This is an excerpt from an article originally published in the May/June issue of The New Brewer, the journal of the Brewers Asssociation, publishers of CraftBeer.com. In the article, Brewers Association Director, Paul Gatza, discusses the trends of today’s craft beer industry. Although originally written with brewing industry professionals in mind, Paul’s outlook on the industry also emphasizes what an exciting time it is to be an American craft beer enthusiast.
Beer drinkers enjoyed more than a million more barrels of American craft beer in 2010. That growth equates to 330 million more 12-ounce craft brewed beers. What those beer drinkers are finding is more than an image; they are discovering flavors they’ve never tasted before.
The craft industry has been on a pace of accelerating growth since 2008, and appears to have a very bright future indeed. With solid support lined up among wholesalers and many retailers, expectations increase for a tipping point where the craft brewing community grows capacity, production, and sales and emerges from its niche origins to broad appeal and understanding.
Styles Reveal What Beer Drinker Wants
2010 was a great year for American craft brewers and the best year that beer drinkers have ever seen. Wholesalers and retailers supported craft brewed beers more than ever before, and the level of excitement keeps growing with greater availability and better shelf sets. Beer drinkers continue to head toward seasonal beers and India Pale Ales. Both of these styles have significant room for innovation with the breadth of ingredients available, styles to explore with seasonals, and the myriad of hopping permutations and emergence of new hop varieties. Beer drinkers are also rediscovering Stouts and continue to show affinity for Belgian-style beers, particularly showing a high level of passion for sour beers.
It was a banner year for sales for craft brewers as beer drinkers drank less but drank better, relying on craft brewed beers in many styles and flavors from local and regional breweries rather than focusing on quantity of lesser flavored beers.
Consumer Habits Have Changed
NBC’s Trendtracker and Supermarket Guru declared at the National Grocers Association annual meeting that the consumer value of local has moved from fad to trend to mainstream. Beer drinkers want to support a local company that employs their neighbors; they want a tie-in to their area agriculturally through the food they eat, and, where possible, to the agricultural products in their beer. As long as the local value continues to grow, I think it is a safe assumption that craft brewed beer sales will grow.
Growth with Quality in Mind
There are many brewery- in-planning concepts on the drawing board, with more than 700 registered with the Brewers Association (as of July 2011). Most of these entities are passionate beer people with a homebrewing background who know what it takes to make excellent beer.
Those who have been in the industry for a while know that craft was red hot in the mid-1990s as well. The barrel growth from 1994 to 1995 was over 1.4 million barrels for craft. Craft grew more in 1995 than in the years 1997 through 2004 combined. One of the reasons that craft cooled then was that many people without the passion, knowledge, and focus on beer quality jumped into the industry thinking they could get rich. The category had no broad reputation for quality and there were problem beers on the shelves.
What makes the current era different is that beer drinkers, retailers, wholesalers, and craft brewers have more education, which should become obstacles to bad beers getting into the beer drinker’s glass. If these startups do not make great beer and some get to market, the quality equity that established players have created could degrade.
Beer Drinker Likes Choices
There is a belief among some consumer insights experts that too many choices lead to shopper paralysis. Smart people those consumer insights experts, but they forget that beer is not something that people impulse-buy very often. When a beer drinker goes to buy a six-pack, she intends to buy a six-pack. Sure, it may take a minute or 10 to evaluate all of the craft options and make a decision, but I doubt the she is going to walk away empty-handed because there are too many choices.
Simply, there is more to research and discover. In fact, when big box retailers strategically reduced SKUs in many categories, and removed clutter from stores and aisles, they wondered why people were buying less of everything in their stores.
We are Americans, we like clutter, and we like to choose from more than just two products. Those big box retailers added the SKUs back and sales went up. Beer drinkers had more choices there and in grocery stores, drug stores and supermarkets.
More Taps Equals More Choices
As mentioned, there is great news for craft brewers in the unprecedented support from beer drinkers, retailers, and wholesalers. More good news comes in a trend of new restaurant openings starting with more tap handles than in earlier times. It is far more common for a restaurant startup to have six, eight, 10, or 12 handles now. That tap expansion has created room for light lagers, imports, domestic specialties, and multiple crafts that may be local, regional and national.
Brewpubs Add Guest Beers and Packaging
We are seeing more brewpub concepts start up as multi-taps, housing room for guest beers to be a part of the lineup and strengthening the bonds of newer brewers to established craft brewers in an area. More and more brewpubs are getting involved in selling beer in the off-premise market. Canning is one way brewpubs are diversifying.
Another trend we are seeing is a brewpub that brews for multiple restaurants in a group. It makes sense to fill capacity and to spread a brands availability and awareness across a town or region. In this way, we are not seeing as many brewpub openings as a growing industry would suggest, but we are becoming more efficient with capacities. These tools in conjunction with a slowly improving economy and a more educated public led to the brewpub segment posting nearly 7 percent growth in 2010; the segments best percentage growth since 1997.
Microbreweries Benefit from Beer Drinker, Retailer, and Wholesaler Trends
If we include the nine companies that started the year as microbreweries*, we saw 28 percent growth for micros. Micros passed one million barrels as a segment for the first time. How can this part of the craft community do so well? I think the convergence of wholesalers aggressively seeking new, growing brands and retailers responding to consumer demand for local, small, and different beers has allowed micros to emerge.
Thriving On-Premise Sales
Another trend we are seeing for smaller micros (fewer than 500 barrels) is the reliance of a brewery on a tasting room for a healthy portion of sales. More than 50 companies were self-identified as selling more than 25 percent of their beer on their premises without the support of a restaurant. People buy kegs, bottles, or cans, or have the brewer fill a growler.
Regionals Growing Toward Capacity Constraints
Smaller regionals continue in the sweet spot. They are expanding sales, growing brand interest, and have lots of friends in the wholesale tier. It is not uncommon to see smaller regionals growing at 20 to 40 percent in sales volume. Larger regionals continue to post strong numbers nearly across the board, and have succeeded with new brand releases. All told, 94 percent of regional craft brewers are growing, especially impressive when the U.S. beer industry continues to be sluggish on sales.
Taking a Hobby to the Next Level
Going smaller still, we are seeing an increase of the trend toward homebrewers moving to the next level as nanobrewers, selling a small amount of beer in a limited area. While we don’t have a definition of a nanobrewery, I think of them as brewing under 100 barrels per year on a half-barrel- to 3-barrel system. They fit more the model of side businesses for evenings or weekends, often, but not always, run out of a garage or home.
These are just a few of the reasons why it is such an exciting time to be a beer lover. You, the craft beer enthusiast, is actively bringing the U.S. beer industry toward the tipping point, as you fall in love with delicious craft brewed beers, and craft brewers continue to innovate, collaborate and celebrate. Cheers!
*Microbrewery, as defined by the Brewers Association: A brewery that produces less than 15,000 barrels (17,600 hectoliters) of beer per year with 75% or more of its beer sold off site. Microbreweries sell to the public by one or more of the following methods: the traditional three-tier system (brewer to wholesaler to retailer to consumer); the two-tier system (brewer acting as wholesaler to retailer to consumer); and, directly to the consumer through carryouts and/or on-site tap-room or restaurant sales.
Paul Gatza is the director of the Brewers Association, the not-for-profit trade association dedicated to small and independent American brewers, their craft beers and the community of brewing enthusiasts.