Regional Brewers Hit Hardest by Craft Slowdown

Production at 25 of the top 50 Brewers Association-defined craft breweries didn’t grow last year, according new data released today by the trade organization.

Published in the latest issue of ‘The New Brewer,’ the data also shows that volume sales for 60 of the 168 BA-defined regional craft brewing companies (35.7 percent) — those producing between 15,000 and 6 million barrels of beer annually — either declined or remained flat in 2016.

In a conversation with Brewbound, BA chief economist Bart Watson chalked up the softer performances to a variety of factors, including distribution and retail challenges, as well as increasing competition from large brewing conglomerates and small upstarts alike.

In an industry with such a diverse range of businesses — both in terms of size and structure — it’s harder to find “singular takeaways, Watson said, adding that the data is evidence of a more complex and competitive environment.

He also noted that one major headwind for regional brewers was in the off-premise retail channel, where limited shelf space leaves buyers gravitating toward two types of purchasing strategies.

Retailers are “trying to get the smallest, local brewers on shelves and Anheuser-Busch is really paying attention to the space,” Watson said.

For BA-defined brands, however, the struggles began at the top. Beer sales for four of the top five craft breweries — D.G. Yuengling & Sons, Boston Beer Company, Sierra Nevada and Gambrinus Company — declined last year. However, sales for New Belgium, the fourth largest craft brewery, increased by 5 percent.

Combined volume sales for those five companies accounted for more than 52 percent of all top 50 craft brewers’ production last year — 7.7 million barrels, according to the BA’s report.

Samuel Adams maker Boston Beer — whose struggles have been on display in recent quarterly earnings reports — sold 210,000 fewer barrels of beer in 2016 than it did the year prior. The company also lost nearly one full point of BA-defined craft market share (now accounting for 9.42 percent of the segment’s share)

Wisconsin’s Minhas Craft Brewery was among those taking a significant hits last year. The company, which relies heavily on contract production for other brands, saw volume sales dip 20 percent, to 274,454 barrels. Sales for Gambrinus-owned Bridgeport Brewing Co., meanwhile, fell more than 25 percent, to 25,000 barrels. In April, citing declining sales, the Oregon-based company laid off 13 of its workers.

Other notable brands in decline included Maine’s Shipyard Brewing, which saw production slip 8 percent, and Left Hand Brewing, which declined 11 percent.

Nevertheless, a number of recognizable craft breweries posted positive results in 2016, including Duvel Moortgat-owned Firestone Walker, which grew more than 30 percent for the third consecutive year. The California-based company produced 361,497 barrels of beer in 2016, according to the BA. That company has found success in its popular 805 Blonde Ale, a majority of which is still sold primarily in California (limited amounts have been distributed to Arizona, Texas and Nevada).

Michigan’s Bell’s Brewery’s climb toward 500,000 barrels continued in 2016, as volume sales grew by 14 percent, to 421,529 barrels.

And, as Brewbound has previously reported, Ohio-based Rhinegeist Brewing and San Diego’s Modern Times continued their own ascents up the BA rankings.

Rhinegeist production volumes grew by 80 percent in 2016, to more than 56,502 barrels, while Modern Times’ volume sales grew by 82 percent, to 40,500 barrels.

Wicked Weed, which earlier this month was sold to Anheuser-Busch, also grew its volume sales by 120 percent, to 22,000 barrels, in 2016.

Next year, the North Carolina brewery’s post-sale production totals will be included in sub-section of the BA data that breaks out large brewery-owned production figures. Included in that grouping are craft brands now owned by A-B, MillerCoors, Heineken, Constellation Brands, Craft Brew Alliance (CBA), Mahou San Miguel, North American Breweries (NAB) and United Breweries. Brands like Goose Island, owned by A-B, and Heineken-owned Lagunitas no longer fit within the BA’s definition of a “craft brewer,” which states that 25 percent of those companies must not be “owned or controlled by an alcohol industry member that is not itself a craft brewer.”

In 2016, there were 27 craft brands the BA didn’t count toward its topline craft beer production figure of 24.5 million barrels. Production for those brands, which compete with BA-defined craft brands for shelf space and market share, totaled 7.7 million barrels in 2016, according to the trade group.

Lagunitas Brewing Co. pushed toward the 1 million-barrel threshold, selling 921,000 barrels. Founders Brewing Co., which sold a 30 percent stake to Mahou San Miguel in late 2014, produced more than 347,900 barrels last year. And volume sales for Ballast Point, which was purchased by Constellation Brands for $1 billion in 2015, cranked out 430,917 barrels last year.

Goose Island and Shock Top, A-B’s largest volume “High End” brands, each sold 600,000 barrels, according to the BA. The next largest A-B-owned craft brewery was Seattle’s Elysian Brewing, which produced 90,000 barrels, the BA reported. Elysian is poised for additional growth in 2017 as A-B works to roll out the brand nationally and put significant resources behind the brewery’s popular Space Dust IPA.

CBA, which is 32 percent owned by A-B and produces the Kona, Redhook, Widmer and Omission beer lines, made 760,000 barrels of beer last year.

Meanwhile, MillerCoors-owned Blue Moon would itself be a top three BA-defined craft brewer at 2.1 million barrels. Among MillerCoors’ recent craft brewery acquisitions, Terrapin produced the most beer in 2016, at 63,550 barrels. MillerCoors has said it plans to expand distribution for that brand, as well as the Saint Archer, Hop Valley and Revolver offerings, this year.

As for microbreweries — those making less than 15,000 barrels annually — sales were up 27 percent last year, despite losing 20 companies to the regional brewery subset. The BA also reported that 78 percent of craft beer growth in 2016 came from microbreweries.

But not every small craft brewery in the long tail is growing. Production for about 20 percent of the first 1,000 microbreweries listed in the New Brewer issue was either flat or down in 2016.

For some of those companies, flat sales could actually be part of a broader strategy, Watson said, as an increasing number of craft breweries are moving toward direct-to-consumer sales and limited distribution models.

“Holding flat may not be a problem for their business,” Watson argued.

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