Analyzing 2017 Craft Brewery Growth

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Recently, I outlined the mechanics of coming up with our small and independent craft brewery growth numbers. Today, I want to delve a bit deeper into those numbers and try to describe the changing nature of craft growth in 2017. Anyone who has seen me present in recent months already knows the main themes. Growth hasn’t just decelerated, it has fundamentally changed compared to a few years ago, and those changes are affecting different segments of the craft community in very different ways.

Brewery Growth by Category

Let’s start by looking broadly at categories. It’s always hard to cleanly define the growth rates of groups like “microbreweries” or “regionals” since those groups change every year, but it’s pretty clear that the vast majority of growth this year came from the smallest breweries. Craft regionals, independent production breweries above 15,000 barrels, grew only slightly in 2017. If we include the losses due to acquisitions, aggregating the group of independent breweries above 15,000 barrels, even including new additions, shows a category that didn’t budge. Much of the challenge was at the top, where the largest regional brewers are being pressed both from above and below, but even if we extend our view to all regionals, 30% were down more than -1%, and another 8% were between -1% and 1%. That leaves 62% of regionals up more than 1%, but a bit more than half of those were smaller than 30,000 barrels of total production. So the regionals that are growing tend to be the smallest regionals.

That means the vast majority of growth came from microbreweries and brewpubs, with microbreweries accounting for nearly 60% of the craft category’s total growth. Brewpubs had a solid year (up 15%, accounting for about 16% of total growth) but the microbrewery category continues to be the bigger growth engine, both because of the number of breweries in the category and because of higher growth/brewery. If you include breweries that were microbreweries in 2016 in the micro category (those that jumped to regional), their contribution to growth jumps to almost 80%.

At the Brewery Sales

A chunk, but certainly not all, of this growth comes from at the brewery sales. Breweries that reported onsite sales in the Beer Industry Production Survey both years saw a lot of growth, but most of it was outside the brewery. Those breweries grew 13%, and went from 7.37 million, in 2016, to 8.33 million in 2017—more than 960,000 barrels of growth (80% of total craft brewery growth). They grew onsite sales by 12.7%, or 87,000, about 9% of their total growth, the other 91% coming outside the brewery. That said, this isn’t that useful by itself for estimating the total number, since the group that reports is most likely different from the group that doesn’t.

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That means we need to control for the size of the group that reported onsite sales (~2,400 breweries, who represent nearly 60% of craft volume) and extrapolate based on their size and category. Using that method, about 2.5 million barrels of at the brewery sales this year, which on the face of it seems low, given our estimate of 2.3 million last year.

As a check, I used this same method to estimate 2016 onsite, and it comes out to 2.1 million, about 155,000 less than I got last year (of which only about 5,000 barrels would be due to changes in the base). That suggests about 400,000 barrels of at the brewery sales growth, though what base to use isn’t as clear. 400,000 barrels of growth lines up very neatly with what the TTB has reported at this point through their 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 at the brewery sales grew ~400,000 barrels—contributing about one-third of total craft growth—and are now somewhere between 2.5-2.7 million barrels, making growth 17-19% last year for this channel. As the Tax and Trade Bureau (TTB) inevitably revises upward, both of those could shift up another 100,000 barrels. If you’re trying to line up the total industry, keep in mind that there are probably somewhere between 50,000-100,000 barrels sold onsite by brewers outside the craft brewery dataset.

Per Brewer Growth

I want to end this post on a sobering note. Compared to many parts of the U.S. economy, craft’s 5% growth rate is quite strong. That said, it’s probably not as strong as many breweries expected as they built their business plan. Additionally, as the number of breweries has exploded, slowing growth plus more breweries means that per brewer growth numbers have declined significantly. At the Craft Brewers Conference and BrewExpo America®, Paul Gatza and I will delve more into how much growth is coming from new brewers (suffice it to say it’s a lot), but even including them, it’s clear that although the category is still growing, breweries individually are growing less than they expected a few years ago.

In absolute terms, per brewery growth was less than 200 barrels last year. In 2014, it was almost 900 barrels. To drop like that suggests both that many brewers probably aren’t seeing the growth trajectories of breweries from a few years ago, and that many brewers are declining.

The table below shows the distribution of companies with 2016 and 2017 data (so excluding 2017 openings). I’ve starred the “more than 50% group” as a reminder that a huge chunk of them are 2016 openings—50% will average growth of 100% or more just due to when they opened in 2016.

2017 Growth % of Breweries
-10% or worse 17.0%
-10% to -1% 10.3%
+/- 1% 15.3%
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 table 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’re a brewery in planning—I’d urge you to base your plan on not just the breweries around you that are in their first few years, but also check out those that are a bit older. What does their growth look like? Is that reflected in your business plan? Similarly, if you’re in a fast growing state, check out the detailed state data in a place like Oregon (or just wait for the full BA data coming next month). Plenty of breweries are differentiating themselves and finding ways to grow in this marketplace, but it’s certainly no longer universal.

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A More Mature Market

As with every year, 2017 brought changes to the craft brewing market. Nearly 1,000 breweries opened, increasing competition while growth decelerated another small notch. Given that there still appear to be thousands of breweries in planning, this pattern is likely here to stay for several years. It will be difficult for all breweries to succeed in this environment, but professional brewing is fundamentally a business, and in any business there is the risk of failure.

On a more positive note, the continued growth in 2017 is another piece of evidence that craft demand is fundamentally strong and here to stay. Together this creates a bit of a duality. An industry that collectively shows plenty of health, but with individual parts of the market and companies that may be struggling. I’d expect more of the same throughout 2018.

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