In my latest post, I summarized much of the data we’ve gathered in the first half of 2020, showing a year that started with similar growth trends as 2019 for the first two and half months, before entering the turbulence that has marked the rest of the year.

Our midyear survey offers another opportunity to measure craft brewer performance in the first half of the year, this time in an aggregate, rather than piecemeal fashion. In a normal year, this would be in the form of a press release where we confidently declare a percentage for craft’s performance in the first half of the year. If that’s what you’re looking for:

Based on the results of our midyear survey, it appears that craft volumes declined around 10% in the first half of 2020 versus the same period in 2019.

However, in analyzing our survey data, and more generally thinking about the midyear numbers, it is clear we need to assign bigger error bars to that statement than in the past, due to increased variation in brewer performance, greater challenges in aggregating sources such as scan data, and a lack of accurate tax data to fill in the gaps. Simply put, in normal years, when I use various methods to triangulate on midyear growth, they generally end up fairly close; this year they are all over the place.

Survey Results, Scan Data, and the Million Barrel Question

Starting with our survey results, average growth weighted only by the size of breweries that participated shows a decline of 13% year-over-year. If we weight the results by category size (regional, micro, brewpub, and taproom), this improves to a decline of 12%. In normal years, we would also estimate key regional craft breweries that did not participate using scan and media reports. If we use that approach this year, it gives an estimate of only a 6% decline, a significant improvement driven by the stronger off-premise trends and generally higher off-premise mix for regional craft brewers. A reminder here that these are full first half numbers, and so if we were only examining numbers in the post-COVID period, they would be more negative.

Scan is often a great tool to fill in gaps, but given 2020’s variation by channel, I’m wary of over-weighting scan. Why? For one, it’s a weaker predictor of even regional craft performance than in the past. I looked at a set of breweries that answered the survey and have robust scan data. The correlation between their overall performance and their scan trend in 2019 was .934. In 2020 it is only .712. Again, this isn’t surprising, but without a strong method to understand the on-premise share and trends for estimated breweries, it weakens our ability to bring in scan as a validating data source.

So why not just trust the survey results and say -13% or -12%? Well, one warning sign is that our survey sample pretty clearly isn’t representative. Looking at our sample, they grew 8% in 2019, or about twice the total category. That suggests more response bias than usual. Last year, our sample looked pretty much like the total craft population in growth terms.

Using another approach, we can try to estimate based on scan and the limited on-premise data we do have. Scan shows Brewers Association (BA) craft +12% in the first half of 2020, up from +3% in 2019. The million barrel question is what on-premise looks like. Accommodation and Food Service spending data from Affinity (and made available by Opportunity Insights) shows spending -31% from January levels (-48% after March 15, 2020). It seems safe to assume that draft beer sales will look much worse due to seasonality, more locations being closed, and less ability to be sold to go. Down 50% for the first half of the year seems conservative. At-the-brewery sales are likely to look at bit better given that more breweries have been allowed to operate and breweries have greater ability to sell via to-go and now even delivery. For at-the-brewery sales, Google Trends data suggests searches are down -18% year-over-year for “brewery near me” (also -48% since March 15). If we take these together at a 60-27-13 ratio, it gives -9% overall using an estimate for distributed on-premise down 50%.

So is it -9%, -13%, -12% or -6%? The most likely answer is somewhere in between, hence my “around 10% down” estimate.

To close this section, keep in mind that averages only tell one story about the distribution of brewery performance, and that breweries are having very different experiences by location and business model. The median brewery performance was similar to our average at -13%. The median below 2,500 barrels was -16%. 25% of breweries saw a first half with sales by volume down 27% or more, but revenue was likely down even more than that. And, at the other end of the spectrum, around one-third of breweries still reported growth in the first half of 2020.

The Brewery Count, Openings, and Closings

As of June 30, the Brewers Association database showed 8,217 active craft breweries, up from 7,480 during a comparable time frame last year. Adding in large and other non-craft brewers brought the U.S. total to 8,341. Although considerable growth, that is a deceleration from mid-year 2019, where the number had increased by more than 1,000 during a similar time frame.

Looking at our database, the decrease is largely attributable to a slowdown in openings, more so than a sharp increase in closings. While it remains possible that closings will accelerate as 2020 continues, through the end of June, our database only shows 112 closings. That’s only 4% higher than the number we had found during the same time period last year. In contrast, we have only counted 301 openings, a number that is about 20% lower than the opening count through the first 6 months of 2019 (found by this point last year).

In addition, the BA has seen it’s brewery in planning membership decline since the beginning of the year. Brewery in planning members ran about 3% below 2018 levels in 2019. In June, they were 14% below June 2019 levels. There are still likely more than a thousand, if not thousands of breweries in planning in the United States, but it is clear that this pandemic has reduced the number of entrants clamoring to join the market, at least temporarily.

We’ll get a better sense of these trends in early October when we get the TTB’s third quarter permit number and see the level of growth (or lack thereof).

The Second Half of 2020

One final piece we asked about was brewers predictions for the second half of 2020. Obviously we received a fair number of answers like “no clue.” But most brewers provided an estimate, and on aggregate, those forecasts averaged out to 4% growth in the second half of the year (versus the same period in 2019). As mentioned above, our sample group grew 8% in 2019, so while 4% was category growth in 2019, this group didn’t fully expect to return to their old growth rate.

Even so, the optimism is encouraging, and either suggests that the changes to business models have worked, and brewers are more optimistic going forward than they were a few months ago, or that these respondents are simply wearing rose colored glasses. I will note that if we break down the forecasts by size, smaller brewers are the most optimistic. Regional craft brewers predict just below 4% growth in the back half of the year, whereas smaller brewers – there was virtually no difference between micros and brewpubs/taprooms – estimated closer to 12%.

Forecasting is tricky even in stable times, but these predictions do suggest that brewer sentiment is improving and that even if the second half of the year doesn’t bring growth, it may show improvements relative to the worst quarter in recent memory for the U.S. brewing industry.