Craft Beer Enters Uncertain Times in 2020 in the Face of a Global Pandemic

The industry’s slowing volume growth — to low-single digits — and increased competition with more than 8,000 breweries in operation in recent years now seems like a soft breeze compared to the headwinds facing breweries due to the global coronavirus pandemic that has, among other things, forced states and local municipalities to shut down the on-premise across the country, with bars, restaurants, taprooms and tasting rooms closing up in an effort to stop the spread of the COVID-19 disease.

Those mandates hit hard a craft brewing industry that had swelled in numbers, adding thousands of breweries and about a million barrels each year. Now, many craft brewers are laying off and furloughing employees, and they’re also seeking financial assistance for survival.

To quantify how big the on-premise hit is for craft brewers, Brewers Association chief economist Bart Watson estimated that 40% of craft beer’s volume flows through the on-premise trade, while about 30% of all beer sold in on-premise accounts is craft.

In so-called “own-premise” taprooms and tasting rooms, sales continued to trend upwards last year, with Watson estimating 3.6 million barrels were sold directly to consumers. So, as those venues have been forced to close, and shift to to-go sales or delivery, where legal, the impact has been huge.

“If you are a taproom brewery then this week it’s a good chance you just saw your businesses cash flow go to $0 in the matter of 24 hours,” BA president and CEO Bob Pease wrote in an email to Brewbound in mid-March. “These small businesses won’t be able to hang on for longer in the current environment so we are doing all we can to advocate for government action that will make an immediate impact.”

Those efforts at the federal level are ongoing as of this writing, with the industry’s trade groups working on multiple relief efforts, including direct monetary relief in the amount of $3 billion, loan deferments, unemployment insurance for laid off or furloughed employees, paid sick leave, excise tax relief deferment or suspension and more.

Even before the economic challenges of the global pandemic, craft brewers entered 2020 with another year of slower volume growth, hovering around 4%, the BA reported.

Dollar sales of craft beer in off-premise retailers tracked by market research firm IRI increased 2.8%, to $4.3 billion. Still, the signs of the slowdown were apparent as just 13 of IRI’s top 30 craft brands posted dollar sales gains — mirroring 2018’s results.

Although total off-premise beer dollar sales in 2019 increased 5.2%, to $37.2 billion, according to IRI, total beer volumes shipped declined 0.6%, or about 1 million barrels, to an estimated 165.9 million barrels, compared to 2018, according to the Beer Institute (BI), which cited unofficial estimates of domestic tax paid shipments from the Alcohol and Tobacco Tax and Trade Bureau (TTB).

The slowdown had already steered many craft brewers toward “authentic alternatives” to their core offerings, as The Lost Abbey’s Tomme Arthur called it during last year’s Brewbound Live business conference. For Arthur, that alternative was a line of canned live sour beers called Tiny Bubbles.

“We cannot for a moment think there’s enough white space to innovate our way out of this funk,” he said at the time. “If we’re going to turn the proverbial corner, we’re going to need new consumers. I’m doubtful that this is news to any of you.”

For hundreds of craft brewers that search has transformed their portfolios beyond beer alone in an effort to capture a piece of the hard seltzer category, which has been projected to top $4 billion in 2020.

Nevertheless, more than 75% of the hard seltzer category belongs to two players: Mark Anthony Brands’ White Claw and Boston Beer Company’s Truly Hard Seltzer.

In fact, sales of hard seltzer and tea (and Dogfish Head beer, after the merger was completed in July) propelled Boston Beer to be the top-selling craft beverage maker in 2019 and the sixth-largest beer company overall, as dollar sales increased 25.1%, to nearly $1.3 billion, according to IRI.

Hard seltzer alone could be an $800 million business for Boston Beer in 2020, CEO Dave Burwick said.

“It could be over a billion dollar business for us next year,” he added. “So it seems like a generational thing. It really does. … It’s the 100 calories. It’s the variety, which people love. It’s also the drinkability, this sessionability.”

Even as Boston Beer sees a huge opportunity for growth in hard seltzer, the company is still “bullish” on craft beer, but not just for its Samuel Adams brand. Boston Beer will unleash its sales force and marketing efforts behind Sam and Mariah Calagione’s Dogfish Head brand in 2020, with projections of double-digit growth by year end.

“It’s going from like the hands of 70 salespeople to 500 salespeople who are really excited about it,” Burwick said. “We’re also spending [six times] what we spent last year, so there’s a lot more marketing behind the brands, which I think is important. “

As for Samuel Adams, Boston Beer plans to experiment behind the brand this year, with a goal of growth in 2021, Burwick said.

Even if larger craft brewers’ legacy brands — Samuel Adams Boston Lager, Sierra Nevada Pale Ale, New Belgium Fat Tire Amber Ale, Goose Island IPA, Lagunitas A Little Sumpin’ Sumpin’ Ale, Sweetwater 420 Pale Ale, Stone IPA and Deschutes Fresh Squeezed IPA — declined, several of those companies turned to innovation and new beer brands to stoke growth.

Take Sierra Nevada’s iconic Pale Ale, which was still the second best selling craft beer of 2019 — trailing just Molson Coors’ Blue Moon — despite dollar sales declining 6.2% in off-premise retailers, according to IRI.

Helping offset some of those losses was triple-digit growth (+118% in dollar sales) of Sierra Nevada’s Hazy Little Thing IPA, taking the popular hazy, juicy IPA trend nationwide and pushing portfolio-widel dollar sales into the black (+4.2%). Those triple-digit trends have carried over to 2020, Sierra Nevada chief commercial officer Joe Whitney said.

“Hazy Little Thing has given a boost to our entire portfolio,” he added. “Nearly 60% of our Hazy Little Thing drinkers are new to our portfolio, so it’s created a lot of incremental sampling for our new products and some new interest in our tried and true brands.”

In the face of a 9% decline in dollar sales for Fat Tire in the off-premise, New Belgium also proved that an alternative could come from newer beer brands. The Fort Collins, Colorado-based craft brewery, which was acquired by Kirin-owned Lion Little World Beverages in late 2019, posted positive portfolio-wide dollar sales growth of more than 10%, due to the growth of other brands such as Rampant Imperial IPA (+27.3%) and Voodoo Ranger IPA (+5.9%).

Moving forward into 2020, craft beer sales were trending positively pre-crisis.

The early read on IRI’s off-premise scan data by Bump Williams Consulting found that craft dollar sales in off-premise retailers were accelerating before Americans began stocking up, increasing 1.4% year-to-date through March 8, 2.3% over the last four weeks, and 5.1% for the one-week period ending March 8.

Of course, scan data only offers part of the picture — distributed beer sold in off-premise retailers such as grocery, convenience and big box stores — not factoring in on-premise dollar sales, at-the-brewery sales and other metrics such as independent liquor stores. However, many of those metrics have been thrown out the window as of mid-March, and an entire industry began wondering, what now?