Brewers Association: Double-Digit Growth is Unsustainable

The days of double-digit growth in craft beer category might be a thing of the past, but that doesn’t mean small and independent brewers won’t continue to thrive in an increasingly more crowded environment, Brewers Association executives told thousands of brewers attending the second general session of the 2017 Craft Brewers Conference on Wednesday morning.

“It’s slowing down, that’s true,” BA director Paul Gatza said. “But there’s still a lot of growth out there, and somebody’s going to get that growth.”

In their annual “State of the Industry” address, Gatza, alongside the organization’s chief economist, Bart Watson, shared the latest industry statistics and highlighted some of the broader themes that are emerging as the craft category evolves.

Last year, craft beer volumes grew by 6 percent, the pair noted, while import volumes grew 7 percent. At the same time, U.S. non-craft beers saw a 2 percent decline while large brewery domestic specialty brands grew about 2 percent.

Watson urged those who track the industry to keep in mind that the double-digit growth of past years was unsustainable as the industry matured.

“You can’t keep growing 18 percent year, over year, over year, when you get to an industry of our size,” Watson said. “At 25 million barrels, 18 percent is more than 4 million barrels. That’s just not happening anymore.”

Nevertheless, BA-defined craft brewers added 1.4 million barrels to the beer category last year, which Watson called “the fifth best year that craft has ever had.”

“I think we sometimes lose that sentiment,” he said.

Watson also noted that growth trends typically vary by state; those with an above average craft share grew just 1.9 percent last year while those with a below average share grew 7.7 percent. He also recommended that brewery owners in the crowd think about the future of their businesses.

“As we’ve seen nationally, 18 percent becomes 6 percent pretty rapidly,” he said.

Gatza echoed those remarks.

“For a lot of people, you can’t make enough beer,” Gatza said of the microbrewery owners in the crowd. “Demand is growing faster than you can produce. That’s a nice spot to be in. But I will caution you that it may not always be that way. Make sure you make your business decisions wisely.”

Microbreweries “are the clear winner” in recent years, bolstered by tasting rooms, Watson said. Those breweries — which produce fewer than 15,000 barrels annually — grew volumes by 27 percent, and collectively produced 5 million barrels last year.

“While they’re small, together, they’re making a lot of beer,” Watson said.

Watson also noted that most of the 800-plus openings last year were microbreweries.

More than 5,300 breweries are now operating in the U.S., and an average of two breweries are opening each day, Gatza said.

The Alcohol and Tobacco Tax and Trade Bureau also counted more than 7,700 permitted breweries at the end of March, the pair said, meaning there are more than 2,000 additional brewing locations (many of them second or third facilities) scattered across the country.

“These breweries are coming,” Watson said. “For those in the room, you can either lament it or you can prepare for it.”

In 2016, onsite brewery sales totalled 2.3 million barrels, or about 9 percent of total craft production, Watson said.

“These are valuable opportunities for any business to provide marketing, direct customer interaction, a platform for innovation and not to mention a nice profit margin,” Watson said. “And it’s a place to build brands.”

Meanwhile, the number of brewpubs increased by 14.8 percent, and those outfits produced 1.35 million barrels last year.

“Brewpubs had a great year,” Watson said.

Lastly, regional craft brewers struggled last year, growing just 0.9 percent while producing 17.94 million barrels of beer.

“This category actually shrank a little bit due to those acquired brands,” Watson said, referring to former BA members who had been purchased by the likes of Anheuser-Busch InBev, MillerCoors and other large industry players.

Craft volume share inched up 12.3 percent last year, Watson said, even as 1.2 million barrels left the category due to large brewery acquisitions, Watson said.

“Dollar sell growth was a little stronger,” Watson said. “So dollar share of retail as consumer spending was up to 21.9 percent That was a little bit faster because we continue to see healthy pricing and as we see growth move into the tail that’s where retail value tends to be a little bit higher.”

As reported earlier, there were 97 brewery closures in 2016.

“At some level, this isn’t too much of a worry for the industry,” Watson said. “Percentage wise, with 5,300 breweries, this is one of the lowest levels we’ve ever seen. It’s not going to last forever. We should expect this number to rise.”

Meanwhile, large brewers such as Anheuser-Busch InBev and MillerCoors have lost 24.5 million barrels of volume since 2008, Gatza said.

“That’s almost the whole craft segment,” Gatza said.

Despite those losses, beer’s overall profit pool has increased to about $8 billion in the U.S. last year.

“The more beers you don’t make, the more money you make,” Gatza said.