Craft Beer Overview: A ‘Culling’ of Craft is Coming

With nearly 16,000 craft brands in existence, gone are the days when distributors were asking for more craft breweries and craft products. Now the problem is there’s too much: crowded shelves, supply chain constraints, inflationary pressures and increased competition – both from spirits brands and from giant, traditionally non-alcoholic beverage producers like PepsiCo and Coca-Cola. Under these internal and external forces, craft is reaching a breaking point.

The cracks are already starting to show. Craft beer recorded both dollar and case sales declines in 2022, and 2023 is not expected to be much better. Craft breweries are also expected to post “very, very slight” volume growth for 2022, according to early analysis of the Brewers Association’s (BA) annual production survey by BA chief economist Bart Watson.

Watson shared preliminary data during a keynote speech at the New England Craft Brew Summit in March. At the time, about half of the nearly 9,500 brewery entries had been analyzed, with Watson calculating a +0.6% increase in volume – significantly below his +5% prediction shared at the end of 2021. If non-alcoholic (NA) beer producers were taken out of that data, volume would be negative, Watson added.

Off-premise has lagged even more: Craft beer dollar sales in multi-outlet plus convenience channels reached $4.74 billion in 2022, a -4.7% decline versus 2021, according to market research firm Circana (formerly IRI). The segment’s volume – determined by case sales – declined -8.6%, a loss of more than 10.8 million cases. Both results lagged behind the total beer category’s performance (dollar sales +0.8%, case sales -4.8%).

2023 is not looking much better so far. Craft dollar sales at multi-outlet plus convenience channels declined -4.2% in Circana-tracked channels in the 52 weeks ending February 26. Comparatively, total domestic beer increased dollar sales +1.8% in the period, led by NA beer (+19.5%), flavored malt beverages or FMBs (+17.4%), imports (+7.6%) and domestic super premium (+6.1%).

Volume is an even tougher pill to swallow, with dollar sales emboldened by the multiple price increases most beer producers implemented in 2022. Craft beer volume declined -8.2% in Circana-tracked off-premise retailers in the 52-week period, while total domestic beer volume declined -4%.

As craft struggles to perform, wholesalers have started to feel the weight of overloaded inventories, which is only exacerbated by retailers cutting shelf space in favor of growing segments, such as ready-to-drink cocktails (RTDs), FMBs and imports.

“The pressure for wholesalers to reduce us [craft beer] to get that inventory down is only going to increase until they can bring that back down to pre-COVID levels,” Watson said during his summit keynote. “Distributors are going to lean into other categories, retailers are going to cut shelf space. And this cycle, unfortunately for the short term, is probably going to self perpetuate to a certain extent.”

Bump Williams, president and CEO of Bump Williams Consulting, shared similar sentiments when it was his turn to present to the New England brewers. Spring resets were beginning to roll in, and Williams warned craft breweries in attendance not to be surprised if orders were smaller than last year.

Wholesalers are expected to order 15-20% less in 2023 than they did in 2022, according to Williams. Any individual craft brewery’s gain in points of distribution (PODs) now likely comes at the expense of another craft producer, making flat PODs a “big, big win” for breweries, Williams said.

The on-premise isn’t much easier for craft, with draft volume still below pre-COVID-19 levels. Draft sales were already declining prior to the pandemic, but draft sales were still more than 2.5 million barrels below where they should have been in 2022 when adjusted for trend. For craft, which makes up between 30-40% of the draft market, this is a major concern, Watson said.

“There’s still strong craft demand; people still love our products, our consumer numbers still look pretty good,” Watson said. “But in the short term, there’s a lot of brands out there. It’s a competitive market. And so we’re gonna see some culling, for lack of a better word, until we hit a point where we can start to grow back on that smaller base.”

The glimmer of hope for craft breweries has been at-the-brewery sales. Taprooms and brewpubs are expected to record an increase in volume in 2022, according to preliminary BA survey data. However, Watson said the collective craft beer industry should be thinking about “how long they can continue.”

The Winners and Losers of 2022 Scan Data

Of the top 10 craft brands in Circana-tracked off-premise channels, only two posted a year-over-year (YoY) dollar sales increase in 2022: New Belgium Brewing’s Voodoo Ranger Imperial IPA (+16.7%, to nearly $152.5 million) and Sierra Nevada’s Hazy Little Thing (+3.1%, to nearly $106.3 million).

The rest of the list posted YoY declines, with the exception of New Belgium’s Voodoo Ranger Juice Force, which launched in early 2022 and does not have 2021 comps. Of course, scan data isn’t everything, but with many breweries still relying primarily on package sales, it does give some indication of the overall health of some of craft’s biggest brands.

Molson Coors’ Blue Moon Belgian White remained the top-selling craft beer brand in 2022, despite declining dollar sales of -1.3% to $276.8 million. The list was rounded out by Boston Beer Company’s Samuel Adams Seasonal (-2.1%, to nearly $104.4 million); Sierra Nevada Pale Ale (-9%, to nearly $89.5 million); Shiner Bock (-7.7%, to nearly $87.1 million); Molson Coors’ Leinenkugel’s Shandy (-5.4%, to $83.2 million); Heineken’s Lagunitas IPA (-13.3%, to nearly $80.4 million); and Anheuser-Busch InBev’s Elysian Space Dust IPA (-4.2%, to $74.6 million).

New Belgium was a (juice) force in 2022. The Fort Collins, Colorado-based brewery launched Voodoo Ranger Juice Force hazy imperial IPA in early 2022 as a “bold and juicy” extension to the Voodoo Ranger brand, and it became the most successful craft beer launch of all time, posting nearly $73.3 million in off-premise sales.

Four other New Belgium brands made IRI’s top 30 craft brands list: Fat Tire Amber Ale (-15.4%, to nearly $47 million), which just received a makeover and recipe refresh; Voodoo Ranger Juicy Haze IPA (+5.9%, to nearly $47 million); Voodoo Ranger Hoppy Pack variety pack (+33%, to nearly $34.8 million); and Voodoo Ranger IPA (-15.5%, to $33.3 million).

Voodoo Ranger Imperial IPA also recorded double-digit dollar sales gains in convenience stores (+20.1%, to nearly $83.7 million), making it the No. 2 craft brand in the channel after Blue Moon Belgian White (-2.6%, to nearly $97.7 million). New Belgium has made a heavy play at the c-store market with the higher ABV offering, capitalizing consumer desires for convenience and value with 19.2 oz. single-serve cans.

After New Belgium’s Voodoo Ranger variety pack, Sierra Nevada’s Big Little Thing imperial IPA posted the largest increase in dollar sales YOY (+30.9%), with nearly $26.4 million in off-premise sales, ranking No. 27. Six total Sierra Nevada brands made the top 30 list, despite some large declines, including No. 24 Torpedo Extra IPA (-20.8%, to nearly $29.4 million) and No. 30 Sierra Nevada seasonal (-13.8%, to $19 million).

The only other top 30 craft brands to post dollar sales gains in 2022 include A-B’s Kona Big Wave golden ale (+4%, to nearly 47.4 million) and Wicked Weed Pernicious IPA (+24.4%, to nearly $23.7 million). Anheuser Busch InBev’s (A-B) Goose Island IPA (-18.5%, to $28.1 million) and Shock Top Belgian White (-23.8%, to $27.5 million) posted the two largest dollar sales declines of the top 10 craft brands.

IPAs remained king among craft beer styles, despite a -2% decline in dollar sales to $2.1 billion. The No. 1 craft style gained 1.24 share points to claim a 44.37% share of craft.

Seasonals remained No. 2, despite a -6.9% decline in dollar sales, to $461 million, and the loss of 0.23 share points, to 9.72% share. Similarly, Belgian Wit remained No. 3, despite a -6.6% decline in dollar sales, to 383.1 million, and the loss of 0.17 share points, to a 8.08% share of craft.

Variety recorded the largest increase in dollar sales (+5.7%), to nearly $345.1 million, gaining 0.71 share points to claim 7.28% share of craft off-premise dollar sales. All the other top 10 craft styles recorded declines in dollar sales.

What to Expect in 2023

1. Distributed Craft Will Not Grow

Retailer shelves look very different than they did even just five years ago. Shelves are now stocked with offerings from major non-alcoholic beverage producers entering the bev-alc game, as well as craft producers’ attempts at beyond beer offerings such as hard seltzer, hard tea and RTDs. As a result, distributed craft has been steadily declining, and “still has further to fall before it hits its base,” according to Watson.

The pressures of inflation are also starting to be reflected in consumers’ buying habits. Beer has long had a reputation for being “recession resistant,” with total sales not significantly impacted by major economic struggles. But with breweries implementing multiple price increases in 2022, consumers are weighing price more in their buying decisions.

To counteract beer losses, Williams predicts three things will happen. One, retailers are going to reduce the price of beer “on their own” and “eat margin for the first time.” Two, big brewers will ask distributors to “eat margin and reduce prices back,” to “get their beer back on the floor and back on display.” And three, big brewers are going to take prices down themselves.

Williams’ warning to craft breweries: “Don’t get caught up in that price reduction war.”

“You won’t ever beat them on package efficiency, production efficiency or pricing; you can’t win that war,” Williams said. “You build brand equity, that’s what you’ve got to focus on.”

The average price per case of craft beer increased +$1.68, to $41.10 per case in 2022. The segment was the third most expensive beer segment per case, after non-alcoholic (NA) beer (+2.58, to $32.29) and assorted beer (+$.17, to $44.88). The increase was also above total beer, which raised price by an average of +$1.57, to $18.60 per case.

While distributed craft is not expected to grow overall, there are still opportunities for individual breweries to grow, but those breweries will have to either create incremental growth by targeting new consumers and occasions, or take volume away from another craft brewery, Watson said.

“When you’re thinking about your growth plan and distribution, it either has to be, ‘here’s the share we’re going to take from somebody else,’ or ‘here’s the share we’re going to add to the collective pie by finding incremental opportunities,’” Watson said.

Some of the opportunity areas for craft include the convenience store channel, particularly with single-serve offerings and the non-alc segment. Watson also noted the opportunity for craft with women consumers, as well as Black, Indigenous and People of Color (BIPOC), which are all growing consumers within bev-alc, but are consumers craft has failed to attract in the past.

Attracting female drinkers may be even more important with the next generation of consumers, as the American beverage alcohol consumers is “increasingly diverse and female,” with female drinkers younger than 25 now outnumbering male drinkers younger than 25, according to the BA.

2. Brewery Growth Will Slow and Hit Equilibrium

Even before the pandemic, the growth of new breweries entering the market was beginning to slow, with the gap between openings and closings narrowing. That trend will continue over the next couple years until breweries eventually hit equilibrium, Watson said. However, he emphasized “that’s normal.”

“Nobody expects the restaurant industry to add 20% restaurants year-over-year-over-year-over-year with no closing,” Watson said. “Welcome to a normal industry.”

That equilibrium will likely fall somewhere between 9,500 and 10,000 breweries, Watson predicted, as the industry has already started to move “more toward normal industry averages.”

More than 9,500 breweries operated in the U.S. at some point in 2022, with more than 550 openings and 200 closings, according to preliminary numbers shared in the BA’s Year in Beer report. Watson predicts brewery growth could be “totally static” by early 2024.

3. Consumers Will Continue to Change; Embrace It

While Watson admitted that “demographics always change” and changing consumers is a bit of a “gimme” prediction, he noted that there are some changes that could work in craft’s favor.

Millennials, who are some of craft beer’s core consumers, are now in their late 30s and 40s, which is typically when consumers start to trade up to higher priced items – like craft beer.

“This is good for craft,” Watson said. “We just saw a generation that drinks a ton of craft, the millennials, move to a place where they generally spend about the same amount and they generally trade up a little bit more.”

What is a potential future concern for craft is the next generation, Generation Z, with the bev-alc spending of under-25 consumers “dropping pretty dramatically” compared to millennials. Younger consumers are also drinking less, although data surrounding the drinking habits of Gen. Z should be taken “with a grain of salt” as the generation may “be more wary of answering questions about alcohol in a social media age when they’re worried it might get plastered everywhere,’ Watson said.

To attract these younger legal-drinking-age consumers, Watson warned craft producers not to “denigrate where consumers are entering craft.” The trope of craft brewers sticking their noses up to certain bev-alc offerings threatens to turn new consumers away from the segment before they’ve even tried it. Watson encouraged producers to be more open to a variety of beer styles and possibly beyond beer offerings.

Being open to alternative offerings will also keep consumers in the fold. About one-in-10 craft consumers every year say they are drinking less craft beer in favor of another bev-alc segment, becoming what Watson termed “omnibibulous.”

“People when they walk into a bar often are not thinking what beer am I going to drink, but what beverage alcohol am I gonna drink, and then what product,” Watson said. “Other people are do- ing a good job taking our [beer] occasions – people drink canned cocktails with baseball now – we need to do a better job of taking their occasions.”