The bright bubbling ferment in a flat U.S. beer market is the continued strong growth of craft beer: up 11% by volume in 2010, 12% by dollar sales. Craft beers represented 7.6% of retail dollar sales in the U.S. market and 4.9% in volume, up over a million 31-gallon barrels, and up over $600 million in sales. It’s no wonder we don’t call it ‘micro’ anymore.
Craft, the non-mainstream IPAs and hoppy lagers and brown ales, had flat-lined after phenomenal initial growth, and looked to have reached a natural limit around 3% of the beer market. Then ten years ago the tide turned, and craft has posted yearly growth between 5% and 11% since then and right through the recession, a phenomenal string.
Classic Rock
The trend looks solid now. People from within and outside the industry sense that a tipping point has been reached, and the growth is coming from drinkers discovering the category. ‘The trend that stands out the most is the sheer number of new drinkers moving into craft,’ said Joe Whitney, director of sales and marketing at Sierra Nevada Brewing (Chico, Calif.). ‘It’s almost like there’s a new kind of music and everybody suddenly wants to listen to it.’
Sierra Nevada Pale Ale has been playing for years, of course, but the Top 40 hit leader of craft beer is indisputably Samuel Adams Boston Lager. Jim Koch, who’s been selling it for over 25 years now, said the flagship’s sailing strong. ‘We are growing in every segment of our business,’ he affirmed, but noted that ‘Boston Lager is always our first priority. It brings more drinkers into the craft beer category than any other beer on the market, and it’s still my favorite beer.’
It’s been a great time for the established craft breweries, as they see growth in almost all segments and markets. ‘Our IPA, seasonals, mix-packs, Cider, and our 100 Barrel Series beers have all experienced significant growth in the last year, and they are growing in all of our markets,’ said Rich Doyle, CEO and co-founder of the ‘other brewery’ in Boston, Harpoon. ‘The outer markets are doing well for us, especially Florida and Maryland ‘ both are ahead of goal.’
One side-effect of the discovery of craft by new customers is that brewers are finding that they can grow substantially in their home markets. ‘The biggest part of our growth the past 12 months has been in our core markets of Oregon and Washington,’ said Deschutes Brewery president and founder Gary Fish. He noted that the Bend, OR-based brewery makes 40-45% of their sales in Oregon and another 25% in Washington, markets that continue to grow for Deschutes. ‘We are very proud that our ‘home town’ customers continue to respond positively to the good things we are doing.’
‘We’re seeing organic growth in several markets where we have been for many years,’ agreed Bob Sullivan, VP of sales and marketing/CMO at Boulevard Brewing, ‘including our hometown of Kansas City, the entire state of Missouri, and the Minneapolis/St. Paul region. We’re also seeing increased sales in some of our emerging markets including Dallas/Ft. Worth and the Austin areas.’ (Like other Midwestern breweries, Boulevard’s solid success often gets overlooked by folks on the coast, but they may be getting to a break-out point.)
The lesson? Local ‘ whether from your town, or your state ‘ is a strong hook again for craft, and growing stronger, especially for the new entrants to the category. Don’t take your local brewer for granted; there are lots of customers who want it because it’s local and familiar.
Adult Alternatives
Another long-established brand, Redhook, is seeing that same kind of home market growth; brand manager Robert Rentsch noted that ‘The most exciting growth is right in our breweries’ backyards, particularly in Washington State, our largest market.’ Yet Rentsch also pointed out that Redhook is seeing opportunity in changing things up.
‘Seasonals have been doing great for us,’ he said, a trend that applies across the market. ‘Our 2010 summer release was a Pilsner which was especially well received, and is now becoming one of our core year round beers.’ Redhook also recently changed their bottle design to make it stand out more; an increasingly necessary tactic as shelves fill with more and more SKUs.
Victory Brewing, an up-and-comer Pennsylvania (Downingtown) regional with a national reputation, saw the need to similarly shake things up. Like Redhook, they didn’t feel they had to go huge or crazy to do it. ‘All of our brands are growing, including the established ones,’ said co-founder and president Bill Covaleski, ‘but we have strategically decided to invigorate our brand line-up with Headwaters Pale Ale.’
Headwaters is a drinkable pale that comes with the green halo of a brewery partnership with local water conservancy programs in each market. ‘It’s a buyer’s market out there,’ Covaleski explained, ‘with consumers and retailers being given every reason ‘ there are more new products entering everyday ‘ to rotate and buy something new. There is no reason (other than packaging costs and marketing) for an established brewer not to ‘chum the waters.’’
Matt Brewing of Utica, New York, is an established brewer; they’ve been around since 1888, although they’ve become a regional power in craft beer with their Saranac brand. Saranac Pale Ale, said Fred Matt, is the ‘horse’ that pulls everything, but ‘seasonals are booming.’
Matt throws plenty on the waters: they have winter and summer variety 12-packs with twelve different beers each. ‘Seasonals and variety packs are 46% of the [craft] business on the East Coast,’ Matt stated. ‘If you’re not in that, you’re missing the market.’
While New Belgium Brewing, of Fort Collins, Colo., isn’t quite as old as Matt, they’re celebrating 20 years in business this year. Their flagship Fat Tire keeps rolling on, but they added an IPA to their portfolio for the first time, and it’s exploded. ‘I can tell you Ranger IPA showed great growth for us,’ said the brewery’s Bryan Simpson, ‘as it was the fastest-growing new craft brand of the year for the category and the second best-selling overall IPA.’
Sierra Nevada is riding the same kind of success with their Torpedo Extra IPA. ‘We’ve seen strong growth across the portfolio,’ said Whitney, ‘including some strong trends on our flagship Pale Ale. However, it’s no secret that our fastest growing items are Torpedo and our Seasonal program. People who have been drinking crafts for awhile really want to explore new flavors. They have much more sophisticated pallets and a voracious appetite to try bold new things.’
‘The adventurous nature of the consumer in this market is remarkable,’ Deschutes’ Fish agreed. ‘Last year it was the super hoppy IPA’s, this year sour beers seem to be all the rage. What it will be next year, who can know, but the consumer is in charge now and that is something very new for the beer industry.’ As many are putting it: the favorite beer flavor right now’¦is new.
Hip Hop
Some brewers are completely comfortable with that idea; they’ve been doing new things ever since they started’¦and never stopped. If you guessed ‘Dogfish Head,’ pour yourself a beer. Not only is the Dogfish Head Craft Brewery (Milton, DE) packaging and distributing 34 different beers this year, founder ‘ and omnipresent public face ‘ Sam Calagione affirmed that they’re all equally loved.
‘We believe in celebrating the whole breadth of our portfolio,’ he explained. ‘We put no more money and resources behind 60 Minute, our best selling beer, than we do behind a specialty once-a-year release like Sahtea or Hellhound. Every person’s palate is different, so if you like roasty beers we have something for you, if you like saffron beers we have something for you, hoppy beers we have something for you, saliva beers we have something for you.’ (Yes, really, saliva beers: their Chicha is a type of traditional beer made with chewed corn’¦it is boiled, so it’s safe.)
Something about it has worked for Dogfish Head: ‘We are on target to grow over 22% this year,’ Calagione says, ‘and our five-year growth trajectory is the highest of any brewery in the country. We could probably grow faster but we would not be able to’¦without going public, selling out, or taking in venture capitalist money. Those approaches don’t appeal to us because, frankly, we don’t want anyone telling us to stop focusing on the saliva beer demographic.’
Calagione is matched in brashness ‘ and in full delivery on seemingly brash claims ‘ by Greg Koch, president of Stone Brewing, in Escondido, CA. Stone’s line of full-throttle beers ‘ hop-forward and centered on their Arrogant Bastard strong ale ‘ seems pretty wild-eyed, but talk to Koch, and he may just give you the gospel of craft beer profitability.
What new markets is Stone penetrating, for example? Koch notes Minnesota and Missouri are opening this year, but also that they’re seeing success in chains. ‘Chain stores continue to see solid growth,’ he said, ‘as more and more chain buyers see the advantages of selling craft beer that engage their customers and earn their place on the shelf by creating great margins for the retailers.’ That’s solid business.
Klezmer?
You never really know where the next great craft brand is going to come from; you have to keep your eyes open. Shmaltz Brewing, for instance, started as a one-joke brand some 14 years ago with their He’Brew, ‘The Chosen Beer.’ Owner Jeremy Cowan tried that for a few years, then opened up with beers like Rejewvenator, a dubbel/doublebock cross made with dates, figs, or grapes in different years; Jewbelation, a massive anniversary ale; and Bittersweet Lenny’s R.I.P.A., a ripping rye IPA. He followed that with a Coney Island line of craft lagers.
‘At Shmaltz,’ Cowan said, ‘we’ve really been able to turn into a high-end, boutique beer company, while the beer world has evolved around us in perfect step, and while beer enthusiasts and even the wider consumers are excited about everything we’ve been producing. The market is so much more dynamic, healthier, and more experienced these days.’
Shmaltz is just an example of the small, offbeat brands that bold brews and social media buzz can bring to your customers’ attention. There are small brewers popping up every month; there are new brands entering your state for the first time. This business becomes more like wine every day: constant change, vintages and small releases, savvy consumers, spiraling prices, and a demand that you keep up with all of it. Having a lot of craft beer brands does not make you a destination; having them and knowing them does.
The Charts
As this is written, one of the bigger brands in the craft market is going through some changes. Goose Island, the established Chicago craft brewer, was recently bought by A-B InBev. Greg Hall, son of founder John Hall, and now retired brewmaster, explained why.
‘We needed to grow, he said. ‘We dropped three brands in 2010. Next step was to drop states, which means drop Goose Island reps, drop our distributors and take Goose Island beer out of our drinkers’ hands. My father was committed to add people, add jobs, not drop them. AB gave us the best chance to grow. People questioned us when we signed our distribution deal with AB in 2006; they said we would dilute our beers. Didn’t happen then, not going to happen now.’
The biggest problems craft beer faces right now are the problems of success: managing growth and increasing access to market. They need to expand capacity, expand sales support, and expand brand awareness, all of which costs money. None of that helps, of course, unless they can get their beer on your shelves, and the consolidation of wholesalers has many craft brewers nervous.
The biggest opportunities craft beer faces tie in directly with that same success. Craft is available to more drinkers than ever. While the new and different ‘ and big and bold ‘ do well with the experienced craft drinker, the new craft drinker may be looking for something a bit less aggressive.
Robert Lauron, the VP of sales at Full Sail Brewing (Hood River, Ore.), noted growth in more accessible beers. ‘We are seeing particular interest in our IPA and Seasonal ‘LTD’ Lager/Pilsner line up,’ he said. ‘As always, Session and Session Black are enjoying substantial success everywhere.’ The two Session beers are refreshing lagers that have proven strong sellers; that’s the kind of more-than-mainstream beer that could represent a huge opportunity for craft (and retailers) if the right one comes along.
There’s a lot going on in this category. Extremes of all sorts abound, and new brands pop up almost every day. Like new music, there’s a seemingly limitless supply of new artists and sounds, while the classics stay popular. It’s exciting, it’s fun’¦and it’s a profitable place to be.
