Recently, I described the mechanics of developing growth numbers for our small independent craft breweries. Today I want to dig a little deeper into those numbers and try to describe the changing nature of craft growth in 2017. Anyone who has seen me present over the past few months will already know the main themes. Growth has not only slowed, it has fundamentally changed from a few years ago, and these changes affect different segments of the craft community in very different ways.
Brewery Growth by category
Let’s start by taking a broad look at the categories. It’s always difficult to properly define the growth rates of groups like “microbreweries” or “regionals” since these groups change every year, but it’s pretty clear that the vast majority of growth this year is coming from smaller breweries. Regional crafts, independent breweries producing more than 15,000 barrels, made little progress in 2017. If losses due to acquisitions are included, the aggregation of the group of independent breweries more than 15,000 barrels , even including the new additions, shows a category that hasn’t budged. Much of the challenge was at the top, where the biggest regional brewers are squeezed from both above and below, but even if we extend our view to all regionals, 30% were down more -1%, and another 8% were between -1% and 1%. That leaves 62% of regionals up more than 1%, but just over half of them were below 30,000 barrels in total production. So the regions that grow tend to be the smaller regions.
This means that the vast majority of growth is coming from microbreweries and craft breweries, with microbreweries accounting for nearly 60% of total craft category growth. Craft breweries had a strong year (up 15%, accounting for around 16% of total growth), but the microbrewery category continues to be the main driver of growth, both due to the number of breweries in category and due to higher growth/brewery. If you include breweries that were microbreweries in 2016 in the micro category (those that went regional), their contribution to growth jumps to almost 80%.
At the Brewery Sales
Some, but certainly not all, of this growth comes from brewery sales. Breweries that reported on-site sales in the Beer Industry Production Survey in both years saw strong growth, but most of it occurred outside the brewery. These breweries grew by 13% from 7.37 million in 2016 to 8.33 million in 2017, representing over 960,000 barrels of growth (80% of total craft brewery growth). They increased their on-site sales by 12.7% to 87,000, or about 9% of their total growth, with the remaining 91% coming from outside the brewery. That said, it’s not very helpful on its own in estimating the total number, because the group that reports is most likely different from the group that doesn’t.
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This means that we need to control the size of the group that reported on-site sales (~2,400 breweries, which account for almost 60% of artisanal volume) and extrapolate based on their size and category. Using this method, about 2.5 million barrels to brewery sales this year, which at first glance seems low, given our estimate of 2.3 million last year.
As a check, I used this same method to estimate 2016 on the spot, and that comes out to 2.1 million, about 155,000 less than last year (of which only about 5,000 barrels would be due to changes in the base). That suggests around 400,000 barrels of brewery sales growth, though the basis to use isn’t quite as clear. A growth of 400,000 barrels fits perfectly with what the TTB announced at this point in its first revision.
I think that growth number is the one I’m most confident in at the moment. It’s fair to say that craft sales at the brewery grew by around 400,000 barrels, contributing about a third of total craft growth, and are now between 2.5 and 2.7 million barrels. , a growth of 17 to 19% last year for this channel. As the Tax and Trade Bureau (TTB) inevitably revises upwards, both could rise by another 100,000 barrels. If you’re trying to align the entire industry, keep in mind that there’s probably between 50,000 and 100,000 barrels sold locally by brewers outside of the craft brewery dataset. .
Growth per brewer
I want to end this post on a sobering note. Compared to many parts of the US economy, craftsmanship’s 5% growth rate is quite strong. That said, it’s probably not as strong as many breweries expected when they put together their business plan. Additionally, as the number of breweries has exploded, the slower growth and the increase in the number of breweries means that the number of growth per brewer has dropped significantly. At Craft Brewers Conference and BrewExpo America®Paul Gatza and I will delve into the extent of growth coming from new brewers (suffice it to say, that’s a lot), but even including them, it’s clear that even as the category continues to grow, individual breweries are growing less than they expected a few years ago.
In absolute terms, growth per brewery was less than 200 barrels last year. In 2014, it was almost 900 barrels. Such a decline suggests both that many brewers are unlikely to see the brewery growth trajectories of a few years ago and that many brewers are in decline.
The table below shows the distribution of companies with 2016 and 2017 data (therefore excluding 2017 openings). I’ve featured the “over 50% group” as a reminder that a large portion of them are openings in 2016 – 50% will average growth of 100% or more simply because of opening in 2016.
|2017 growth||% of breweries|
|-10% or less||17.0%|
|-10% to -1%||10.3%|
|1% to 10%||10.0%|
|10% to 25%||13.0%|
|25% to 50%||11.6%|
|More than 50%*||22.9%|
The positive interpretation of the chart above is that even in an extremely competitive environment, 73% of breweries were flat or up last year. The flip side is that 27% saw declines greater than 1% and 17% saw double-digit declines. If you are a planning brewery, I urge you to base your plan not only on the breweries around you that are in their early years, but also those that are a bit older. What does their growth look like? Is this reflected in your business plan? Likewise, if you’re in a fast-growing state, check out detailed state data in a place like Oregon (or just wait for the full BA data to arrive next month). Many breweries are differentiating and finding ways to grow in this market, but it’s certainly no longer universal.
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A more mature market
Like every year, 2017 brought changes to the craft brewery market. Nearly 1,000 breweries opened, increasing competition as growth slowed another small notch. Given that there still seem to be thousands of breweries in the planning stages, this pattern is likely to endure for several years. It will be difficult for any brewery to succeed in this environment, but professional brewing is fundamentally a business, and in any business there is a risk of failure.
On a more positive note, continued growth in 2017 is another piece of evidence that demand for crafts is fundamentally strong and here to stay. Together, this creates a bit of a duality. An industry that collectively shows good health, but with individual parts of the market and companies that may be struggling. I would expect more of the same throughout 2018.