No surprise, given the pandemic: The Brewers Association’s annual survey revealed the first decline in production by small and independent brewers since the association started tracking those numbers in the late 1970s. Nonetheless, analysts and industry watchers see reasons for optimism as we go deeper into 2021.
What the Survey Found
- In 2020, small and independent brewers collectively produced 23.1 million barrels of beer, including export sales of about 300,000 barrels—a 9 percent decline from 2019.
- The overall beer-market volume declined only 3 percent, which means that craft beer also declined in overall beer-market share for the first time.
- Craft beer’s share of the overall beer market by volume was 12.3 percent—down from 13.6 percent the previous year.
- The retail dollar value of craft beer in 2020 was estimated at $22.2 billion—a decline of 22 percent from 2019.
- Craft beer’s market share by value was 23.6 percent for 2020.
The Context
Largely due to pandemic-era restrictions and the resulting changes in consumption habits, U.S. draft sales were down about 50 percent. No small brewery operator needs to be reminded how that forced a pivot to lower-margin packaged and online sales.
Despite the tough market, the number of craft breweries operating in the United States achieved another all-time high in 2020: The BA reports a total of 8,764, suggesting that we are likely to surpass 9,000 sometime this year. That number accounts for 716 new openings and 346 closings.
The vast majority of those breweries are types that generally rely on on-premise sales—about 40 percent are categorized as taproom breweries, while another 37 percent are brewpubs. The BA defines taproom breweries as those with more than 25 percent of revenue coming from the taproom; they are now the largest segment of the craft-brewing industry.
While the number of openings decreased by 30 percent from 2019, the BA reports that the decline in openings already was apparent before the pandemic and that it indicates a maturing craft-beer industry. Meanwhile, the closure rate was on par with 2019, suggesting that the vast majority of breweries are weathering the pandemic storm. Indeed, brewery closures were significantly lower than closures in the overall hospitality industry, reflecting breweries’ ability to pivot into packaged product and online sales. While draft sales were down by half, at-the-brewery sales were down only 12 percent.
Meanwhile, craft brewers provided more than 138,000 direct jobs—a 14 percent decrease from 160,000 in 2019. Much of this decline was taproom server jobs.
Rebounding Expectations
Despite these negative numbers, BA chief economist Bart Watson says he remains cautiously optimistic. “This year obviously was a challenging year for small brewers, as it was for many small businesses and the country as a whole,” he says. “But there are things in this release that are … not as negative as we expected when we started tracking the effects of COVID.”
Early in the pandemic, the BA reported craft-beer sales down more than 70 percent; a majority of breweries responding to a survey suggested that most would not survive. However, three things helped stop those dire predictions from coming true:
- There was a high level of government support, both financially and in relaxing regulations.
- These relaxed rules allowed breweries to change their strategies, shifting from draft and taproom sales to packaged beer.
- Breweries were able to climb partly back up the cliff of vanished revenue when COVID-19 restrictions were relaxed and things got a little closer to normal.
“It was a really tough year,” Watson says. “But we’ve seen the resilience of the breweries. A lot of them found new ways to sell beer and can carry those new sales channels going forward.”
He notes that the mid-year survey showed a production decline of 10 percent, while the third-quarter survey showed a decline of only 5 percent over the previous year. Breweries were adjusting to “the new normal.”
That adjustment and the diversification of revenue channels bodes well for 2021. “I think it’s going to be a year of catch-up,” Watson says about 2021. “We’ll have production growth between 4 percent and 8 percent, some of which will be taking back lost [market] share. Things aren’t back to normal yet, but hopefully by the back half of the year, things will look more like 2019.”
While craft lost overall beer-market share, Watson says that there has been no decline in demand for premium beer. Craft beer didn’t lose share to discount brands but rather to imports and “premium-plus” brands from larger brewers. In traditional sales channels, craft beer either held or slightly gained share. The BA’s own consumer survey found that more people are drinking craft beer than ever.
However, what hurt the industry was that dramatic shift in where consumers were buying beer in 2020. People were drinking craft beer when they were in bars and restaurants—but they were not in bars and restaurants very often. When consumers buy alcohol at the grocery store instead, for example, they revert to grocery-store buying habits.
“What craft beer needs,” Watson says, “is for people to go back to bars and restaurants.”
The Turning Tide
It’s happening already. According to Lester Jones, chief economist of the National Beer Wholesalers Association, the leading, concurrent, and trailing economic indicators are all pointing to a brighter future for craft beer.
What are those indicators? Leading indicators include keg orders from distributors. Concurrent indicators include Open Table reservations. Lagging indicators include reported retail sales. All of those, Jones says, are moving in a positive direction.
“Distributors are getting orders for kegs,” Jones says. “Foot traffic is up. Several complementary indicators give us confidence that consumers are starting to feel more confident about going out.”
The inexorable return to bars and restaurants bodes well. “Craft beer has always been over-indexed to on-premise,” Jones says.
“What we have now is a population of beer drinkers who need to be reminded of how great it is to drink beer in a pub.”