2022 will be a “make or break year for a number” of craft brewers, Brewers Association chief economist Bart Watson shared during a press conference Tuesday to discuss the 2021 production numbers and top 50 breweries list.
“For many breweries it’s going to be a year where they need to see growth get back to where they were,” he said. “A lot of breweries are still below their 2019 sales levels, not to mention the overall craft category. So the summer of 2022 is going to be really important for a lot of brewers.”
Lagging off-premise craft sales to start the year could be an indicator of rebounding on-premise sales, Watson said, noting that craft brewers should benefit from the shift back to bars and restaurants. Nevertheless, “the really weak scans” have lowered the odds “a little” that craft will return to pre-pandemic levels, but Watson anticipates craft will exceed those numbers if draft continues to rebound and the recovery continues throughout the all-important summer selling season.
Here are a few additional takeaways from Watson’s webinar:
Brewery Count Grows Despite ‘Challenging Year’
The number of craft breweries in operation at some point of 2021 reached an all-time high: 9,118, with 646 openings.
“Great to see even in a challenging year that we saw growth,” Watson said.
The number of brewery openings was already starting to decline year-over-year prior to the pandemic, which Watson called “largely a maturation trend” that wasn’t helped by the last two years. However, Watson said the pandemic does not appear to have altered those trends.
“If we were to ascribe COVID to some of that trend, I think it’s in the secondary effects, like what we’re seeing in the economy,” he said.
Watson attributed the lower number of brewery openings to the “challenging environment to open a new brewery” with investors possibly being more wary of lending money to newer brewers.
Still, the “vast majority of new brewery openings are still completely new businesses,” Watson said.
Watson dug deeper into the maturation of the industry, and explained that craft brewers, like other industries, are going to have to reexamine their value proposition as consumer trends evolve and new generations of drinkers seek different offerings.
“A more mature industry has to be constantly looking at itself to reinvent, and craft isn’t the new cool kid on the block all the time anymore,” he said. “And so we’ll have to really think about what the value proposition is and work on expanding its customer base to new customers, as well as deviate from its existing customers.”
Brewery Closings ‘Surprisingly Small’
Watson classified the 178 closings as “surprisingly small” given the conditions forced by the pandemic. He added that the 2020 number of closings was revised upward as more shuttered businesses were identified, and the 2021 number could also climb higher due to delayed reports from Texas, Oregon and Michigan. The number could also grow as the “50 or so” breweries that temporarily closed during the pandemic shut their doors permanently as they “give up the dream.”
“Even with revisions, I think we’re gonna see a lower percentage of closings than we’ve seen in previous years,” Watson said. He attributed that to “a strong bounce back year for craft brewers” and government relief programs such as the Restaurant Revitalization Fund, which the BA is still advocating for replenishment.
In early tracking for 2022, Watson said there appears to be a greater number of brewery closures with many companies still struggling from the effects of the pandemic.
Asked why the number of closures among microbreweries (breweries producing fewer than 15,000 barrels annually and producing packaged beer for distribution) was larger than those of taprooms or brewpubs, Watson said those companies likely suffer from trying to compete with larger breweries while lacking the resources to scale.
“Being a small brewery in distribution is just hard,” Watson said.
“Especially in the last few years with supply chain challenges, we’ve seen the advantages of scale,” he continued. “Microbreweries, by definition, are production breweries that don’t have a lot of scale.” Other factors include the expense of operating a microbrewery versus a taproom, and the age of microbreweries.
Watson hedged a bit, noting that some of the number shifts could be from microbreweries reclassifying as taproom breweries (companies producing beer for consumption on their own premises and package beer for to-go sales, but do not operate restaurants).
No Singular Picture At State Level
Looking at beer shipment numbers state-by-state, Watson said there’s not one singular picture that emerges. On average, states that dropped more in 2020 posted stronger growth in 2021, although that trend isn’t universal. Watson cited Florida, which lifted pandemic restrictions earlier than most other states, as an example of a state that didn’t have “too bad a year in 2020” and saw “tremendous growth in 2021.”
According to Watson, West Coast states, which maintained pandemic-driven on-premise restrictions longer, could see “slightly stronger growth” this year due to several “challenging years.” But the draft market hasn’t fully rebounded in many states.
Turnover of Breweries on Top 50 List
Six craft breweries fell off the top 50 in 2021, a year after five of them made the list for the first time. Those six included: BrewDog (No. 41 in 2020), Toppling Goliath (No. 43 in 2020), Two Roads (No. 44 in 2020), Fremont Brewing (No. 45 in 2020), Montauk Brewing (No. 49 in 2020) and New Holland (No. 50 in 2020). All but Two Roads were first timers on the list.
The turnover on the list over the last two years was the result of pandemic-specific conditions, Watson said, pointing to the return of Maui Brewing to the 2021 list as an example.
“Obviously, Hawaii is a tourism-driven market, very affected by COVID,” he said. “And so they [Maui] were a good example of a general trend we saw for some of these breweries.”
For others, some may have struggled to cycle the “package boom” of 2020. Still, Watson cautioned against reading too much in the year-over-year jockeying of rankings due to the unique business climate created by the pandemic. The 2022 numbers should provide a better sense of long-term trends for these companies once the channel shift is “a little bit more stable,” Watson said.
Jobs Number Bounces Back
According to the BA, craft breweries accounted for more than 172,643 direct jobs, a +25% increase from the 138,000 direct jobs in 2020.
“It’s great to see that breweries as taprooms and brewpubs reopen are back in job creation mode,” Watson said.
Brewers Still Investing in DTC, But Local Delivery Wanes
Despite the reopening of the on-premise channel, brewers are still investing in the direct-to-consumer space, although interstate shipping of beer is only allowed to 11 states compared to 46 states for wine.
“There’s a huge opportunity there for parity,” Watson said.
Local delivery – one of the pandemic-era efforts brewers deployed to stay afloat — has largely fallen by the wayside due to the complexity of offering the service.
‘Equilibrium’ Between Cans and Bottles Forming
Cans took less share from bottles in scan data than in previous years, Watson said. This leads him to believe there may be “a little bit more of an equilibrium” between the two. Twelve-packs, which popularized during the pandemic, have held some of their share gains.
Non-Alcoholic Beer Presents Opportunity for Craft Brewers
The non-alcoholic beer segment is a potential opportunity area for craft brewers, who will find familiar ground in a segment defined by “flavor and variety,” Watson said. He noted that non-alc beer is challenging to make, but has seen success stories such as Athletic Brewing, which rocketed up the BA’s top 50 rankings to No. 27.
“There haven’t been that many breweries clearly at that size that have grown at that pace in a single year,” Watson said. “I think it speaks to that company having the right strategy at the right time.”