THE GIST
Like a bear gorging itself on salmon or berries to fatten up before winter hibernation, beer companies rely on summer sales to get them through leaner months of fall and winter. The four months between May and August represent 40% of total annual beer sales, according to data from the National Beer Wholesalers Association, with holidays like Memorial Day and the Fourth of July helping make it a critical period for the category. As the slower sales months approach, evaluating summer sales can indicate whether a beer company can enter fall feeling fat and comfortable, or hungry and nervous.
If this year offers a predictive forecast of what’s to come, it’s not particularly good, as summer smorgasbords have thinned out for beermakers. From January to August, beer shipments to wholesalers tracked by trade organization the Beer Institute were down -3.7% from last year, continuing its long decline: Beer is down -11.8% in 2022 compared to 2012. And there’s more bad news:
Beer volume sales in chain retail this summer were markedly lower than any other summer in the last five years, with four-week sales periods between April and September down anywhere from -5% to -10% compared to 2017.
The decline in that sales volume during the spring/summer means the beer category has shed -3.7 million barrels, which isn’t far off from the combined production of New Belgium Brewing Company, Boston Beer Company’s Samuel Adams, and Sierra Nevada Brewing Company.
WHY IT MATTERS
This slow summer has had tangible effects already for beer companies. In August, Mikkeller announced the closure of its San Diego brewery—its only U.S. outpost—citing a difficult market for production breweries. Craft-focused beer distributors in the Northeast have cut jobs and sales territories this summer. “Independent beer” titan Stone Brewing in June sold to Sapporo to relieve mounting financial pressures.
Craft breweries could increase prices to potentially boost revenues, but that risks alienating consumers who have more choices on the alcohol shelf than ever. The effects of beer’s slowdown are already being felt, and without a reversal of sales trends, more difficult months are ahead.
One silver lining is good for companies but not for consumers: Growth is easier to find when looking at dollar sales. That’s because prices have risen fast in 2021 and 2022 as supply chain issues and increased costs for ingredients have meant higher beer prices on shelves. Even as volume declines, breweries can make up for it with higher retail prices that in 2022 increased by an average of about +12% from five years ago.
Many large beer brands raised prices this summer in response to inflation and higher cost of inputs.
Mary Mills, a consultant with 3 Tier Beverages who formerly worked for data analytics company NielsenIQ, says that national dollar sales for beer at chain retail stores—which in her figures, includes cider and flavored malt beverages like hard seltzer— were up +4% this summer versus last summer. That even edged out spirits, which were up +3%.
What’s working for beer? Imports—basically all brands from Mexico, such as Modelo Especial and Pacifico—and fan favorites (like Busch Light and Montucky Cold Snacks) whose branding makes them more akin to lifestyle brands.
But even with those caveats, there’s still reason for beer companies to want to spend winter in a cave. Craft beer—which has long helped to drive growth for a lagging beer category—isn’t as fat and happy as it once was in chain retail. Mills says that when you look at craft among all other segments, “it jumps out as one of the soft spots.”
“It’s down -2%, which is better than how it was trending, but it’s still in the red. Really the only other segment we see down is hard seltzer,” she says. (Between April-September, craft volume in chain retail is down -4.5% when comparing 2022 to 2017.)
Sales variations are to be expected from month to month and quarter over quarter, but there are some worrying signs that what’s happening in beer, and craft in particular, could persist beyond the summer. They’re reflective of a more competitive alcohol market that’s seen craft lose shelf space and consumer attention to other, hotter products such as flavored malt beverages, spirit-based seltzers, and premixed cocktails, all of which have shown spring/summer growth rates three to four times that of beer.
Financial services firm Jefferies summed up the late-summer mood among analysts in a Sept. 25 report that stated: “‘Growth’ and ‘beer’ are not considered synonymous with one another amongst the investment community largely given category headwinds in the U.S.” Instead, beyond-beer products such as canned cocktails (High Noon or Cutwater Spirits) and flavored malt beverages (ranch waters or Twisted Tea) continue to be hot this summer.
Jefferies is not the only one to point out beer’s inability to keep pace.
Data from Bump Williams Consulting, shared during a presentation to Brewers Association members in September, showed that craft beer is selling fewer products in fewer stores than two years ago.
In off-premise retail like grocery and big box stores, total craft beer stock-keeping units (SKUs) fell -3% so far this year compared to the same period last year.
Total craft SKUs also fell -1.5% in those stores between 2020 and 2021.
That means there are fewer craft beer products on shelves for drinkers to buy.
Ultimately, these reduced SKUs and shelf placements reflect a correction that’s been in the works. As newly popular alcohol categories emerge—first it was hard seltzers, then canned cocktails—craft beer’s topline numbers don’t justify as much space on retailer shelves as they once did. A store owner, eyeing more popular categories of alcohol and more craft breweries than ever, sees little harm in reducing the number of craft beer brands or SKUs the store stocks in favor of a new canned cocktail or FMB, which also carry premium price tags.
There are a combination of factors that explain this change:
Given higher costs for ingredients and packaging, some breweries are trimming lower-margin SKUs in favor of their better sellers.
With craft beer sales slowing in general, retailers have incentive to replace slower-selling craft beer packages with better-selling flavored malt beverages or RTD cocktails. Bottle SKUs are phasing out in favor of can SKUs, according to Dave Williams, Bump Williams’ vice president of analytics and insight.
Along with fewer SKUs, there are also fewer places for drinkers to buy craft beer: It’s sold in 93.4% of all retailers that sell alcohol nationally, Bump Williams found, down -0.7% since 2020. It’s also concerning, Mills says, that this summer’s craft beer sales were negative at a time when other beer was flat or positive in volume sales.
“In the past when we saw the declines in craft, they were a little worse than the overall beer category, but when you see it now trending completely differently from the category, that’s a flag,” Mills says.
If breweries have successful brands, of course distributors and retailers are happy to champion them. But those key pieces of the beer sales infrastructure aren’t on the whole willing to bet on new, untested products when the overall category is struggling. Al Pils, brand engagement manager for Montana’s KettleHouse Brewing Company, says his company has been fortunate that as a big player in that state, KettleHouse has an easier time than smaller breweries do when it comes to selling distributors on specialty kegs or new brands. (KettleHouse is the state’s second-largest BA-defined craft brewery.)
Most craft breweries aren’t currently well-positioned to weather sales slowdowns. After years of double-digit growth in the mid-2010s, the pickings are slimmer in recent years. If breweries were banking on that same explosive pace—and then were walloped by the changes COVID-19 brought to drinking behavior—the next couple years could look worrisome.
This isn’t to say there aren’t successful beer brands right now, but those pockets are specific. Fruit beers, high-ABV Imperial IPAs, and Mexican imports are all trending upward. This is good news for Modelo Especial and New Belgium’s Voodoo Ranger line. But the majority of beer brands who built their portfolio on beers outside of those lanes are on the whole searching for success stories to sell to their distributors and retailers, who see overall craft numbers declining.
Though drinkers’ purchasing behavior is returning to a level of relative normality after two years of pandemic-affected swings, most craft breweries are still feeling the effects of these disruptions. They’re spending more for all their inputs—malt, cardboard, aluminum cans, carbon dioxide, and freight—than they were a year ago. And on the whole, craft beer sales haven’t trended in the right direction to offset rising costs. Now, some of the year’s slowest sales months loom ahead after a down summer.
The necessity of kickstarting sales amid rising costs has some craft beer companies, large and small, looking beyond their traditional beer focus to adjacent categories like canned cocktails and non-alcoholic products.
Chief among them is Sierra Nevada, the country’s third-largest Brewers Association-defined craft brewery, which had broken ground on a new production facility called the “Can Do Innovation Center,” set to open in spring 2023. The 80,000-square-foot building, adjacent to the company’s Chico, California brewery, is intended to expand the brewery’s production capacity into areas like non-alcoholic drinks and non-beer products with wine or spirits bases. If it reaches full capacity, Can Do could turn out 450,000 BBLs annually, which would be equivalent to 40% of Sierra Nevada’s 2021 production. Can Do will also produce beer; it’s not yet clear what portion will be devoted to beer and what portion to non-beer. A significant amount of Sierra Nevada’s output—whether it’s for house brands or contracted for other companies—could be beyond beer within a couple years.
In its non-beer lineup, Sierra Nevada currently produces the non-alcoholic Hop Splash hop water, Strainge Beast hard kombucha, and Tea West hard tea. Robin Gregory, the company’s director of communications, says the plan is to move production of non-beer products to the Can Do facility, and to also offer contract brewing services to smaller beverage brands.
“We’ve evolved pretty tremendously in the past five years. Things that would seem unthinkable five to 10 years ago are no-brainers now,” Gregory says. “In no way does Can Do signify a de-emphasis on craft beer, particularly when that’s so critical to our continued success, let alone our history. But we also see the opportunity to grow beyond where we’ve been.”
The inclination toward hedging beer bets has even hit suppliers. Willie Rahr, CEO of Rahr Malting, a 175-year-old company that’s one of the nation’s largest malt suppliers for breweries, recently told the Minneapolis Star Tribune that beer is “under pressure” but “fundamentally strong.” Yet his company is considering business avenues beyond its traditional beer, telling the newspaper: "We believe in the next five years that most of our growth opportunities will come from our core businesses, but we also will be opportunistic if we find the right opportunities to buy a business that is complementary."
This isn’t to say there aren’t pockets of growth within beer, and within craft beer. But those pockets of growth are exceptions to the overarching trends that have distributors and retailers looking to expand their selections of non-beer products.
At Discount Drug Mart, a drug and grocery store in Columbus, Ohio, for example, store manager and beer buyer Kevin Keyes says beer generally performed well this summer.
He cites Narragansett Beer and Montucky Cold Snacks as top brands, and says some small Ohio brands such as Cleveland’s Market Garden Brewery and Cincinnati’s Third Eye Brewing have also seen strong sales.
This summer, the store expanded the number of coolers it devotes to beer—but simultaneously expanded the ready-to-drink cocktail section. Together, craft beer and RTD cocktails gained 60 feet of new cooler space in that store.
“Compared to years past, RTDs are showing much bigger growth than craft beer,” Keyes says. “If anything, our domestic [macro beer] selection is getting a tiny bit smaller, but more than anything, we’re dedicating more store space to alcohol in general.”
In Keyes’ store, the overall alcohol pie is expanding, but which segments and companies expand and contract their pieces of the pie is in flux. Developing products in all categories is, for some traditional beer companies, a hedge against this uncertainty.
Words by Kate Bernot