Craft beer isn’t what it used to be, at least when it comes to volume growth, which occurs now at much slower rates than in the not-too-distant past. After several years of double-digit volume growth rates, U.S. craft beer in 2016 grew at the slowest pace since the recessionary downturn of 2008 – until a still slower rate was measured for 2017, that is.
Simultaneously, however, one noteworthy segment of the market, microbrewers (those brewing 15,000 or fewer 31-gallon barrels per year), showed that some hallmarks of the craft beer scene of yesterday remain relevant to today’s beer drinkers. Specifically, these small, independently owned and operated companies were the fastest moving component of the craft beer category, handily outperforming the relatively low number of craft brewers with national distribution (e.g. Boston Beer, Sierra Nevada and a few others), regional brewers (with presences in some but not all states, like Deschutes Brewery and Bell’s Brewery) and even brewpubs, which have also seen sporadic episodes of strong growth but as a group remain the smallest of the four types in terms of volume.
Moreover, compared to beer in general, craft beer still appeared robust. The total U.S. beer market has been characterized by ongoing volume reduction for several years, and declined yet again in 2017. In contrast, craft beer volume enlarged by 4.7% to nearly 20.1 million barrels in 2017. While this advance was less dramatic than the 10.5% surge recorded in 2015 and the more muscular growth that preceded it – or even the 5.5% uptick of 2016 – craft beer still reached a new historical high. Craft’s share of total beer volume reached the double-digit realm (i.e. 10%) for the first time, up from 6.2% a mere five years earlier. During that time period, the sheer number of craft brewers of all types swelled mightily, from about 2,000 in 2011 to more than 6,250 in 2017.
Although the back-to-back slowdowns of 2016 and 2017 do mark a significant development for increasingly mainstream craft beer, they shouldn’t overshadow the ongoing expansion of microbreweries. Microbrewers’ volume continued to grow at a double-digit rate in 2017. While their 16.6% increase did amount to a deceleration from the greater-than-20% races recorded in several preceding years, it certainly stood out in a beer market tending toward decline. Over the five-year period from 2012 to 2017, microbrewers’ share of craft beer volume swelled from less than 15% to close to 29%, thereby surpassing regional brewers in scale. Beverage Marketing Corporation, which publishes BMC’s U.S. Beer Guide and numerous other reports on the beverage industry, expects the microbrewer segment to continue to outperform the craft beer category from 2017 to 2022. (National craft brewers will likely remain the largest segment, even as several of the biggest companies lag the market in growth, because some of the regional companies will achieve national distribution and shift into the national segment.) Amid the overall enlargement in the number of active craft beer makers, the number of microbrewers alone exceeded 3,800 in 2017, compared to fewer than 1,200 in 2012.
Microbrewers undeniably appeal to craft beer drinkers, but they can offer a particularly attractive proposition to business owners. With variations from state to state, breweries can sell some portion of their beer directly to consumers through their taprooms. Microbrewers can thus enjoy attractive margins by selling their beer without relying on distributors, sometimes doing so at the same prices charged for on-premise sales.
Due to the 15,000 barrel upper limit delineating the microbrewery segment, it’s difficult to clearly rank the leading companies from year to year as can be done with the top national companies, since those nearest the ceiling can bump up into the regional brewery segment in one year (and, theoretically, fall back into the microbrewer segment the next). Even so, several microbrewers in the upper echelon, such as Broussard, Louisiana’s Parish Brewing Company and Two Harbors, Minnesota’s Castle Danger Brewery moved well ahead of their segment. (Both saw exceptionally vigorous volume growth rates in 2017, likely presaging their outgrowing the category in 2018.)
Spotlighting the continued vitality of microbreweries invariably brings attention to the ways in which the craft beer market evolved to be less distinguishable from the brewing industry in general.
One issue in this regard relates to size. Not long ago, 2 million barrels annually was the accepted upper limit for a brewer to remain a craft brewer. In 2017, Boston Beer, the top craft brewer, had total volume of more than 3.7 million barrels after having exceeded 4 million not long before. Even with the downturn, the company ranked not only as the largest craft brewer but also as the sixth largest beer company in the United States (including both brewers and importers), right behind Pabst Brewing Company. Of course, by then 6 million barrels was deemed the yardstick measuring what qualifies as a craft brewer, meaning some fairly sizeable entities remained within the category.
Beyond liquid volume exclusively, bigger craft beer companies like Boston Beer came to resemble the major non-craft brewers in other ways as well. The company’s flagship, the Samuel Adams brand, is a lager – by far the most popular style of beer in the United States, accounting for the majority of volume from Anheuser-Busch InBev (ABI) and MillerCoors – while many smaller craft brewers typically focus on varieties of ales. Boston Beer also chases whatever fad of the moment the mainstream beer makers turn to in order to augment their volumes, from flavored malt beverages (FMBs), including hard sodas, to ciders , none of which fit the bill as craft beer. (It should be noted, though, that the company did take its very much craft beer-style Samuel Adams New England IPA national in 2018.)
Traditionally, craft brewers start small and foster close ties to their local communities, but numerous beer makers come to resemble their bigger counterparts when they enlarge their geographical footprint by opening facilities in different parts of the country. Craft brewers from the western part of the United States like Sierra Nevada (the number-three craft brewer with 1 million barrels in 2017) and New Belgium (number-five with about 865,200 barrels) both picked North Carolina for their second plants, while Deschutes Brewery (number-12 with almost 320,000 barrels) selected Virginia. Certainly starting a second brewery doesn’t catapult such companies into the realm of ABI – the largest beer company in the world – but it does dilute their regional identity and move them away from their modest, local beginnings.
Still another aspect of craft brewer’s identity involves their independence, and this topic, having nothing to do with the beer itself or how much of it gets brewed, truly complicates the distinction between craft brewers and other types.
Indeed, the roster of craft brewers that sold all or a significant portion of themselves to major brewers gets longer all the time. In spring 2011, ABI purchased Goose Island of Chicago. In spring 2013, the brewer initiated nationwide distribution of Goose Island beer. It picked up two more specialty brewers, Blue Point Brewing Company and 10 Barrel, in 2014. In 2015, ABI instituted the High End as the unit operating its specialty and imported beers.
Its craft brewer acquisitions around the country in 2015 consisted of Elysian Brewing (in Washington), Golden Road Brewing (in California), Four Peaks Brewing Company (in Arizona) and Breckenridge Brewery (in Colorado). In May 2017, Asheville, North Carolina-based brewer Wicked Weed joined the High End. ABI also has ownership interest in Craft Brew Alliance (CBA), which involves Widmer Brothers, Redhook and Kona. In late 2014, Spain’s Mahou San Miguel bought a 30% stake in Founders Brewing Company of Michigan. In late 2015, Constellation Brands Beer Division, which imports Corona Extra and affiliated brands from Mexico, acquired California-based craft brewer Ballast Point. In 2017, it added a Florida-based company, Funky Buddha, to its Craft & Specialty Beer Group. In September 2015, Dutch brewing giant Heineken purchased a 50% ownership interest in Lagunitas Brewing, another California craft brewer. In May 2017, Heineken took complete control of Lagunitas. In August 2017, Sapporo Holdings of Tokyo, Japan, acquired California’s Anchor Brewing Company and its Anchor Steam Brand, widely regarded as a pioneer of the craft beer phenomenon.
In certain respects, independence matters immensely, which is why CBA ceased to be a member of the craft brewers’ trade group, now known as the Brewers Association, after ABI bought nearly one-third of it in 2017, and why other companies named above don’t belong to it either. For the category to have meaning, it must have parameters, and many craft brewers proudly tout their independence.
All the same, this can seem to exclude both consumers and the beer itself from the equation. Often, neither the ways the formerly independent entities operate nor the beer they generate change in perceptible ways post-investment by multinational companies. Those prone to pick a Lagunitas IPA may not care about the Dutch connection if the beer remains that same as it was before. And if the Spanish investor in Founders had taken, say, only 25% ownership interest (per the Brewers Association definition), would that have meant the maker of All Day IPA would have remained more truly independent? Fully independent companies may relish their independent status, and their devoted adherents may do so as well, but plenty of consumers regard craft beer along the lines once drawn by Boston Beer, which considered its offering as belonging to the “better beer” category. Most beer lovers probably aren’t perusing the business press or trade association guidelines before deciding which beer to select or shun.
Craft brewers like New Belgium, echoing the industry’s trade group, celebrate not only their size and independence but also their commitment to making beer flavored with either traditional or innovative ingredients. While this means the Colorado-headquartered company can issue such disparate beers as “traditional” IPAs and pales ales and “innovative” concoctions like Chocolate Chip Cookie Dough Ale (via a collaboration with ice cream company Ben & Jerry’s), it nonetheless also means that what’s actually in the bottles, cans, and kegs matters.
So what are these companies that adhere to traditional styles, but also make FMBs; that make the same sort of beer as they did at the start even after another company invests in them; that operate plants not only in their original area but in sites around the country, just like bigger, non-craft brewers do? (For its purposes, Beverage Marketing continues to classify them as craft brewers.)
Looking back at those by-definition small and highly local microbreweries, one sees that size and independence still do matter to a considerable contingent of craft beer buyers. Such outfits often fly beneath the radar of brewing behemoths like ABI, who might be attracted to high growth rates but also seek sizeable volumes. As some of the larger craft brewers begin to look and act much like the dominant non-craft brewers (or come to be acquired in whole or in part by them), many craft beer enthusiasts continue to prefer beer made in their own city, or even their own neighborhoods, that tastes different from the ubiquitous pale pilsners brewed by bigger companies and are willing to pay more for what they regard as superior in perhaps more ways than one. Certainly, that’s what the persistent vibrancy of the microbrewer segment suggests, even as the boundary between craft beer and beer in general becomes increasingly blurry.
John G. Rodwan, Jr., is editorial director of New York City-based research and consulting firm Beverage Marketing Corporation, which publishes BMC’s U.S. Beer Guide and numerous of other beverage industry market reports. For more information about BMC reports, contact Charlene Harvey at 212.688.7640 ext. 1962 or charvey@beveragemarketing.com and visit www.bmcreports.com