Craft Beer Remains a Growth Category Despite Headwinds

The rumors of craft’s demise are much exaggerated. Although much of the press in the past year has focused on negative trends or headwinds, broadly craft is still a growing industry well-positioned to provide value for all three tiers.

Let’s break down some of the commonly referenced headwinds and why the craft beer category may actually be in a much more positive position than many people realize.

(SEMINAR: [Members Only] Growing into the Headwinds)

Craft Retail Value

Although it’s true that craft is no longer growing at the double-digit rates of a few years back, craft has been a consistent growth engine for retailers’ beer sales in an era where the category has remained more static. In the first 40 weeks of 2018 (through Oct. 8, 2018), small and independent craft sales were $2.44 billion in IRI Group scan data (MULO+C, Total U.S.). Even though craft’s growth rate has been slower than in years past, independent craft has still accounted for 20% of total beer dollar sales growth YTD.

(READ MORE: Mid-Year Growth Figures Show Contradictions and Challenges)

Taking a longer view shows the incredible value that craft has created at retail. A similar set of craft brands sold $1.99 billion during the same 40-week period of 2015. So in three years, craft sales have increased in measured off-premise retail channels by more than $450 million dollars!

Craft Growth Expected as Consumers Age

One common refrain in the beer media these days is that millennials, or the subsequent generation (Gen Z), is going to drink at significantly lower rates than previous generations. These fears stem from growing interest in health and wellness, not to mention the growing prominence of social media chatter about dry January or Sober September.

Despite these fears, there is little evidence that legal drinking age adults are enjoying beverage alcohol at lower rates than in the past, and if anything, the demographics suggest that millennials will likely consume more craft as they age. On the first point, the annual Gallup poll found that 63% of adults drink alcoholic beverages in 2018, slightly up from 2017 (62%; margin of error is +/- 4%). Looking back historically at the average since 1985? 63%.

(READ MORE: Shifting Demographics Among Craft Drinkers)

If anything, demographics suggest that craft is in a spot to grow in the future as millennials age and have a bit more income in their pockets. Unlike overall beer, craft’s performance improves as consumers age, and 25-34 year-olds have a higher index (consumption relative to their percentage in the population) than 21-24 year-olds. Even 35-44 year-olds have a similar index to 21-24. That suggests that craft has years of growth potential as millennials look to trade up.

Cannabis

A similar fear is that the growing availability of legalized cannabis is going to cut into beer sales and craft specifically. Again, although there is plenty of chatter about this occurring, and an occasional overly bold headline based on consumer surveys rather than sales data, to date, there is little evidence that cannabis has affected beer sales.

In fact, in 2018, looking at state shipments through September versus the previous year, beer shipments are actually the strongest in states where cannabis is recreationally legal, worst in states where cannabis is still fully illegal, and in the middle in states with medicinal cannabis. That holds true whether or not you control for population growth.

States Beer Trends YTD Control for 21+ Pop Changes
Illegal -1.11% -2.30%
Medical -1.08% -1.77%
Recreational -0.32% -1.52%

(SEMINAR: [Members Only] Cannabis and Craft Beer: Risks and Opportunities)

This is not to say that cannabis won’t have an effect on beverage alcohol in the longer-run, or that it couldn’t already be having some effect now that is being offset by another variable not being controlled for, but there isn’t sharp evidence that recreational legalization is a huge drag on sales.

To close, despite a variety of challenges, and growing competition from the large brewers as well as wine and spirits, craft beer remains a growth category built on new flavors, more variety, and a group of loyal consumers. With openings that still far outnumber closings and thousands of breweries-in-planning, future brewers still see opportunities in the space and are willing to bet on it with their businesses. Craft has been a strong driver of a category that has long been a source of profit and foot traffic for retailers of all sizes, and those trends look set to remain in the coming years.


This article was written by the market development committee as part of the BA Insider—a free email publication sent quarterly by the Brewers Association. Each issue covers topics relevant to craft beer distributors.