Craft beer has entered uncharted waters.
What had been a booming business in recent time — with double-digit growth, year-over-year — has settled into the single digits in terms of increasing annual sales.
Last year the craft beer category grew just 4% in the United States, according to the Beverage Information Insights Group. It totaled 322 million 2.25-gallon cases. That was good for an 11.7% market share of the overall beer market in America.
You can look at those statistics in a number of ways.
In 2010, the craft beer category was only 146 million cases, meaning it has more than doubled in sales in eight years. The category’s market share that same year was merely 5.1%, which has also increased twofold, and then some, since 2010.
Those eye-popping gains would represent the pint-glass-half-full view, so to speak. Now onto the observation with the pint glass half drunk.
In 2014, case sales for the craft beer category were up 13%. Since then, annual growth has not topped 10%. Just one year later, in 2015, sales increases had slowed to a +8.5% performance.
Clearly, the rate of growth has decreased.
But back to that pint glass half full. Look at the larger beer category.
Beer in America was down 1.3% in 2018. That includes a 3.8% drop for domestic light lagers, down to 1.177 billion cases, and a 42.6% market share. (Light lager’s market share has recently shrunk about 1% annually.)
Beer has suffered sales losses to competition — wine and spirits — as well as the broader trend of consumers drinking better, but less. Despite these category headwinds, craft beer still grew in 2018. It was one of only two domestic styles of brewed alcohol to achieve gains last year. (The other was the red-hot flavored malt beverage category, led by the likes of White Claw and Spiked Seltzer, which was up 5.1% to 118 million cases and a 4.3% market share.)
So what can we expect from craft beer moving forwards?
A New Economic Reality
For years now we have awaited another craft beer bubble burst. After all, the industry also boomed in the late ‘80s and early ‘90s, before suffering a precipitous drop. Will the same economic cycle play out again? And is this imminent, as the unprecedented number of U.S. breweries approaches 8,000, despite the slowing sales?
“When you dissect craft beer, there’s a little bit of concern, but you still see growth,” says Mike Stevens, co-founder of Founders Brewery. “There’s still strength there. Yes, it’s been slowing from the good-old days of double-digit growth, but that’s the natural growth cycle of any business.”
Rather than a doom-and-gloom proclamation, Stevens sees maturity.
“Craft beer today is definitely an entity in its middle ages, which naturally slows down, ” he says. “Look at other beverage categories. Single-digit growth is the norm. So I remain bullish on craft beer as the beer beverage of choice for consumers for the foreseeable future.”
To Stevens’ point, American whiskey for all its raging popularity was up only 5.1% in 2018. Vodka grew 1.1%, and tequila 7.3%, while gin and rum were both down, -1.3% and -3%, respectively.
Sam Calagione, founder and president of Dogfish Head Brewery (which recently merged with Boston Beer), describes the current state of craft beer as “vibrant, accessible and tumultuous.”
“Five years ago, craft beer was still a niche community,” he adds. “Now it’s moved into mainstream acceptance. It’s a trend, not a fad. But we’ve hit a moment where beer overall is flat.”
As for why beer overall was down in America, he hastens to point out the consumption trends that threaten the entire category.
“It’s roughly true that 25% of today’s young LDA consumers are drinking 25% less than the same age group did 25 years ago,” Calagione says.
That may actually be the more troubling statistic for craft beer producers and retailers than the slowing sales, or escalating number of microbreweries.
“It’s a statement that we as an alcoholic beverage industry must do a better job of showing consumers that responsible intake of alcohol as a regular part of their lifestyle is still a beautiful and rewarding thing,” Calagione says. “Right now, I don’t think we’re doing that part of our job.”
And with consumers drinking less, one might assume that they automatically gravitate towards whatever products are the trendiest. But Clay Robinson, co-founder of Sun King Brewing — an Indianapolis business that opened in 2009, and now has a multistate footprint, several taprooms and a distillery — cautions against that line of thinking.
“We feel like what gets a lot of buzz and chasing consumers these days is whatever comes from the Instagram culture,” Robinson says. “We have to remind ourselves that while yes, there are hot trends that people are chasing, but when you look at who is actually chasing trends, it’s not everybody.”
Focusing On Core Brands
Instead of focusing on trends, many name-brand craft brewers have recently doubled down on core brands.
Which is not to say that innovation has gone out the window. Capturing consumer interest with comically named NEIPAs, or sours aged in foeder barrels with fruit, remains an important of a brewery’s overall character. But the bigger-picture economics now point towards smaller shelf sets.
To that end, Robinson says that Sunlight Cream Ale — an original Sun King beer from 2009, and hardly the hazy IPA or barrel-aged stout so common to Instagram — still comprises 40% of the brewery’s sales. Furthermore, Sunlight Cream Ale has experienced almost no decline in a decade.
“You look at the larger portion of what beer drinkers want, and that is good, well-made beer that they can count on for consistency,” Robinson says. “You have to balance the tightrope between those consumers who want consistency, and the consumer segment that always wants something new.”
In terms of core brands, Founders help set the standard for mass-scale craft beer with All Day IPA. The company aimed for another big-brand craft beer by launching Solid Gold — a light-bodied, easy-drinking, premium lager — in 2018 as a year-round offering.
It worked. One year later, Solid Gold is up 22% in sales, Stevens reports. It will soon reach the second-highest spot in annual sales in the Founders portfolio.
“The reality is that the majority of craft beer volume comes out of twenty or so breweries in the country, and they all have a couple core brands,” Stevens says. “That’s 60-to-80% of the volume, which speaks loudly to brand building.”
“If craft is to go to the next level, and become the consumer’s favored flavor of beer, then we larger breweries have to get behind two-to-three beers each, and brand to a larger volume,” he adds. “Otherwise, the category becomes too helter-skelter, and confused the audience.”
While nobody would question the world-class quality and variety of American craft beers, Stevens believes they currently fall short in terms of achieving the level of branding he foresees as necessary for the future of the category.
“I’d argue that craft beer has never done branding very well,” he says. “The category’s next move must me into the phase of maturity.”
Along those lines, Dogfish Head has begun consolidating its marketing and branding efforts behind a smaller set of mainstream beers.
“Five years ago, our top three beers would receive 50-60% of our marketing and advertising budget. In 2020, those beers will likely get 80-85%,” says Calagione.
Another example of a classic beer that continues to sell well, despite being anything but hazy or juicy, is Bell’s Two Hearted Ale.
“We like to innovate, but with some of these beers, there’s beauty in their simplicity,” says Matt Moberly, VP of sales and marketing at Bell’s.
Craft beer already suffers from too many SKUs, as the number of producers increases to historic levels. Many new, smaller breweries, rather than fight for space on the already-overcrowded retail shelves, have instead focused on selling beers directly from taprooms. Basically these businesses become another form of the local pub or bar.
Should retailers worry about this extra competition? Robinson of Sun King argues no.
“We have three taprooms, and in the surrounding areas around those, our sales to retail accounts have actually increased,” he says. “Yes, there were some accounts in those areas that took us off their shelves because they thought we were competing with them. But we’re finding that people who are already on the Sun King train will keep buying our products, both from our taprooms and from those retail accounts.”
Calagione of Dogfish Head has a less-sunny outlook about local taprooms — especially when placed alongside the existing threat of corporate craft beer.
“I worry that the category is trapped in the smiling jaws of death, where the taproom model is the bottom jaw and the top jaw is the top-50 breweries,” he says. “Remember, well over half of the volume of these top breweries comes from producers outside of the craft trade associations. They’re former craft breweries that have been bought out by global companies.”
These corporate-backed breweries have more power to convince retailers to focus on their brands instead of authentic craft products, Calagione argues. If more consumers buying these corporate craft beers, or head out to taprooms and buy directly from smaller guys, what does that leave authentic, larger craft producers in the middle?
To fight for themselves, Calagione says. “It’s up to these breweries that can distinguish their brands on the retail level to outpunch their weight and go up against the national conglomerates.”
This is partly why Dogfish Head recently merged with Boston Beer. Together, the two name-brand breweries have more firepower to compete with the likes of AB InBev or Constellation Brands. It’s in line with a vision where craft beer spends less effort in-fighting and more time expanding beyond that 11.7% market share.
“Our portfolios are compatible, our IPAs and distilled spirits and sours with what Boston Beer has,” Calagione says. “Together we can be very thoughtful that the big bets we make are complimentary, and not competing with each other.”
Getting back to the taproom model, Stevens of Founders fears that this distribution strategy hurts the three-tier system because it effectively circumvents it. Though he does believe that taprooms “bring awareness to the craft space and then, hopefully, people go and buy more craft beer on the shelves.”
Taprooms are also a way for brewers to develop newer beers — testing them on guests while gathering invaluable consumer responses — before investing in larger batches. With those positives in mind, Stevens believes that the ideal laws for taprooms are those that allow only a certain amount of product sold onsite annually.
“Beer gets to the world in the U.S. through the three-tier system,” he says. “And nothing compares with the three-tier system.”
Low-Cal Takes Off
One trend we have covered a lot recently is low-cal craft beer. There appears no slowdown in sight for “healthier” craft options, which is part of the broader consumer interest nowadays in nutritional food and drink.
“Another topic we’ve been paying attention to is the health movement, where people are actively looking to reduce alcohol and calorie intake,” says David Graham, brand manager for Karbach in Houston, TX. “This resulted in the creation of Game Changer, which is our new low-ABV brew.”
Brewed with sea salt, acai berry, and turmeric, Game Changer is 2.8% ABV with 95 calories — and 20 IBUs.
Most major breweries by now have their own version. Dogfish Head’s low-cal IPA, Slightly Mighty, is only 95 calories per 12-oz., which is the same ratio as a Michelob Ultra. Slightly Mighty is 4% ABV.
“It has unique selling properties tied into the active-consumer lifestyle and wellness trends,” says Calagione.
U.S. Mexican Craft Beer
Another trend popping up in craft beer these days is Mexican styles.
Many craft breweries stateside have taken note of the rise of premium Mexican lagers, and have come out with their own versions of these cross-culturally popular brews.
Sun King Brewing has found success with their 4.5%-ABV, 120-calorie Pachanga Mexican-style lager. Sales of the beer are up 25%, month over month.
“Craft Mexican lagers are definitely something that’s been creeping up the past couple of years,” Robinson says. “You look at how beer overall is flat, but Mexican imports are really growing [imported beer was up 3.8% in 2018, driven largely by Mexican]. Beers like our Pachanga can help get people off of Mexican imports and onto U.S. craft.”
Craft Cider Settles
Craft cider sales were booming for a few years, as flavor-curious drinkers searched for non-beer alternatives. However, these consumers now seem more likely to reach for wine, whiskey or a cocktail to change up flavors than order a cider.
Moreover, part of the explosive growth in cider several years back was that the category catching up to modern demand for craft products. Sales in the category have since leveled off, as interest in cider had likely reached its natural peak with current consumers.
Altogether the result was a 0.7% decline for U.S. sales of cider in 2018, totaling 24 million cases.
Angry Orchard from Boston Beer Co. continues to dominate, with 11.93 million cases, but slipped 4% in sales. In second place was Woodchuck, down 5.1% to 1.68 million cases. Strongbow from Heineken was up 6.8% for 1.35 million cases, while Stella Artois Cidre grew 6.2% for 1.30 million cases.
One trend that most category-leading ciders have tapped into is rosé. All four of those aforementioned brands recently released rosé ciders, meant to attract crossover drinkers who enjoy the style currently dominating wine.
What’s Next For Craft Beer?
With all the concerns over this category’s future, the good news is that craft beer drinkers are likely not going anywhere.
“Keep in mind that many Millennials, and the generation behind them, did not grow up seeing only Big Brand beers in the fridge at home,” says Stevens of Founders. “And also keep in mind, as a whole, that the beer category is still a behemoth.”
“I’m bullish on craft as the choice for beer beverages for the foreseeable future,” he adds.
Kyle Swartz is editor of Beverage Dynamics magazine. Reach him at email@example.com or on Twitter @kswartzz. Read his piece What the 2019 Yakima Hop Harvest Says About Craft Beer.