California Beer Volume Declines for Fourth Straight Year
The California beer industry is still in a period of recovery, as total beer volume in the state declined in 2021 for the fourth consecutive year (-1.6%), Chris Shepard, senior editor of Craft Brew News at Beer Marketers’ Insights (BMI), said in his keynote speech last week, kicking off the California Craft Brewers Association’s (CCBA’s) members conference in San Diego.
Total beer volume in the state declined about 400,000 barrels, to 22.6 million barrels, in 2021, according to Shepard. In the past four years, the state’s beer volume has decreased by about a million barrels.
“That’s like all of Sierra [Nevada] or all of Lagunitas just going away,” Shepard said.
He noted that the declines, in part, are due to changing consumer habits in some of the state’s key beer cities. In San Diego, off-premise dollar sales of craft beer declined -14% in 2021 compared to 2020, while craft’s share of the city’s off-premise beer market fell to 22% (-2% year-over-year). Similarly, in San Francisco, craft off-premise dollar sales declined -13%, losing two share points to claim 22% share of the city’s off-premise beer market.
Average beer consumption in the state of California declined -7.5% in 2021, while wine (+10%) and spirits (+15%) each recorded increases in consumption, Shepard said. In the last decade, the category has lost 5 share points of absolute alcohol (measured when you “even out the ABVs of beer, wine and spirits”), falling to 43.5%.
Additionally, Anheuser-Busch InBev’s (A-B) beer volume in the state declined by 1.35 million barrels between 2015 and 2020, losing 5% share of beer in the state to less than 30%. Meanwhile, Constellation Brands – whose portfolio includes import beers such as Corona, Pacifico and Modelo – gained 10% share of the category, as its beer volume in the state increased 2.1 million barrels between 2015 and 2020, claiming more than 26% share of the category.
“I cannot overemphasize how important that dynamic – the decline of A-B and the growth of Constellation in the state – how impactful that is on some of the dynamics in this state,” Shepard said. “And some of the shifts, especially in distribution.”
While noting how daunting some of the beer performance numbers could be, Shepard added that there were some positive national trends to keep an eye on.
Total craft shipments in the U.S. increased by 1.8 million barrels, to 16.2 million barrels (+7% compared to 2020), gaining back nearly 80% of the volume lost in 2020 due to the COVID-19 pandemic. Shepard said when calculating that volume, BMI included acquired brands in its definition of craft, such as A-B-owned Goose Island and Elysian, as well as New Belgium Brewing, acquired by Kirin-owned Little Lion World Beverages in 2019.
Shepard also warned of potential future regulatory changes, citing February’s Treasury report on competition in beer, wine and spirits, as well as continued partnerships between bev-alc and non-alcoholic beverage brands, such as the sale of CANarchy to Monster Beverage Corporation, and the creation of Hard MTN Dew from Boston Beer Company and PepsiCo.
How can California breweries respond to those moves? Shepard urged CCBA members to take notes from dancers and “listen to [your] own bodies first.”
“I can tell you tons more things about what is happening outside of your business, about where we are as an industry,” Shepard said. “But in order to successfully navigate – to listen to those inputs and respond to them – you’ve got to start listening and measuring yourself, taking your own temperature, figuring out where you are.”
Craft Beer Business Leader Panel: ‘You Need to Plan’
Leaders from four California breweries – Chris Cramer, co-founder and CEO of Karl Strauss Brewing in San Diego; Jack Dyer, co-founder of Topa Topa Brewing in Ventura; Lynne Weaver, co-founder and CEO of Three Weavers in Inglewood; and Doug Constantiner, co-founder and CEO of Societe Brewing in San Diego – shared the stage to offer advice on how to survive supply chain constraints, risings costs, distributor relationships and more.
Supply Chain
All four panelists agreed that supply chain issues and increased supply costs have continued to impact their breweries more than two years into the COVID-19 pandemic, and that those issues will not be going away soon.
“Last year they were saying that the inflation was going to be temporary,” Cramer said. “Temporary is now longer than people would have expected temporary to be, and essentially all of us as operators have been faced with a more chaotic day-to-day business operating environment than we have ever known in our lives.”
With supply delays and price increases coming from multiple areas – from cans to CO2 to stainless steel – the panelists agreed that craft breweries need to have production plans in place months in advance.
“Make sure you have a plan — be it a cash flow plan, a strategic plan and your capital expenditure plan — because if you don’t have those things out for two years minimum, then you have no idea what you’re doing,” Weaver said. “When you’re making decisions on how many cans to buy because you got it at this price, if you don’t know how many cans you’re going to package in the next 12 months, then that is poor planning.
“Get it down on paper because if you at least got it on paper, then you know you have a roadmap, but if it’s only in your head, it’s not real,” she continued.
Taking Price
The price of making beer has continued to outpace the price of beer, BA Chief Economist Bart Watson discussed on the Brewbound Podcast in January. Cramer said breweries need to start looking at recosting every week, and take price where needed to help their companies survive.
“[It’s like] being on an airplane and they always give the announcements that you put your own oxygen mask on first and then put it on your child,” Cramer said. “You have to put your oxygen mask on you as a business, because if you’re only thinking about ‘Oh, I gotta take care of my customer and I can’t raise my prices, but I’m going to die,’ it’s not gonna matter.”
And consumers are expecting price increases, Constantiner said, noting that Societe has taken three price increases in the past 24 months.
“[Consumers] are at our places, they’re at bars, because they chose to,” Constantiner said. “They can buy cheaper beer, that’s not what they want to do. They’re willing to pay for a higher quality product.
“I guarantee you, if you’re not ahead of this right now, your costs are gonna get impacted before you have a chance to increase your prices,” he continued. “And we already have a long cash flow cycle as a brewery, so get ahead of it.”
“Price is not the first answer; the first answer is efficiency,” Cramer added. “Look into your operations. If you can increase your yields by 5%, that makes a huge difference.”
Cramer also noted that breweries may not be able to do “long-term projects” right now.
To address growing costs, Three Weavers incentivized its brewing staff, offering a bonus if they were able to adjust existing recipes to maintain or improve flavor, but decrease cost. Weaver said the move helped to continue to promote creativity and quality beer, but address business constraints.
Additionally, the panelists agreed that having legal counsel go over contracts is “probably the best money you’ll spend.”
“It may seem like you can’t afford it when you’re getting going and every penny counts,” Cramer said. “But you’ll realize later on if you don’t spend it up front, you’ve set yourself up for a very limited future.”
Distributor Relationships
The panelists also addressed concerns over the consolidation of distributors within California.
“The consolidation of distributors has been so profound, at the same time that you’ve had this explosion of the number of breweries trying to get into distributors,” Cramer said. “And so there is this bottleneck and it’s getting tougher and tougher to be able to get shelf space and to be able to get the attention of distributors.”
On Monday, Reyes Beer Division announced the planned acquisition of Columbia DIstribution’s Northern California business. CEO Tom Day said in a release that the company now has 3,500 employees and 25 facilities statewide. In November, it broke ground on a 400,000 sq. ft. facility in San Diego, expected to move more than 16 million cases of beer.
“These distributors are bigger than breweries that we think are behemoths,” Constantiner added. “You’re going into meetings with very sophisticated, very sharp people who are there to make money, and they want to do it the right way. You need to have every answer, even the ones you don’t like to confront.”
Two key aspects to standing out to distributors are building relationships and having a detailed distribution plan (even if you don’t have the liquid nailed down yet), the panelists said.
“You must have every single package, every single SKU that you’re going to come out with by probably September for the following year, all designed, everything,” Weaver said. “And commitment for the cans and the cartons and all of that must be done.”
The CCBA – including board members Constantiner, Cramer and Weaver – is also backing Assembly Bill 2307 (A.B.2307), which would double the amount of duplicate retail licenses a brewery could hold from six to 12. The bill would “allow smaller breweries to have access to market areas in which they cannot find distributorship,” providing a possible alternative to seeking growth through distributor accounts, Weaver said.