Sales of craft beer grew 6 percent in the U.S. last year, industry consultant Bump Williams shared during Thursday afternoon’s Brewers Association Power Hour. And that growth, Williams said, is not coming from mainstream craft brands, but new local brewers as well as strong regional and national players like Bell’s Brewery, Stone Brewing, Dogfish Head Craft Brewery, and Allagash, among others.
“This long tail of craft is the growth engine right now with an awful lot of room to grow,” he said.
That was just one takeaway from Williams’ presentation, titled “Hard Times,” which provided an overview of 2017 data from market research firm IRI Worldwide.
“As rough and tough and challenging as I think it’s been in the past, my feeling is it’s going to get a whole lot harder,” he said, referencing data from IRI’s multi-outlet and convenience (MULC) universe of stores (grocery, drug, club, dollar, mass-merchandiser and military).
Here are four key takeaways from Williams’ talk.
Hard Times Ahead for Craft Brewers
Keeping with the “Hard Times” theme, Williams laid out several headwinds in 2018 for craft brewers, including tougher access to market via traditional distribution channels and lack of consumer brand loyalty. He added that craft brewers would have an even more difficult time gaining share of mind with distributors and retailers this year as the number of breweries grows beyond 6,300.
Williams also predicted continued challenges from so-called “category captains,” in many cases the world’s biggest brewers — Anheuser-Busch InBev and MillerCoors — who help dictate what brands major retailers carry.
“[Category captain] is synonymous with the big brewers keeping their shelf space,” he said, noting that A-B and MillerCoors are the only two companies in the U.S. with more than 90 percent retail penetration.
“More important to you, it’s not allowing you to get on the shelf space that the category captains dictate with the retailers. This is a massive problem, and it ties back to access to market,” he added.
Williams also cautioned smaller breweries to resist the the urge to distribute their products nationally.
“There’s no finish line out there,” he said. “And the quicker you expand, you’re leaving a lot of holes in your backyard in terms of class of trade penetration, or distribution, and perhaps even out-of-stocks. Please don’t think it’s a race to the finish line to get national distribution.”
However, Williams said there are opportunities for craft brewers to expand after they’ve shored up their home markets, which he called “way, way underdeveloped in terms of distribution,” adding that “there’s a lot of growth out there without a lot of new markets being opened up.”
Another looming threat: cannabis.
“We have salient facts that show us that when pot is legalized for recreational use, there is a correlation on negative trends for the beer category,” he said.
Taproom Sales Will Continue to Grow
According to Williams, craft brewers who sell beer directly consumers will continue to grow this year and he believes direct-to-consumer sales now account for “several million barrels.”
“That’s a big, big phenomenon for consumers,” he said.
Williams also believes that focusing on growing sales via the taproom is “the greatest way to build a brand yourself.”
“I think you really get the opportunity to understand who your consumers are and it’s the best way to truly incubate brands prior to going to primetime release across the three-tier channel,” he said.
The High End is the Future
Williams cautioned brewers not to discount or lower prices, and argued that sticker shock is “not a deterrent” to buying high end beer for many craft consumers.
“Talking to retailers, talking to disbritutors, talking to consumers, everybody agrees that high end growth is the future of the beverage alcohol category,” he said. “If you’re reducing brand price at retail, you’re doing yourself a disservice.”
Despite a recent slowdown in category-wide craft sales, the segment is still “one of the hottest growth sectors,” Williams argued, adding that it continues to gain share of the beer category. Craft beer gained 0.5 percent of beer’s total off-premise dollar share in 2017, while the larger beer category itself continued to lose share to wine (+2.5 percent) and spirits (+2.5 percent).
Williams also discouraged craft brewers — some of whom have recently introduced lower cost 15-packs — from competing with A-B or MillerCoors on price.
“They’re the most efficient brewers in the world,” he said. “If you come out with a low price point, they’re going to beat you on it. They have a whole portfolio that can beat you, so do not sell on price.”
Williams said craft pricing per volume to consumers has grown 14 percent over the last five years, from $32 in 2012 to $38 at the end of 2017. He added that craft brands have been less reliant on promotions, which translates to greater profitability for both retailers and distributors.
Finally, he said the price to consumer has grown because of the success of “premium” ($40-$49.99 per case), and “apex” ($60+ per case) craft brands. According to Williams, dollar sales of premium craft brands grew 18.3 in 2017 while dollar sales of super premium craft brands grew 40.9 percent.
Canned Craft Beer is Growing
Craft beer sold in cans accounted for 23 percent of total craft dollar sales and grew more than 6 share points in 2017, Williams said. Additionally, he said sales of craft beer in cans grew from $143 million in 2013, to nearly $1 billion in 2017.
However, he added that sales of craft beer in glass bottles hadn’t declined until 2017, when they dipped 2 percent. Nevertheless, the no. 1 selling craft package is still 6-packs of glass bottles. The second: 12-packs of glass bottles.