Before we turn to the mid-year 2017 growth release at the end of the month, it’s worth taking one last look at 2016. To do so, I’m going to use one of the richest state data sets: California. Now, if you’ve worked with state data before, you’ll know that while it has some advantages, it isn’t infallible, and the California data is no exception. There are flipped gallons vs. barrels everywhere, and breweries that are clearly missing a month or a quarter of their total volume. So, as with any data source, these figures should be taken with a healthy dose of skepticism and verified against other data streams.
One of the best parts about the California data is that it provides not only taxable production, but also information about that production (broken into keg, case, or “tavern use”), as well as exports (out of the country) and sales in California. Consequently, you can get a fuller sense of what the business models of breweries in the state looked like and how those are changing. The data referenced comes from the 664 breweries with taxable production listed in the state in 2016, up from 565 the year before.
For production growth, things don’t look that different from the national picture. Production for craft brewers in California was up 5-6% versus last year. Where it becomes more interesting is when you start looking at how that growth broke down in geography and type of production. For example, in-state sales growth was much faster, with closer to 10% growth. That shifted the percentage of in-state sales from 60.3% to 68.5%. Some of this comes from the fact that California breweries are moving production to other states rather than exporting (domestic exports out of California were actually down a bit for craft brewers). Comparing craft brewer sales to total shipments (source: Beer Institute) shows that California craft brewer share rose nearly a point, from 8.0% to 8.9% (total craft share is higher; this is just California brewer share).
(MORE: U.S. Brewery Finder)
Part of this is due to growth among microbreweries and brewpubs, who sell just about everything they make in California. Micros and brewpubs increased taxable production by almost 100,000 barrels, nearly every drop of which was sold in California (they only export 4% of their production out of the state [includes both domestic and international exports], and export share dropped in 2016).
At the same time, the year was still a solid one in California for regional craft brewers as well, who saw roughly similar total growth from in-state sales. The difference for those breweries was that they tend to rely more on out-of-state sales, where they saw very little growth judging by the California numbers, though again this analysis is complicated by the new breweries being built out of state.
So to sum, in a state market where total shipments dropped a couple hundred thousand barrels, both regionals and micros/brewpubs managed to grow by roughly a hundred thousand barrels. That means a decent share shift to craft, and a shift within craft down toward the tail.
Looking at smaller brewery business models, we can see the continued importance of at-the-brewery sales. Note that the following data lumps together brewpubs and microbreweries, so a large portion of the tavern use production (i.e., at-the-brewery sales) will be coming from brewpubs rather than taprooms.
Here’s a breakdown of total sales by type (keg/case/tavern) for breweries producing 1,000 barrels or less, 1,001-5,000 barrels, and 5,001-15,000 barrels. As you can see, both from the first graph that organizes by brewery size and the next one that organizes by production type, tavern use is the most important for the smallest breweries, whereas as breweries get larger, they tend to shift first into keg, and later keg and case production (with a bit of export). I’ve also taken this data and divided by the number of breweries in each so you can see in table form what an average brewer looks like at each side (I also added regional brewers; more on this in a second.). Ideally we’d break these into brewpub/production, but there’s no easy way to discern from the California data.
Average Production of California Breweries by Size and Production Type, 2016
Size (bbls) | Number of Breweries | Keg | Case | Tavern | Export (out of U.S.) |
1,000 bbls or less | 499 | 130 | 14 | 143 | 1 |
1,001-5,000 | 112 | 1,323 | 330 | 437 | 16 |
5,001-15,000 | 20 | 4,174 | 3,806 | 832 | 602 |
Regional | 30 | 36,546 | 87,451 | 1,585 | 1,302 |
Source: California BOE and Brewers Association
Incidentally, for those tracking the rise of at-the-brewery sales, looking back at a few years ago shows that the growth in California is almost entirely related to two things:
- An increase in the number of breweries below 15,000 barrels, not a change in their business model. The absolute tavern use number for this collective group rose 38.8% between 2014 and 2016, but basically all of this is due to the number of breweries increasing (39.6%).
- An increase in the sales of regional brewers directly at their breweries.
Here’s the same table as above, but for 2014.
Average Production of California Breweries by Size and Production Type, 2014
Size (bbls) | Number of Breweries | Keg | Case | Tavern | Export (out of U.S.) |
1,000 bbls or less | 352 | 117 | 17 | 128 | 0 |
1,001-5,000 | 83 | 1,292 | 333 | 469 | 37 |
5,001-15,000 | 17 | 4,093 | 3,616 | 851 | 653 |
Regional | 24 | 36,864 | 87,599 | 773 | 2,048 |
Source: California BOE and Brewers Association
At one level, it’s pretty amazing how similar the averages are; when I first created the table, I had to double-check to make sure I was pulling from the correct year. There are really only a few differences that I see: the number of breweries in each category (up, particularly for 1K and 1K-5K), the tavern use for regionals (up), and the exports for regionals (down, probably influenced by East Coast breweries that produce to ship to Europe). The numbers also show how hard it is to break out and really expand these days. In 2016, there were only nine more breweries making 5,001 barrels or more than in 2014, whereas there were 176 more making 5,000 barrels or less.
(MORE: Do Tasting Rooms Support Market Growth?)
Going back to the changes in tavern use between 2014-2016, the majority of the increase is just from the number of breweries, but around 35% is from the increased average tavern use figure from the regionals. Note that this still isn’t a huge chunk of their production (up 0.6% to 1.2%), but that at their size and number, small changes add up. The growth in tavern use is another clear sign that visiting breweries is something people are interested in doing for part of their beer enjoyment experience. This was underscored in this year’s Nielsen Craft Insights Panel, which showed that craft drinkers visit breweries for diverse reasons including fresh beer, tours, atmosphere, unique beers, and knowledgeable staff.
To sum up this section, brewery business models may not be changing all that much for microbreweries and brewpubs. Rather, new entrants are simply following an existing model in greater numbers. Regionals are harder to read given the presence of out-of-state breweries, but their production profile isn’t that different either, with the exception of a bit more at-the-brewery sales and a bit less in export out of the country.