Because of the easy availability of scanner data, most of what we read about the industry comes from the off-premise. For craft, however, nearly 40% of its market occurs in the on-premise, a market which has been quite dynamic over the past decade. And although there have been recent articles in the popular and trade press that have suggested beer is in decline away from home, I think there is growing evidence that within beer, on-premise trends are better than they have been for a long time. Why? Consumer preferences and demographics.
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It’s not universally good news. Data from the Bureau of Labor Statistics shows that the number of “drinking places” (NAICS 72241) declined every year from 2001-2017. Here’s a graph of that NAICS code (72241) from 2001-2017. As you can see, this isn’t something that has just happened in recent years; this is an ongoing, long-term trend.
Source: BLS (2018)
A Look at Total On-Premise
However, if we look at the on-premise more holistically, the picture brightens. Yes, the number of pure drinking places is declining, but more importantly, bars are slowly being replaced by eating establishments, many that still serve beverage alcohol. Looking at 2016, Nielsen CGA found that while neighborhood bars were down -0.9%, eating establishments were up a corresponding 0.7%. And, since there are more eating establishments, the number of on-premise locations offering beverage alcohol actually grew in total 0.4%. Even when you control for velocity (drinking locations have higher velocity for beer), the Nielsen data suggests that on-premise beer volumes were up, not down.
If we look outside the strict confines of on-premise, we can also see that volume is slowly migrating into a new “third space channel,” driven by experiential desires. Third spaces (not home, not work, but a place to find community) include concert venues, sporting events, museums, zoos, and other quasi-public spaces that increasingly are places to interact and have a beer. So if we shift our focus from the narrow bars to a broader vision of places to enjoy a beer away from home, we see more positive market signs.
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Brewpubs and tasting rooms arguably fall among the third space alternatives, and I think you can make a strong case that taprooms, along with these other occasions, have played a role in rejuvenating beer’s on-premise culture and draught beer volumes.
Here’s draught’s share of beer production from 1946-2017. Draught isn’t synonymous with on-premise volume (a decent chunk is still packaged), but it’s probably a pretty good proxy.
Source: Beer Institute Brewers Almanac, Brewers Association
For years, beer was steadily shifting to more and more of an off-premise business. Now, here’s draught share of beer production since 2000. Based on my preliminary estimates, in 2017 draught had its highest share in two decades, and that statement is true whether or not you include at-the-brewery sales, or even if you exclude them!
Tasting Rooms Drive Beer Drinker Interest
Saying that draught share is the highest it has been in 20 years doesn’t necessarily mean that its volume is as high, but as you likely already know, volumes are a challenge for all parts of the beer market. This leads to a simple conclusion: the biggest issue for on-premise beer volume is that total beer volume continues to decline.
Which strikes you as a more probable cause for overall beer’s recent struggles in the on-premise:
- There are a growing number of community gathering places where beer is the predominant beverage and is celebrated with proper glassware, clean draught lines, and knowledgeable servers.
- The fact that beer’s per-capita numbers have steadily declined over more than a decade and that overall beer volumes are down 8 million barrels since 2008.
Put differently, off-premise beer was down 2 points in 2017. In that context, beer’s on-premise numbers look good in comparison! Beer faces many challenges. However, comparing on vs off-premise trends suggests that on-premise isn’t part of the problem. It’s part of the solution.