If you’ve been following craft beer for over 20 years, you’ll know that this isn’t the first time the category has performed strongly. The late 1980s and early 1990s saw overall growth rates in the region of 30%. That was on a tiny base, of course, and was aided by constant expansion into new territories as new breweries popped up in previously empty spots on the map.
What’s going on today is completely different. This is now a big business — craft brewers currently provide an estimated 103,585 jobs in the U.S., including serving staff in brewpubs — that represented 5.7% of the 200 million barrels of beer sold in the U.S. in 2011. More to the point, craft beer dollar sales were 9.1% of a $96 billion market. That’s growth of 13% by volume/15% by dollar sales over 2010, when, in turn, the growth was 12% by volume, 15% by dollars over 2009.
What’s truly surprising is the backdrop to that. Overall U.S. beer sales — by volume — were down an estimated 1.3% in 2011, and 1.2% in 2010 (all figures from the Brewers Association). And you don’t need anyone to tell you what the general economy’s been like for the past four years. Yet craft beer is racking up amazing growth numbers. What’s going on?
“Work Our Butts Off”
“It’s really the same recipe we’ve had since the first day I started,” says Jim Koch, founder of Boston Beer. “Make great beer and work our butts off to sell it.” Koch’s been hustling his Samuel Adams Boston Lager almost as long as anyone in the business, since 1986, so he should know.
That’s what’s worked for another guy who’s been in the business for about as long: Dick Yuengling and his Pottsville, PA-based family-owned brewery. Yuengling Traditional Lager sells in the niche between craft and premium, and sells well: the brewery made a 14% jump in volume sales in 2011, to 2.5 million barrels…selling in only 14 states. Yuengling says indications are that the brewery should hit 2.8 million barrels in 2012.
“There is a philosophy behind what we do,” he explains. “We don’t jump to too many states; we establish ourselves, and then move into a bordering state. Last year’s launch into Ohio was spectacularly successful, three to four times bigger than we estimated. The wholesalers and retailers — grocery and chains and c-stores and on-premise — just received the brands in a way we never saw before.” It’s not just hard work, of course; the big brewers work hard too. Julia Herz, craft beer program director for the Brewers Association, notes a number of factors. “You’ve got a cultural shift that’s occurred for beer in the U.S.,” she begins. “With the availability of beers beyond light lager, the palate has evolved, and diversity is available. Also, localization of beer is a movement, but it’s not unique to beer, there’s a growing demand for what’s made down the street. Craft beer’s authenticity is another asset: people who can be named behind their local, regional, or even national beer. Many beer lovers can’t discern who’s behind the brands from the large global brewing companies.”
Localization and personal identification are two trends that are driving a sudden new wave of expansion in craft brewing. Several large craft brewers recently announced plans to open expansion breweries well outside of their home territory: Sierra Nevada (Chico, CA), New Belgium (Ft. Collins, CO) and Oskar Blues (Longmont, CO) are all opening new breweries in North Carolina, and Lagunitas (Petaluma, CA) will be opening a facility in Chicago. Nothing like this has been seen since the early 1990s, when Washington state-based Redhook built a plant in New Hampshire. “The beer culture, water quality and quality of life are excellent,” said Sierra Nevada founder Ken Grossman when their decision was revealed in January. “We feel lucky to be a part of this community.” Oskar Blues marketing director Chad Melis echoed the sentiment when they made their announcement: “Brevard, N.C. is very craft savvy, has a thriving music scene, and has beautiful mountains surrounding it for cycling, kayaking and outdoors in general. Staying small and engaged in another small town is a way to continue our intimate culture.” Clearly the authenticity issue is a consideration as these brewers look to engage themselves as locals in these new communities.
Local doesn’t just mean knowing people, though; to many consumers, local is about environmental impact. That’s what drove Lagunitas president Tony Magee to their Chicago expansion. “The essential reason for the second plant was the realization that there was 2.5 oz. of diesel in every 22 oz. bottle we sold in Chicago and 4 oz. in the same bottle when bought in NYC,” he says. “When I thought about that and added in the number of trucks departing the brewery everyday for points East, and considered that those are also very fast-growing markets for us, and then thought about how much money I could easily borrow if I used that cash for bank financing instead of trucking expenses... it quickly became clear that I could build the brewery for free.” Greening often makes economic sense as well as being appealing, but the far-flung distribution model still works for some breweries, like the iconic Rogue Ales (Newport, OR). While other brewers are building expansion breweries, or pulling in from far-off markets, Rogue not only continues to sell well across the country, they’ve developed a small but significant export market to Europe and Asia: more proof that American craft beer is a product that has wide appeal.
Everything’s a Trend
That appeal makes almost everything craft brewers try look successful. The thing that may still be attracting the most attention is cans. We’ve been hearing that canned craft beer is the next big thing for a few years now, but every year seems to bring new evidence of it. Aside from the phenomenal growth of can pioneer Oskar Blues (53% growth in 2011), the entry of Sierra Nevada to this packaging niche is significant; the success of their green cans of Pale Ale and Torpedo has been striking.
What else? “India Pale Ale” continues to be magic on a label, and extensions of the style by many brewers are making that a real niche-within-a-niche. “We launched a new year-round beer in April 2012 called Chainbreaker White IPA,” says Jason Randles, digital marketing manager for Deschutes Brewery (Bend, OR). “The popularity of this new beer – and relatively new style – has been phenomenal. We launched only in the Pacific Northwest to start, and are expanding to our entire distribution network this summer.” The white IPA is a hybrid of the hoppy IPA and the spicy witbier style.
Greg Koch, CEO of the extremely hop-centric Stone Brewing Co. in Escondido, Calif., confirms that: “Our IPAs continue to grow…all of them. Stone IPA, Stone Cali-Belgique IPA, Stone Ruination IPA, and Stone Sublimely Self-Righteous Ale (our black IPA) have been seeing tremendous growth every year, but it’s been exceptionally strong as of late.”
Hop bitterness may pucker a drinker’s lips, but to really make folks pucker up, you need a sour beer, and those are on fire. “Sour beer enthusiasts continue to want more,” affirms Joe Menetre, sales director for New Belgium Brewing, “and we’ve just increased our wood beer-aging capacity threefold. High end beer is still selling.” Their challenging “Lips of Faith” brand is a great example.
Spreading The Shelves
Mentioning all these large craft brewers — and, it goes without saying, all the great local and regional brands in your own market — makes it clear that having a good representation of craft brands is going to take a lot of shelf space: beer’s not a compact product. Can’t you just have a few strong sellers? Why is it worthwhile to have that much space dedicated to all those different brands?
“First and foremost,” answers Jim Koch, “because that’s what drinkers are looking for — the craft segment is up because drinkers are demanding high quality craft beers. Secondly, because craft drinkers will pay a little bit more money for a higher quality, full-flavored beer, the profits go up for the retailer.”
Julia Herz cuts right to the heart of it for the retailer: “Selection and diversity allows for bigger basket rings. When there’s a larger selection, with craft in the mix, that establishment will have higher rings. No one asks this question about cheese, or coffee. The demand for more SKUs has been put on many items, not just beer. Instead of carrying multiple SKUs of the same product — just different package sizes — some establishments are shifting the SKUs from multiple packages of light lager and using them for craft.” Like Willie Sutton said about robbing banks: that’s where the money is.
Finally, Herz downplays speculation that the craft beer market may be headed for another 1996-style correction. “Speculate all you want,” she says confidently. “This is a mature, stable industry with experienced brewers. As long as they’re making world-class beers, with a good business model, they’ll be successful. There’s more demand than supply right now.” That’s going to keep craft swimming strongly for a while.