Brewers Association (BA) chief economist Bart Watson this week delivered his annual state of the industry report virtually for the second time, due to the 2020 cancellation and 2021 postponement of the Craft Brewers Conference, now slated to take place this fall.
In 2020, the nation’s 8,764 craft breweries posted a 9% decline in beer volume, so Watson delved into the market forces and consumer trends that led to the first volume decline recorded in BA history during a webinar for members.
Here are a few key takeaways.
Overall Alcohol Sales Were Flat, But Channel Spending Shifted
Although much was made about the beer category’s string of billion-dollar off-premise sales weeks in 2020, the average amount of alcohol purchased per adult increased 1%, Watson said.
“In terms of total beverage alcohol that was purchased, 2020 wasn’t that different from previous years, which is kind of amazing in and of itself,” he explained. “But in that context, craft volume finished the year down 9%.”
The closure of bars and restaurants to stop the spread of COVID-19 sent consumers into grocery, club and liquor stores to purchase beer, wine and spirits for at-home consumption, but those purchases didn’t boost craft beer sales the same way they did spirits and other beer category segments such as hard seltzer.
“That shift hit craft harder, because craft is just more on-premise and draft-focused than the overall beer market,” Watson said.
During a typical year, Americans purchase 4 million barrels of beer per week on average across both the on- and off-premise channels. The loss of on-premise business during the strictest shutdown period in spring 2020 led to volume losses of 600,000 barrels per week, Watson said. During the height of the fridge stocking period, off-premise sales were 1 million barrels over the 4 million barrels per week sales average.
“Early in the pandemic, beer, in volume terms, was probably a net positive, because those off-premise gains actually offset those on-premise losses,” Watson said. “As we moved into the back half of the year, they were roughly in balance, so the volume we were losing in the on-premise was moving into the off-premise and vice versa, with maybe some weakness in December, where the beer industry was actually down — the scans were very, very weak at the end of the year.”
With much of the on-premise closed or operating at limited capacity, more profitable draft sales declined significantly.
“The dollar share losses were larger because the sales the craft brewers tended to lose were higher retail value they tend to lose those draft sales, those on-site sales that tend to cost a little bit more,” Watson said. “A 6-pack, the average is $12 — the average price of those in pints is going to be much higher.”
Premiumization Continued
Even amid historic levels of unemployment at points throughout the year, increased sales of the highest priced segments of the beer category — a trend known as premiumization — “pretty much continued unabated,” Watson said.
“It’s somewhat remarkable too that, in a year where we have a lot of economic disruption — I think a lot of people were predicting early in the pandemic that we might see trading down — that we saw this huge share shift, that we really didn’t see any of this,” he said.
The highest priced segments in the beer category — craft, imports, super premiums, flavored malt beverages, collectively known as “Tier 3” — have risen from less than 10% of beer sales in 1950 to 50% in 2020.
“Craft has obviously been a beneficiary of this in recent years that even though people are drinking a little bit less beer per capita, the beer they’re drinking tends to be higher priced,” Watson said.
Premium and premium light beer, the middle priced tier (Tier 2), had been the dominant group from 1975 until 2015, when the higher tier overtook them. The lowest priced tier (Tier 1), consisting of value brands and older regional offerings, accounted for more than 70% of beer sales from 1950-1965, when they began a precipitous decline. In 2020, the lowest priced tier accounts for less than 20% of beer sales.
During the last decade, Tier 1 and Tier 3 were about equal in 2010, each slightly higher than 25% of total beer sales, while Tier 2 hovered just below 50%. Tier 1 declined slowly over the next 10 years. Tier 3 overtook Tier 2 in 2017 and rose steadily with the introduction of hard seltzers.
At-the-Brewery Sales Buoyed Craft Brewers, but Varied by Brewery Type
The ability to pivot to packaged beer for to-go sales kept craft breweries from closing at higher rates. About 4% of craft breweries closed their doors for good in 2020, but the National Restaurant Association estimated about 17% of restaurants closed permanently or long-term.
To determine business at breweries’ own premises, Watson used several factors to paint a fuller picture. The Alcohol and Tobacco Tax and Trade Bureau (TTB) reported a 12% decline in the volume of beer for premises use, while BA members reported an average decline in on-site sales of 13%.
“Sales were down more than 10%, but that’s a far cry from the minus 50% draft beer sales that many bar and restaurant operators saw,” Watson said. “I think this, again, points to the ability of breweries to pivot and sell more packaged beer from their brewery.”
Of the five types of breweries the BA breaks the industry into, taprooms (those who focus on at-the-brewery sales but don’t serve food) fared the best with an average -0.1% decline in volume.
Contract brewers (those who contract with another brewery to produce their beer) were next with a -2.1% average decline, followed by regional craft breweries (those who focus on distributed sales and produce more than 15,000 barrels annually) at -8.5%, micro breweries (those who focus on distributed sales and produce fewer than 15,000 barrels annually) at -11.7% and brewpubs (those who focus on at-the-brewery sales and operate on-site restaurants) at -19.3%.
Only 17% of brewpubs reported volume growth, Watson said. Taprooms benefitted from new entrants (the BA counteded 505 more taproom breweries than last year); when adjusted to remove new businesses, taprooms’ average volume declined 6%.
“There’s variation by type here, micro and taprooms did much better than the regionals and brewpubs,” Watson said. “In the case of regionals, I think that’s a conscious choice — many just closed their taprooms or brewpubs; that’s a much smaller percentage of their volume and revenue, and so it wasn’t worth the risk.”
Regional craft breweries such as Sierra Nevada and New Glarus closed their taprooms, tour operations and gift shops to the public for extended periods.
Premise-use draft beer tracked by the TTB reached 27% of all draft beer in 2020, a number that has risen steadily since it was tracked at 3% in 2014. This is the result of the combination of at-the-brewery sales growing, and distributed draft getting “whacked” last year, and was “certainly beneficial” for craft brewers, Watson said.
However, draft beer distributed to on-premise retailers is an important channel for craft brewers, who often use draft sales at bars and restaurants to recruit new consumers.
“It’s going to be important for craft brewers as a whole to help rebuild that distributed draft market and to get distributors and retailers to lean into it again for craft brewing to get back to where it was,” Watson said. “Without those sales, we’re not going to fully bounce back to where we were, and that’s still an incredibly important part of the business.”
Lastly, 716 new craft breweries opened their doors in 2020 — 30% fewer than in 2019. Openings more than doubled the rate of closings, and the number of craft breweries in the U.S. finally surpassed its previous all-time high in 1896.
“Take that, 1896,” Watson said.