Today, the Brewers Association released our mid-year growth figures. In this post, I want to delve into a few of the sources for these figures, what they show, and try to come to some conclusions about what they collectively mean for the craft market. Spoiler alert: it’s harder than ever to tie up craft trends into anything resembling a coherent picture.
Mid-Year Production Survey Results
Before I get started, I want to say thanks to the hundreds of breweries that took a few minutes to fill out our mid-year production survey. This survey forms the primary source of information for the growth figure.
Since we promise anonymity to those who fill it out, I won’t delve into too many details about the respondents. However, I will say that we got a broad cross-section that looks pretty similar to the total distribution from 2017. Looking at the survey results holistically, the story appears to follow the same themes as last year…
Generally, things get tougher the larger and more widely-distributed you are. On the surface, we see that 60% of the regional (“regional” based on last year’s volume) craft brewers that responded are up, while 76% of micros/brewpubs are up. Delving deeper, though, it becomes clear that telling a “smaller is growing faster” story is overly simplistic. The distribution of growth rates is all over the place, and there are plenty of negative numbers in the tail, just as there are some double-digit growth numbers from widely-distributed breweries.
What Scan and TTB Data Tells Us
We can run of couple of tests as a check on the results we get from the survey. The first is testing our growth number versus a combination of scan data (taken from scanned sales at places like supermarkets, convenience stores, etc.) and TTB data. Although we only have a single quarter completed from the TTB, right now at-the-brewery sales look like they are growing at about the same absolute rate as 2017 (remember that the same absolute rate is slower as a percentage on a bigger base). So that’s ~10% of craft volume that is growing somewhere between 15-20% a year.
Then, we need to estimate on- and off-premise numbers. In IRI Group scan data, BA craft is pretty much static at mid-year (up 1%). That’s probably a point or two slower than off-premise reality, simply because craft is overly-weighted in the areas where it is growing most slowly. In other words, the largest regional craft brewers make up a bigger share of scan than the percentage they actually represent in total off-premise. Those are the brewers that are struggling the most.
The chart below shows growth rates in scan by brewery size. Things have slowed a bit versus 2017 at all brewery sizes, but the numbers are most noticeable at the top.
|Brewery size (CEs)||Mid-year growth 2018||Mid-year growth 2017|
|Source: IRI Group scan data, YTD through 7/1/18, MULO+C, Total U.S.|
|10K or less||30.78%||42.80%|
Given these rates, why wouldn’t the BA growth estimate drop below the 5% we measured in 2017?
There are two reasons I still think 5% is the correct number (beyond that it’s what the survey showed). The first is that the weights of these groups are changing. Yes, breweries that sold 10,000 CEs or less in scan “slowed” to 31%, but they continue to increase their share of craft, and so even smaller growth rates add up more as they represent more of the category.
Secondly, although scan may be accurate for off-premise, I have strong evidence based on our survey that scan is underestimating total company growth. Looking at the 50 largest breweries that filled out our mid-year survey, I compared their scan growth to their survey growth, and the survey showed a growth rate that was 2% higher in aggregate than what I saw in scan. There are three reasons this might occur:
- Those breweries are growing at a different rate in on-premise/own-premise
- Scan is missing growth in non-measured off-premise
- Scan is poorly weighted (i.e. it gets the rates right, but has the wrong levels for brewery sizes)
I don’t know what the answer is, and it’s probably a combo of all three. Just taking scan growth rates and re-weighting based on brewery production size from our 2017 survey actually overcorrects the gap, so it’s even possible that explanations #1 or #2 would actually bring rates down if we knew how to correct them.
Whew. Confused yet? Based on a combination of things like lining up scan with state data, re-weighting scan based on our full-year data, or just applying that 2% correction more broadly, my best guess is that independent craft is growing 3-4%, not including at-the-brewery sales. If we use the 90-10 ratio for outside-inside brewery sales, that gives a plausible growth range of 4.2-5.6%. Given that our survey showed 5%, I still think that’s the safest bet, but given the smaller sample size of our mid-year survey, it is a bet that has bigger error bars than our full-year growth number.
Comparing State Data to Our Survey
A second test is looking through state data and comparing it to the survey. This check leads to its own insights. For example, it’s pretty clear that some of the growth rates by size presented above are as much a geography effect as they are a size effect. If you remember my post on the California data, I pointed out that California brewers–even regionals–were up in California, and that they were getting pulled down by their out-of-state sales. Well, looking at mid-year data (or close to mid-year since many states have only released up to May), the same thing is still happening. In Oregon, a state where in-state brewers already had 20%+ of shipments, sales in the state are up 12% through May. The top five independent brewers in the state, which represent more than 25% of the in-state production, are still eeking out some in-state growth. The same thing shows up in scan, where in-state craft brewers are up 1.4% through mid-year. In contrast, out-of-state independent brewers are down 13% in Oregon scan data. Things might look better for those brewers in the Oregon market if we could look at on-premise, but the point still stands; it’s a really competitive market out there, particularly if you are trying to sell beer in a state other than your home market.
This brings me back to the question of how we separate size and geography. Are small brewers really growing that much faster if we could control for geography, or is it simply that they tend to have distribution profiles that better match with the current demand for local? Are beer lovers buying more beer from the smallest breweries because they are small, because they are local, or both? As more regional craft brewers pull back on markets and right-size their distribution in the coming years, we’ll likely get some answers to these questions.