First the bad news.
The American beer market is mature, and it shows. Americans drank 1.3% less beer in 2011, continuing a decades-old trend of flat growth, as the chart below illustrates. Since the late 1970s, beer has faced increasing competition, mostly from wine and spirits, as consumers sought flavor diversity. This June 2011 Gallup Economy article charts this competition trend over the last 20 years. From it, beer is clearly losing.
- Source: Beer Institute
The good news?
Even though the overall beer market was flat, if you peel the onion back you'll find a tiny segment of the market continuing to grow at double-digit rates--craft brewing, which has been around since the late 1960s.
The Brewers Association, a trade association which represents the majority of the U.S. brewing community, recently released full-year 2011 craft brewing statistics. During the year, retail sales were up 15%, and volume rose 13% to roughly 11.4+ million barrels. In comparison, 2010 delivered 15% growth by sales and 12% by volume.
This growth has allowed craft brewing to hit its first milestone--the industry now represents 5.68% of the domestic beer market by volume.
Yes, tiny can be good.
Paul Gatza, the director of the Brewers Association, noted, “It's becoming increasingly clear that with the variety of styles and flavors to choose from, Americans are developing a strong taste for high-quality, small-batch beer from independent brewers.” As an example, Boston Beer Company (NYSE:SAM), which normally brews 21 styles of beer, ramped up its offerings to 50 styles in the last year.
Additionally, this strong taste for various styles is showing up in restaurant data as well. The Beer Institute released data showing that restaurant beer sales rose over 9% in 2011, totaling roughly $23.6 billion. Restaurants are responsible for nearly 24% of total beer sales. According recently to Joe McClain, President of the Beer Institute, "Restaurants are having an enormous impact in introducing the many great brands of beer to consumers. Restaurant patrons are trying new brands and styles on draft and bringing that new brand loyalty to off-premise retail channels. The boost in restaurant beer sales shows there is a beer for every palate."
The Brewers Association also maintains statistics on the number of brewery start-ups, which also saw growth. During the year 250 breweries opened (174 microbreweries and 76 brewpubs), while 37 (12 microbreweries and 25 brewpubs) were shuttered. At the end of 2011, the brewery count has steadily risen to 1,989 from less than 100 only 30 years ago (see chart below). So far in 2012, that number is over 2,000. Of these breweries, about 55% are brewpubs, an operation that combines a brewery with a restaurant and is thus restricted to a local market due to on-premise consumption. The other 45%, are the micro- and regional craft breweries, which are able to distribute their beer to markets across the country.
- Source: Beer Institute and Brewers Association
What is clear, is there is a continued, growing ground swell of interest in craft beers and in starting craft breweries. However you look at it, tailwinds continue to fuel the craft beer industry. It is the one tiny island of growth in an otherwise flat beer market.
For background reading:
Craft Brewing Industry Primer
2010 Craft Brewing Results
Disclosure: Long SAM, TAP
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