In 2020, small and independent brewers collectively produced 23.1 million barrels of beer, representing a 9% volume decline on 2019, according to figures released by non-profit trade body the Brewers Association this week. This is against a backdrop of 3% declines in the overall beer market.
Craft beer’s share of the overall beer market has declined 13.6%: with it now taking a 12.3% volume share.
In value terms, the craft beer market declined 22% to an estimated $22.2bn, representing a 23.6% market share.
But while the figures look pretty bleak, they are not a total catastrophe. And more important is what they mean for the long-term outlook of the sector.
Early pandemic hit
In 2019, the craft beer industry was enjoying 4% volume growth (against the backdrop of overall beer industry declines of 2%). But the market was already changing pre-pandemic, turning into a more mature market without the heady growth rates of the past.
The impact of the pandemic, however, initially hit the craft beer category hard. Being small businesses by definition, craft brewers were among the most vulnerable companies.
With so many selling a high percentage of beer through taprooms or brewpubs, the rapid shuttering of the on-trade was keenly felt by craft brewers (draught sales were down more than 40% in 2020).
But trends improved throughout the year.
“2020 was obviously a challenging year for small brewers, as it was for many small businesses and the country as a whole. But there are things in the 2020 figures that are maybe not positive: but not as negative as we expected when we started tracking the effects of COVID-19 in March last year,” said Bart Watson, chief economist, for the Brewers Association.
“We measure craft being down 9%, the first decline we’ve measured since the Brewers Association started tracking craft brewing statistics [in the 1980s], but at the same time it’s perhaps not the dramatic collapse we expected. Small brewers were able to hold up better than many expected.”
US craft brewer definition
- Annual production of 6 million barrels of beer or less
- Less than 25% of the brewery is owned/controlled by an alcoholic beverage entity that is not itself a craft brewer
One of the positive figures of 2020 was that the number of operating craft breweries continued to climb in 2020: reaching an all-time high of 8,764. Throughout the year, there were 716 new brewery openings and 346 closings.
While openings decreased approximately 30% compared to 2019, only half of this drop is attributed to COVID. Increasing market competitiveness and maturity were also factors, and the decline was apparent before the pandemic.
And in fact, craft breweries had a lower closure rate than other hospitality businesses. This was partly down to government support; but also due to their ability to pivot their focus to the off-trade - and success in doing so.
This ability to shift focus and diversify is one of the biggest lessons craft brewers can take out of 2020, adds Watson.
“The biggest reason why brewers saw better numbers and a lower closing rate than other hospitality businesses was their greater ability to package and pivot and sell beer to go.
“Volume isn’t the same as revenue, which isn’t the same as profit, and so many small brewers took on lots of new costs to do that – but that’s the biggest difference. That manufacturing component helped a lot of breweries and helped them sell more beer than comparable businesses.”
Jobs in the craft beer industry were also badly hit in 2021: down 14% to a total of 138,371. But the Association points out this number is akin to jobs across comparable industry sectors: and is optimistic that jobs will bounce back as service channels reopen.
Online sales: small but growing
Another way breweries have pivoted is towards online sales: still a small category in 2020 but which grew rapidly. Breweries also increasingly turned to the internet to help them promote their business and products during the pandemic.
“I think we are going to see some receding on that this year, as things move back, but the overall trend here is strong growth,” said Watson.
“Beer and beverage alcohol have long lagged other consumer goods in terms of share sold online – some of the is regulatory and legislative, it’s been a more difficult environment to navigate – but we see there is consumer demand there and some of that is going to be sticking. And online purchasing is going to play a role once taprooms fully reopen, because while some people are excited to get back to their former habits, others have developed purchasing strategies that are online now. “
What’s next for craft beer?
Pre-pandemic, craft beer had settled into comfortable growth rates of around 3-4%. Watson says a return to these rates is a realistic proposition – although maybe now more in the region of 2-3% - but the performance of the industry in 2021 will be telling as to if and when this happens.
To start with, 2021 will be a year of recovery. “We’re going to see craft grow this year, cycling the tough year of last year. It could be 5-6% growth, which would still put us below where we were in 2019, but would still make up some of that lost volume.
“I think it’s plausible that by 2022 we’re going to be back on the growth trend line we were on in 2019.
“So 2021 is going to be a year where I think we see craft make up some but not all of the volume lost in 2020, then 2022 returning more to the previous trend. And 2023 settling back into growth rates we were seeing before.”
2021 will essentially be a year where brewers try and recuperate the losses and costs of last year. With the hope that businesses will be able to increasingly open up this summer, the next few months will be a strong indicator of the category’s long-term prospects.
“What happens in 2021 is going to be critical for a lot of businesses in determining their long-term viability,” concludes Watson.