How Healthy is the Craft Beer Segment?

Yesterday, the Brewers Association released some rosy numbers about the breweries they represent--which constitute only some portion of what drinkers normally think of as "craft beer." The organization highlighted the continued rapid growth in the number of US breweries, which hit six thousand this year. There was one glaring omission at the center of the report, though: overall sales. (I don't suspect chicanery; the year isn't over and it takes months to get the final numbers in and reported out.) For people who follow craft beer, this is a far more salient statistic than how many neighborhood brewpubs may have opened this year.

When numbers finally come in, they're likely to show that the craft segment continued to expand in 2017, but more slowly than in recent years. The most recent numbers, which tracked sales through the start of November, puts that growth at just under 4%. That's actually fine; many industries see similar slowdowns when they begin to mature, and many see periods of decline. After rapid growth throughout the late aughts and early teens, the growth in smart phones looked like craft beer, but is projected to increase by just 1% this year. So four's pretty good.

The bigger issue is that the growth isn't evenly spread among breweries. Smaller and mid-sized breweries continue to post growth, while larger independent ones are often struggling. Through November, some big names were posting worrisome declines:

  • Boston Beer, -2.6%
  • Deschutes, -5.1%
  • Craft Brew Alliance, -5.3%
  • Sierra Nevada, -5.6%

Of course, this isn't an industry-wide pattern. Breweries with hot products like Firestone Walker and Dogfish head saw strong growth. Brands owned by large breweries (Lagunitas, ABI's High End) continue to do well--though not uniformly so--and there are idiosyncratic success stories like New Glarus, which despite only being sold in Wisconsin is still killing it this year. (This may be the most unusual anomaly in beer.)

This pattern is evident in Oregon, where people drink more craft beer than anywhere else-- and where we have great numbers. Overall, growth has been steady--outpacing the US as a whole--but there are winners and losers. Below are Oregon's ten largest breweries* (by local sales) and their volumes in barrels through September in both 2016 and 2017.

Five breweries are down from 2017, one is flat, and only four are up. In fact, the total barrelage for these ten breweries is down nearly 12,000 over the year. This is the same pattern you see nationwide. Oregon has over two hundred breweries, and out in the tail are smaller players seeing modest to strong growth, which offsets the losses by the larger breweries. Were we to have granular level like this at all states, I have no doubt we'd see the same pattern.

So while overall the craft segment is strong and growing, individual breweries are experiencing different levels of success. In this light, the hundreds of new breweries that rush to the market each year may not be such a welcome signal of health to struggling incumbents. The Brewers Association is right to call out the strength and success of this segment of the beer market, but it's an incomplete picture. In recent years, brewery openings far outnumbered closures (78 to 844 in 2015, 96 to 825 last year), but that's changing. As 2017 winds down, there is a lot of anxiety out there, and we're probably just entering a more volatile phase in which failures and closures will become more common. The market will continue to grow, but not every brewery will share in the success. Interesting times.

*Numbers taken from Oregon Liquor Control Commission's numbers for excise tax purposes. These should not be taken as gospel truth; the numbers mid-year are fluky and the OLCC has done an increasingly erratic job of documenting actual beer sold. (You'll note they don't even track Widmer/CBA.) Still, it's an apples-to-apples comparison from last year, when the same problems existed.

Jeff Alworth