The Brewers Association (BA) released its annual craft brewery production report, which showed a 9% decline in 2020, in large part due to the COVID-19 pandemic.
BA chief economist Bart Watson cautioned that the decline is not a perfect representation of the year for the nation’s 8,764 craft breweries.
“These numbers are averages, and averages can lie, and they can be very different than the typical experience,” he explained. “Many breweries didn’t post 9% [declines], and we’re going to see when we see a full distribution of breweries that many breweries had tougher years than that 9% number.”
Off-premise retail scan data showed that volume sales of BA-defined craft beer increased 12%, but that doesn’t include on-premise or at-the-brewery sales, where most craft breweries make their sales.
The federal Alcohol and Tobacco Tax and Trade Bureau (TTB) tracked 3.2 million barrels of beer for “premises use” in 2020, a 12% decline from 3.7 million barrels in 2019.
With restaurants, bars and taprooms forced to operate at reduced capacity for most of the year, draft volume sales declined drastically and craft brewers’ draft volumes declined by about 50% to 55%, Watson estimated.
During a video call with members of the media today, Watson provided more context to the initial release of the 2020 numbers, which Brewbound shared earlier today.
Here are five takeaways from Watson’s call with reporters today.
When Craft Brewer Volume Growth Might Return to 3-4%
Pre-pandemic, craft brewery volume had settled into a 3%-4% annual growth rate. When might craft brewers return to that level of volume growth? Watson said it depends on how growth is defined.
“Could craft grow 3-4% this year? Yes,” he said. “But 3-4% growth this year would put us back below where we were in 2019 in volume terms.”
That said, Watson believes the craft volume number will grow in 2021 and could be stronger than the previous 3%-4% growth rate, possibly in the 5%-6% range. However, growth at that level would still be below 2019 levels, he said.
“I think it’s plausible that by 2022 we’re going to be back on the kind of growth trend line that craft was on in 2019,” Watson said. “That 3%-4% [growth] was something that we were seeing craft settling into. I think as craft becomes a more mature market, it’s possible that [it] downshifts a little bit more into the 2%-3% range. But 2021 is going to be a year where I think we see craft make up some, but not all, of the volume that was lost in 2020. And then 2022 returning more to that previous trend.”
Watson forecasted that by 2023 craft beer could be “settling back into the growth rates that we were seeing before.”
Season and Geography Affected Craft At-the-Brewery Sales
Although to-go sales and outdoor service buoyed many breweries in 2020, they varied by both region and time of year.
“The summer wasn’t great, but it was much, much better than April, May,” Watson said. “The June through September period seems like it was a better relative one for small brewers last year, and we’re hopeful that we’re about to enter that period again.”
In its mid-year survey, the BA found that craft breweries were reporting volume declines around 10%, but by the third quarter, that had improved to declines around 5%.
Breweries in regions that rely on tourism and those in regions with harsher restrictions fared worse than others.
“Alaska and Hawaii have very tough numbers this year,” Watson said. “The West Coast generally saw stricter and earlier lockdowns, so numbers from Washington, Oregon and California are generally a little bit weaker than those national trends.”
Openings Outpace Closings, But Are Declining
In 2020, 343 craft breweries closed — a number that was far outpaced by the 716 that opened. However, the rate of new breweries opening declined by 30% compared to 2019, Watson said.
“About half of that comes from previous trends that we were already seeing,” he said. “And about half of that I think we can attribute to other things, obviously COVID being the primary one.”
Taproom breweries (3,471), a new class of business the BA introduced in 2019, overtook brewpubs (3,219) as the most common type of craft brewery in 2020. Both classes saw an uptick in their numbers, with taprooms increasing by 505 and brewpubs increasing by 199.
Micro breweries (1,854) and regional craft breweries (220) both declined in 2020, by 204 and 20, respectively. Watson attributed this to micro breweries reclassifying themselves as taproom breweries and by some regional craft breweries’ volume output dipping below the 15,000 barrel threshold, dropping them into micro brewery territory.
Watson noted that the breweries that closed their doors in 2020 do not include the “hundreds” of breweries that went into hibernation with plans to reopen in the spring or early summer. Some of those breweries may still decide the costs of reopening are too great and officially close in 2021, he added.
“I think 2021 is going to make a lot of these numbers clearer in context because 2020 isn’t like an isolated incident that happened and is done and is over and now back to normal times,” Watson said. “Breweries took on a lot of costs, they saw their cash drawn down, and so what happens in 2021 is going to be critical for a lot of these businesses in determining their long-term viability.”
Watson expects to have a better sense of how craft breweries are doing financially by the end of summer or early fall.
Craft Breweries Fared Better than Other Hospitality Outlets
Restaurants have closed at more than four times the rate of craft breweries — 17% of U.S. restaurants were “closed permanently or long-term” in December 2020 according to a study conducted by the National Restaurant Association.
But less than 4% of craft breweries shut their doors in 2020. Watson attributed this to financial support from the federal government (manufacturing breweries received $400 million in aid) and breweries’ ability to pivot from on-site taproom sales to to-go sales of packaged beer.
“I think that’s the biggest reason — that breweries are able to pivot to package their beer and sell their beer to-go whereas that wasn’t as feasible for other small hospitality businesses,” he said, while acknowledging the investment pivoting to package required for some breweries. “Now, volume isn’t the same as revenue, isn’t the same as profit, and so maybe small brewers took on lots of new costs to do that, and that’s not to suggest that they’re in great financial health either, because they were able to pivot.
“But I think that’s the biggest difference is that manufacturing component helped a lot of breweries and helped them sell more beer than a comparable restaurant or bar could,” he continued.
Around 900,000 Lost with New Belgium’s Removal From the Craft Brewer Data Set
The removal of New Belgium, which was acquired by Kirin-owned Lion Little World Beverages in 2019, led to the loss of around 900,000 barrels from the BA’s craft brewer data set.
BA-defined craft breweries — those who produce fewer than 6 million barrels annually and are less than 25% owned by a non-craft brewer — collectively produced 23.1 million barrels, a 9% decline compared to the 26.3 million barrels produced in 2019.