For the third consecutive year, Pennsylvania produced more craft beer than any other state in the nation, Brewers Association chief economist Bart Watson shared during the Brewers of Pennsylvania’s annual Meeting of the Malts gathering in Hershey, Pennsylvania.
In 2018, Pennsylvania’s 354 craft breweries combined to produce more than 3.7 million barrels of beer. And, according to Watson, the state ranked second in the number of brewery openings, trailing just California. Most of that growth, Watson said, is coming from the small breweries that sell directly to consumers.
Direct-to-consumer sales at Pennsylvania breweries increased by 15,000 barrels last year, Watson said. He added that Pennsylvania brewers have room to grow as national taproom sales accounted for about 12.5 percent of beer sales.
Looking at the national landscape, Watson said he believes there will be 10,000 breweries in operation in the U.S. within the next two years. In 2018, a record number 7,346 breweries operated for all or part of the year.
“It’s coming,” he said.
Although BA-defined U.S. craft brewers combined to make up 13 percent of the beer sold last year, Watson said all “fuller-flavored beer” — including about 9 million barrels produced by acquired craft brands — amounted to about 17 percent of the beer market. When you include flavored malt beverages, cider, and hard seltzer, the high end is the largest segment in the U.S. beer category, he added.
As for the future of high-end beer, Watson said the trajectory could be similar to premium and premium lights, which once combined to control about 65 percent of the U.S. beer market.
“We’ve got another 20 share to go,” he said.
Nevertheless, the new reality for brewers is that the low-single digit growth is being “sliced up in more ways than we’ve ever seen,” Watson said. The challenge for craft brewery owners moving forward will be figuring out how to collectively grow that pie by reaching new communities and creating new styles and flavors.
As more breweries have opened, the median size of all beer companies has shrunk to 400 barrels, Watson said. He added that half of the breweries in the country produce 400 barrels or fewer.
“This is what we’re going to see for the next five, 10, 15 years,” he said. “It’s more and more of these small, locally focused players who do what they do really, really well.”
Meanwhile, the overall beer market continues to decline and lose market share to wine and spirits, as the population ages and older consumers drink less beer, Watson said. He added that regular price increases have also hampered growth.
However, Watson said craft brewers have the opportunity to buck those trends and grow over the next decade as millennials “age into beer, rather than aging out of beer like previous generations.”
In a separate conversation that touched on the emergence of e-commerce, Boston Beer founder and chairman Jim Koch said he believes beer may be “one of the last” consumer products that Amazon “becomes a big competitor in.”
For his part, National Beer Wholesalers Association president and CEO Craig Purser said that Amazon is “not a small area of concern for craft brewers.” He added that direct-to-retail sales may sound advantageous through Amazon, but the reality for small brewers is they would likely struggle to get noticed on a website that sells millions of different products.
Sound Bites from the event’s other panel discussion:
- Brooklyn Brewery brewmaster Garrett Oliver said Bel Air Sour is now the second best-selling sour beer in the country. He added that 51 percent of Brooklyn’s volume is now sold outside of the U.S.
- Yuengling chief administrative officer Wendy Yuengling said the company is exploring “new arenas” in an effort to attract new consumers, including bourbon barrel-aged offerings.
- After Brooklyn’s minority investment into California’s 21st Amendment and Colorado’s Funkwerks, 21A co-founder Shaun O’Sullivan said the company now has access to 80 salespeople.
- Rhinegeist Brewery co-founder Bryant Goulding said his company didn’t open any new markets in 2018 and added metro Nashville this year. “Our intent is to move very slowly,” he said.