A year after recording the first decline in the modern craft beer era, Brewers Association chief economist Bart Watson estimated that craft volume could grow between 7 and 8% in 2021.
Watson offered the projection Friday during the opening session of the 2021 Craft Brewers Conference in Denver with a couple of caveats; don’t hold him too tightly to that prediction and even if craft brewers hit the mark, the estimated 1.7 million barrels or so of growth will still trail 2019’s volume numbers.
“That sounds great until you remember that it’s growing on a much reduced base because of all of the challenges last year,” Watson explained.
Indeed, the channel shifts of 2020 driven by the pandemic hit craft brewers hard, leading to a 9% volume decline last year.
Reviewing 2021 so far, Watson admitted struggling to find a single word to describe the state of craft this year. Ultimately, he landed on “liminal,” a word with Latin roots meaning “transitional.” The craft brewing industry is indeed in a transitory state, which was accelerated by the pandemic.
Watson relayed that the conversations he’s had with brewers rarely land on their business being “terrible” or “great.” It’s somewhere in the middle. An unending series of supply chain challenges — shortages of aluminum cans, bottles, cardboard, labor, CO2, pallets, drivers, etc. — will do that. And still, that hasn’t led to increased prices in craft beer … yet.
“Something has to give,” Watson said, noting that the average craft price increase has been 2.4%, and still lags behind overall food and beverage average price increases. The lag could be a fear of passing on these increases to consumers when the increased supply chain prices may swing back, or an extremely competitive marketplace.
“It’s no surprise in this environment where many brewers are struggling to get their volume back to where it was, you might be wary of price increases, but again, something’s got to give,” he said. “These cost increases are reducing margin and profit; for the business, that can only last so long.”
Even as the pandemic has chosen winners and losers, Watson said that hasn’t meant an increase in the number of closings. Federal programs such as the Small Business Administration’s Paycheck Protection Program have helped. However, the number of new breweries openings has slowed.
Watson offered a variety of benchmarks for industry performance. He noted that at-the-brewery sales held up “remarkably strongly throughout the pandemic.” Draft sales haven’t fully bounced back though, even with a fully reopened on-premise channel. Pre-pandemic, draft accounted for somewhere between 10% and 12% of the industry volume, Watson explained. Then it dipped to 2% during the pandemic. Now, it’s at around 8% of the beer market and 30% of where it was in 2019. And the e-commerce channel continues to grow.
As these challenges mount, Watson stressed the importance of expanding and diversifying craft’s drinker base, an ongoing theme of the weekend. That’s on the heels of new surveys of 500 random breweries that found that ownership of craft breweries was 93% white and 76% male.
“It’s going to be more and more important, with a more diverse customer base going forward,” he said.
Wrapping up, Watson called craft beer a journey and credited another BA staffer with saying that the “adventure doesn’t begin until something goes wrong.”
“A lot’s gone wrong in the last 18 months, but craft is always open to adventure, there’s a lot of opportunity to remake our industries as we find new sales channels to sell in,” he said.
And after eight years with the Brewers Association, Watson said the “the innovation, tenacity, the grit, and the creativity” he’s seen in that time leads him to believe that the next time he’s on stage at CBC — next year in Minneapolis — he’ll be discussing new all-time growth numbers.