants really faced a lot of challenges during the pandemic and 2020 and 2021,” Kosmal said. “And now with inflation, there are additional labor shortages and there are additional challenges.”

On-premise beer volume is still short of pre-pandemic levels, with about 14.7% of the category’s volume coming from the channel in 2022, versus 16.4% in 2019. In January and February 2023 – two months that typically have a higher percentage of on-premise volume than annual trends – 16.4% of beer volume came from the channel, versus 18.3% during the two months in 2019.

“Now more than ever, this is the time for us to give on-premise that boost and give on-premise that love,” Kosmal said. “This is our time as an industry to create incentives and excitement for beer drinkers at bars and restaurants and really to rally in getting drinkers in the door to bars and restaurants and to be focused on drinking beer.”

The top 10 state share gainers in the on-premise (measured by the share increase of beer sales to retailers) include, in order: Washington, D.C. (+7.2%), Massachusetts (+3.9%), Rhode Island (+3.4%), Connecticut (+3.2%), Hawaii (+2.4%), New York (+2.3%), Nevada (+2.2%), Delaware (+2.1%), Maryland (+2%) and Illinois (+2%).

Chains Recovering Faster than Independent Retailers Following Pre-Pandemic Trends

Chains have recovered faster than independent retailers in both the on- and off-premise channels. In January and February, chain on-premise depletions increased +11.9% versus the same period in 2022. Independent on-premise retailers recorded a slightly smaller +8.9% increase year-over-year (YoY).

In the off-premise, chain retailer depletions increased +0.3%, while independent retailers recorded a -0.9% decline.

Within the convenience channel – one of the biggest opportunity areas for beer – chain retailer depletions increased +1.6% in January and February versus the year prior, while independent retailer depletions increased +0.6%, a trend that was happening prior to the COVID-19 pandemic, Kosmal said.

“The pandemic really amplified some of those challenges for independent c-stores,” she said. “However, since where we were in the pandemic, we are starting to see that gap close a little bit.”

Value stores have also recorded a strong start to 2023, with beer depletions increasing nearly +10% at dollar stores in January and February versus the same two months in 2022. Military and mass merch also each recorded a +4% increase in depletions. Liquor, grocery and drug stores each recorded single-digit declines in the period.

States with some of the highest depletion growth so far this year include Texas, Florida, Pennsylvania and Ohio – all “really big important beer states,” Kosmal said. States with the biggest declines include Oregon, California, Nevada, Arizona and most of New England. Kosmal noted that extreme weather could have played a part in some of those larger declines.

FMB Growth Part of ‘Cyclical’ Pattern; Beer Producers Dominating Production of Spirits-Based RTDs

Four beer segments that recorded growth in 2022 include imports, “active lifestyle” brands, flavor-forward brands and non-alcoholic beer.

Import growth has continued so far in 2023, outpacing total beer depletions (-2.9%) in the three-month period ending in February, with +3.3% depletion growth and a +1.3% increase in share of beer. Mexican imports are the star of the show, having increased their share of the import segment about 20% in the ’90s, to nearly 80% in 2022.

Other beer segments have struggled in the last three months, with “mainstream” beer (-3.5%), economy (-3.5%), craft (-5.2%) and FMB/hard seltzer (-12.3%) each recording declines in sales to retailers versus a year ago. Mainstream (-0.3%), economy (-0.1%), craft (-0.2%) and FMB/hard seltzer (-0.7%) also each recorded a decline in volume share of total beer.

The FMB/hard seltzer segment is a “tale of two cities,” with hard seltzer driving the majority of declines, Kosmal said. Dollar sales for malt-based hard seltzers declined -10% in 2022 versus 2021 in NielsenIQ-tracked off-premise channels, while dollar sales of FMBs increased +15%, driven by offerings such as malt- and sugar-based RTDs and hard lemonades.

Kosmal described the growth of FMBs as cyclical, with a pattern of significant growth followed by steep declines as innovation trends change.

“I’ve always seen FMBs as a bit of a segment that plays in part a certain role around innovation,” Kosmal said. “Part of its job is to engage new drinkers, to engage drinkers that are just seeking something new, different types of flavors, something fun. And then we see a bit of a decline, and then an introduction of another sub-segment that for a couple of years we see perform really well.”

Spirits-based RTDs also recorded significant growth in 2022, with dollar sales increasing +59% YoY in NielsenIQ-tracked off-premise channels. While the trend initially looks like a win for the spirits category, it’s also a win for beer, as the majority of spirits-based RTD volume (61%) is produced by wine and beer suppliers, Kosmal said.

Kosmal noted that wine and beer suppliers “fully support the current excise tax structure” for spirits-based RTDs. The BI has prioritized maintaining higher state excise tax rates for spirits-based RTDs, attempting to block legislative efforts by spirits advocacy groups such as the Distilled Spirits Council of the United States (DISCUS). DISCUS is advocating for spirits-based RTDs with similar ABVs to their sugar- and malt-based competitors, to also be taxed at a similar rate.