While “it might feel like we’re hearing more about brewery closures” since the COVID-19 pandemic, there are still plenty of craft breweries opening across the country, according to Brewers Association staff economist Matt Gacioch.
Gacioch addressed early-stage and in-planning breweries in a webinar Thursday, mapping out the reality of the craft beer market right now, and what brewery owners should know before making early decisions about their business.
Gacioch repeatedly clarified that while historic data can help breweries navigate trends, the industry has operated “somewhat differently” in recent years and future trends can always change.
For example, the gap between brewery openings versus brewery closings has lessened, starting just before the pandemic, “indicative of a maturing industry, not a dying industry,” Gacioch said. This can be a positive for new breweries, as they can be “somewhat more novel” wherever they choose to plant their roots. However, it can also be a negative, suggesting a “less societal momentum around craft breweries,” Gacioch said.
Additionally, there has been a recent shift in how long breweries stay in operation. Leading up to 2020, about 5% of breweries were closing within the first two years of operation, with just slightly more closing within the first three years. In 2021, the latter percentage increased, with 10% of the breweries in operation for up to three years closing their doors. Additionally, breweries in their fifth or sixth year of operation had a higher closure rate than the median rate over the previous 10 years.
“What we see in historical data doesn’t necessarily forecast what we can predict for the future,” Gacioch said. “[Make] sure, when you’re making all of your forecasts and estimates, that you’re not necessarily just looking at how things have been for the last 15 years, because it is such a different world over the past five and into the future.”
While the closing rate might be alarming, Gacioch clarified that, statistically, “your brewery will survive.”
Here are other tips and highlights from Gacioch’s presentation:
Pay Attention to Your Region
On a national average, there are four breweries for every 100,000 legal-drinking-age adults. However, that number varies significantly based on specific states and regions. And a larger average number of breweries per capita doesn’t necessarily mean the region is maxed out on the amount of craft brewers it can support, Gacioch said.
“I don’t suggest just saying, ‘Oh, there’s 4.2 breweries per capita in my metro region, this isn’t going to work,’” Gacioch said. “There is some research to suggest that there’s benefit from clustering.
“If it’s a big tourist area or otherwise a lot of foot traffic, this could be a place that people know, ‘Hey, this is where you go out to get amazing craft beer,’” he continued “There’s opportunities to work together with nearby breweries for passports or that type of thing to build the craft beer ethos of that particular district.”
Gacioch also urged brewery owners to think about both the consumers that live in their region, and consumers that might travel through for vacation or work. Hetold owners to think about the consumer they’re trying to attract, and whether there is overlap with those aforementioned consumers, or if the brewery would fit better elsewhere.
Similarly, the style of beer breweries should focus on will vary by region. While IPA has the dominant share of total craft beer sales – and 50% or more of craft dollar sales in the Northeast, West and South regions – its popularity can vary by state. For example, about one-quarter of craft sales in Wisconsin are from IPAs, while the style accounts for nearly 70% of sales in Connecticut and Delaware.
Staying Small is Normal
Most breweries see a “very sizable” increase in production from their first year in operation to their second, with a median production volume increase of nearly +50% year-over-year (YoY) for breweries in their second year in 2023, Gacioch said, citing data from the BA’s annual production survey.
While the stat “might not be terribly groundbreaking or surprising,” as many breweries may not have actually produced through the entirety of 2022, what is of note is that none of the other breweries recorded a median production change in the positive. Breweries between three and 10 years old ranged in median production volume change from about -4% to nearly -10%, with the largest median declines coming from breweries in their fifth or sixth year of operation (founded between 2017 and 2018).
“These aren’t averages, these are medians,” Gacioch clarified. “So exactly 50% of breweries performed better and 50% of breweries performed worse. There’s certainly a lot of breweries at all stages in year of operation that found success.”
Additionally, the median barrel output for younger breweries is tracking behind trends in pre-pandemic years, Gacioch said.
“It’s not saying that breweries that opened in 2022 or 2023 necessarily want to be producing less or are just building with less capacity,” Gacioch said. “It’s saying that potentially the market is going to be the driver of where these median values land.”
Onsite Sales Are Primary Business For Young Breweries
About 95% of sales at breweries in the first or second year of operation are onsite sales, according to Gacioch. For breweries in their third or fourth year, the percentage is still relatively high, at about 90%. The sales mix stays around 80% onsite, 20% distributed product until the seventh year of operation, and by year 10, the median percentage is 55% onsite, and 45% distributed product.
Gacioch encouraged brewery owners to use those stats as a “reality check” for how much of their sales will come from distribution, with taprooms and onsite experiences being the most important for younger breweries.
Additionally, the margins for distributed beer are significantly less than onsite. The revenue per barrel of distributed beer from the breweries the BA surveyed ranged from $319.99 to $619.07, with a median of $438.04 – about one-third of the revenue from onsite beer. Breweries recorded onsite beer revenue between $1,078.27 and $1,542.86, with a median revenue of $1,374.54.
Gacioch said he explicitly did not want to “deter” brewery owners from pursuing beer distribution, but rather wanted to “set realistic expectations about the volume of distributed beer [needed] to match the same margins of onsite beer.”
In a similar vein, he explored trends among breweries producing less than 1,000 barrels of beer annually, and found the median number of distribution partners for those breweries is zero, with those that do distribute beer typically only selling in one state.
Breweries of that size also had a median of 16 SKUs in their portfolio, with those in the 75th percentile having as many as 30 SKUs and those in the 25th percentile having 10 SKUs.
Merch Isn’t Everything
Additionally, Gacioch analyzed sales mix by product, including non-alcoholic beverages, food and merchandise.
Non-alcoholic beer and other beverages are gaining share of brewery revenue, along with food, although the latter is slightly slowing. Meanwhile, beer and merch are losing share of revenue.
“It’s not saying that food is more important than beer, but it’s saying that the share of revenue from food is growing, and so is non-alcohol, non-alcoholic beverages and non-beer alcohol,” Gacioch said.
“This tracks with what we’re seeing with more of a focus among consumers on the holistic experience of an on-site craft brewery,” he continued. “Having something for different types of customers, whether it’s the beer aficionados, the people who are going to come in and are just there to celebrate your beer, but also having something for their friends and family so they could bring them along, spend more time, spend more money in your space.”
The “bulk of revenue” for breweries comes from beer, with only 25% of breweries surveyed by the BA in a 2024 benchmarking survey reporting less than 55% contribution to revenue from beer.
Meanwhile, merchandise accounted for about 3% of overall revenue, with median revenue per barrel of $17.40.
“So as you’re getting started, really honing in on the colors of T-shirts, I suggest directing that time elsewhere, where you can really, really focus on the big chunks of where revenue is coming from.”
Food was the largest revenue contributor after beer, with a median revenue per barrel of $19.78, followed by non-beer beverages, which had a median revenue per barrel of $14.54.