American Craft Beer Market Rakes in Revenue

American Craft Beer Market Rakes in Revenue

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The small businesses of the craft brewing industry are creating an unstoppable force for international trade

American craft beers are making a huge impression on beer lovers worldwide.

Even with all of the foreign liquor the United States seems to be drinking, rest assured that one of our own industries is still booming.

According to UPS Voice, exports of American craft beers increased by 72 percent in 2012, generating $49 million in sales, according to The Brewers Association (BA), a nonprofit trade group based in Boulder, Colo. The largest volume of exports was sent to Canada with 140 percent growth in shipments last year. The year also saw an increased number of exports going to Brazil and Japan.

The reason for the mass exports simply comes down to reputation. American craft brews are seen as innovative and high quality in international markets, a status proven by success in international beer competitions. This proves that even small businesses can gain revenue through international sales; all it takes is an innovative, unique product that will present something new to the competition. Though the logistics can sometimes be difficult to figure out (from paperwork to language barriers), different brewers team together for advice on how to do business in international markets. In essence, the U.S.’s booming market of small-business craft brewers is becoming a force and sensation that proves American beer stands strong on the international market.

2020 Points and 2021 Predictions

Bart Watson, Chief Economist for the Brewers Association, is a stats geek, beer lover, and Certified Cicerone®. He holds a PhD from the University of California, Berkeley, where in addition to his dissertation, he completed a comprehensive survey of Bay Area brewpubs one pint at a time. You can follow him on Twitter @BrewersStats.

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This article summarizes some of the key facts and figures of a turbulent 2020, with an eye toward the craft market in 2021. For those who missed it, there is a longer presentation available to Brewers Association members.

The industry structure has changed significantly over the past 30 years. In 1983, there were 49 breweries. At the end of 2020, there were 6,406 reporting brewers. The most recent data shows 12,532 TTB permitted breweries in the U.S. at the end of CY 2020 – an all-time high. Note that not all permitted breweries are open and/or operational. The TTB issued 948 new permits in CY 2020, and some states now have more breweries than the entire country had in 1990.

Opportunities are Brewing in China’s Craft Beer Industry

Steven Zhang, a young professional living in Shanghai, China, is no stranger to beer: Like many people in China and abroad, he likes to grab the occasional beer after work with his friends—but not just any old Tsingtao or Yanjing Beer, two of China’s biggest beer producers. In fact, when going out, he makes a conscious effort to pick out places with a quality beer selection and cites that as “the most important reason” for choosing a bar or restaurant.

“The taste between craft beer and mass-produced is totally different,” says Zhang. “Craft beer is fresh—this is the most important element for most drinkers. It tastes very fresh, versus mass-produced one, which doesn't.”

China has always been a huge consumer of beer (it is the world’s largest consumer and producer of beer), but tastes have been shifting away from “macro” beers (i.e. beers produced en masse, such as Budweiser) to more premium and craft flavors. Sales volumes of cheaper Chinese beers have been falling—both Tsingtao and Yanjing posted losses in sales in 2016. However, demand for high-end beers is growing, and China’s market is ripe with opportunities for both domestic and foreign craft brewers.

China’s craft beer market

It was 2008 when Dinghao Pan, founder of Beijing-based craft brewery Panda Brew, first came across the concept of craft beer while studying abroad in Canada. “I saw a trend for craft beer happening in North America,” he shares. “When I came back to China, I found that there was almost no craft beer here, so I thought, ‘Well, maybe I can introduce this tasty beer to the Chinese market.’”

It’s a gamble that’s paying off: China’s craft beer culture can thank millennials and a growing middle class for its rise. According to McKinsey & Company, Chinese consumers are maturing and more willing to spend more on premier products, such as alcohol. Although the overall volume has decreased, the overall value of Chinese beer sales has actually risen slightly. Reports also show that Chinese millennial consumers are increasingly attracted to premium products and services, and are more and more likely to buy from local brands.

“People want to spend the same amount of money but try something different—different flavors, different [brewing] methods, something that is better quality,” says Pan, on China’s nascent craft beer market. “That’s the most important thing—people want to try something good, or better, for the same cost.”

Crafting opportunities in China

Although China only comprises 2.5 percent of American craft beer exports in 2017 and has a burgeoning domestic craft beer industry, China—and the Asia-Pacific region, in general—is one of the fastest growing regions for American craft beer, says Steve Parr, the Export Development Program manager at the Brewers Association, an American nonprofit trade organization that supports small and independent brewers. According to the Financial Times, 40 percent of all beer consumed in China was imported, which means that there is substantial room for growth for American brewers, particularly in the premium alcohol segment. Even Anheuser-Busch InBev (AB InBev), the maker of America’s top-selling beer Budweiser, has aggressively been expanding into China to capitalize on the market: The company purchased a stake in popular Shanghai-based craft brewer, Boxing Cat, which introduced Chicago-based Goose Island (which AB InBev bought in 2011) into China, and plans to launch a Goose Island brewery in the country.

China’s craft beer culture is still young and has primarily been driven by foreigners living and working abroad, which makes them the perfect target demographic for craft brewers first entering the Chinese market, says Parr. “It’s a small population that’s familiar with craft beer, so far,” he explains. “The young people, sure, but it’s primarily been expats [expatriates] that seek out craft beer in China and are introducing it to friends.” However, Parr adds that craft beer is becoming increasingly popular among locals, particularly the worldly younger generations who seek out “trendy and high-quality” products.

Many expats are also purveyors of some of China’s first and most well-known craft breweries. “The major percentage of craft brewers are around 30-40 years old, the younger generations who are studying and learning anything from outside and trying to introduce this interesting culture to China,” Pan explains, on the reasons behind China’s craft beer boom. “Also, some foreigners are trying to start up their own business in China—Great Leap, Jing A [two popular Chinese craft breweries], are all owned by Americans.”

Despite the seeming influx of foreign and domestic brewers, Pan believes that competition is still relatively low. “Ninety percent of consumers are still drinking industrial beer,” he says. “They don’t know what craft beer is and haven’t tried it before. I think educating them [on craft beer] is the hardest thing so far.”

Appealing to Chinese taste buds

Panda Brew’s most popular beer is the Red Honey Ale, which is infused with a special type of honey from China and is “quite sweet,” with a “strong honey aroma.”

“Chinese people are still trying to switch from industrial lagers to craft beers,” says Pan. “[They need] an introductory type of craft beer, like a Belgian wheat, or something sweet and easy to drink.”

Parr agrees. “For drinkers that are not as familiar with the bitter beers [like IPAs], we see a preference for slightly fruitier, sweeter beers, like wheat beers and hefeweizens,” he explains. “I think it’s an easier transition, especially for a country of consumers that’s used to drinking these beers that are much lower in alcohol and have a whole lot less flavor. We see that here in the United States, too, where there’s these lighter, more approachable styles that serve as opportunities to introduce beer drinkers to something that’s a little more flavorful. Once they develop their palates, they start to drink IPAs, sours, and barrel-aged beers—but you don’t jump into those right away.”

Although flavor is perhaps the most important part of craft beer, Parr says not to discount the effects of packaging to appeal to Chinese consumers. “American craft brewers have these creative and illustrative designs that stand out on store shelves,” he points out. “That’s something that catches their eyes, so they choose a beer based off of the packaging and how it looks.”

Challenges of the Chinese market

Because craft beer is relatively new and concentrated among expats, not many people outside of Tier 1 cities like Shanghai and Beijing understand what it is, although the trend is starting to spread. Pan makes an effort to educate people about the nuances of craft beer so that they can fully appreciate the differences from mass-produced beer. He and Panda Brew attend festivals where he thinks his target demographic will go, and serves tasting flights at Panda Brew pub locations so that customers can learn more about the different flavors, styles, and types of beer. “I had to educate every single person, including my employees, on what craft beer is, what it tastes like, what are the types of differences, and also what the culture is like,” says Pan. “It’s like building everything from scratch—it’s pretty hard.”

There are also logistical challenges to consider when exporting to China, adds Parr. Craft beer is best served as fresh as possible to get the full impact of the flavor, which means that overseas brewers trying to export to China have to contend with the additional costs of shipping long distances, as well as the extended shipping time and lack of proper storage facilities.

“That’s an immediate challenge that’s tough to overcome,” admits Parr, “but China has seen improvements in storage and handling over the years, so a growing number of importers are investing in upgraded infrastructure that maintains cold-chain throughout the beer’s life cycle: being kept cold from when it leaves the brewery, to when it gets to the customers’ hands. The beer tastes better, and that’s good for everybody, both the brewery and the retailers that are selling that product.” These areas also serve as excellent alternative opportunities for people looking to enter China’s craft beer market without opening their own brewery, adds Pan.

Like Panda Brew, Parr and the Brewers Association (BA) also utilize festivals and conferences to educate trade members on best practices, as well as to develop the right connections for members of their association. Parr says that the Brewers Association recently participated in the Beijing Invitational Craft Beer Festival, where 18 members of BA’s Export Development Program presented their beers to attending consumers, media and trade members.

“Brewers that made the trip were able to meet the importers and learn about the markets,” Parr shares. “We also conducted a media event at a craft beer bar in Shanghai following the festival that consisted of a guided tasting, and [talked about] quality and best practices for craft beer to the Chinese members of trade and media.”

The future of craft beer in China

As consumer tastes mature and become more diverse, so will the number of local breweries that operate in China. However, instead of seeing the increased competition as a negative, Parr views it as a boon for American craft brewers and the industry overall.

“When the local Chinese market is establishing its own small beer producers, that’s going to expose local consumers to the concept of better beer,” he explains. “If more people get exposed to the idea, it’s going to invite them to explore new products. So, as local craft beer becomes adopted by local consumers, there will be more options and opportunities to taste American craft beer—or create that desire to experiment. Just the idea of consuming something that’s a local, quality product is going to open people up to the idea of trying beers also made from afar.”

Pan concurs: “This is a very new industry. We need to get help from anywhere we can get, but also we need to work very hard with each other—all the craft beer brands have to stick together.”

The economics of small to midsize craft brewing

Today the main ingredients in beer- malt and hops- can be purchased online or through easy to reach wholesalers. Brooklyn Lager, which makes up 50% of Brooklyn Brewery’s production, uses American two-row malts and Hallertauer, Mittelfrueh, Vanguard and Cascade hops. The hops can vary greatly in price from as little as $5 per pound to as much as $25 per pound. The price of malt is more consistent, ranging from $.40 per pound to $.80 per pound. Brooklyn Brewery will use 6 million pounds of malt and spend between $2.4 million to $4.8 million in the creation of Brooklyn Lager alone.

While these may seem like massive numbers that help to drive down the costs of acquiring ingredients, Ottaway was quick to remind us that this pales in comparison to larger companies like ABInBev or SAB Miller. In other words, the amount Brooklyn Brewery spends in the production of Brooklyn Lager is very similar to what any upstart craft brewing company would pay on day one of business. That’s not to say that Brooklyn Brewery does not benefit from its size.

“The improvement in efficiency comes mainly from running larger brewhouses. If you have a 100 BBL brewhouse, compared to a 10 BBL brewhouse, one brewer can make ten times more beer. Your cost per lb of raw materials is pretty close, but your labor is obviously much more efficient.” Ottaway said.

Ottaway added that “the biggest costs in bottling are the bottles themselves. A case of 24/12oz bottles costs around $3.50, and then your packaging, labor, and depreciation of the bottling line make up the rest, after the beer of course. There is a wide range of total costs in making a case of beer, driven by the style of the beer and the size of the run. High ABV, high hop beers are much more expensive to brew, and smaller runs have much higher packaging costs due to small packaging material runs.”

The greatest opportunity for companies like Brooklyn Brewery and Six Point, is in reducing packaging costs. This is witnessed in the market shift from bottles to cans.

“There are an increasing number of breweries coming out with cans,” Ottaway told SmartAsset, “and several are even can only, no bottles. Two things have enabled this- the development of smaller sized canning lines which make it more affordable for craft brewers to get into canning, and the ability of the can producers to do smaller can runs for craft brewers. The last piece of course is the increasing acceptance by consumers of the can as an acceptable package for craft and specialty beers. Cans are lighter, cool down more quickly, and are better for the beer since they block out 100% of the light. What’s not to like?”

Craft brewers are also increasingly victims of their own success, as they fight to gain the attention and respect of distributors and government alike. Currently small brewers are taxed $7 for 31 gallons they produce. That works out to roughly a 22% tax on every barrel of beer that leaves their breweries. That is, if it leaves the brewery. Ottaway notes that for the first 20 years of Brooklyn Brewery’s existence larger distributors were clueless as to how they could get their product in to stores and bars.

“By 2003 we had grown enough that we were able to sell the distribution rights to a big distributor. At our size today, distribution is no longer an issue as every distributor in the country wants the top craft brewers in their portfolio. It took a long time to get to that point though. Today the problem is the opposite- there are too many craft breweries for the distribution channel to handle effectively. In other words, the distribution channel is clogged. A new brewery today is more likely to have to think about self-distribution again until they have enough size that a regular distributor can handle them. It’s not a question of interest anymore- the big distributors are very interested- it’s a question of whether they have room in their portfolio.”

What is interesting about the growth of the craft brewing industry is its connection to changing consumer culture. As Americans have become smarter and worldlier, they’ve also become increasingly urban and environmentally conscious. This heightened sense of consciousness about what is consumed, how it’s made, and a willingness to pay top dollar for it is driving the demancd for craft beer. However, that consciousness is also likely to be one of the biggest threats to the industry’s continued growth.

Short sighted policies that attempt to “green” the image of government and large corporations through the increased use of bio-fuels are driving up costs for many brewers. Making it increasingly difficult for some of the nation’s most vibrant small businesses to survive. Being green for the sake of green ultimately hurts the consumer in the long run.

The cult of the beer geeks (late 1990s)

You could argue the microbrewing bubble bursting was a good thing, as it would separate the wheat from the chaff. The breweries that would remain, and flourish, would be a new wave focused on making uniquely “American” beer. While the microbreweries that first succeeded in America were mostly focused on putting new world twists on old world styles, these ’90s babies were totally reinventing the wheel. The easiest way to manifest that was by going to the extremes. Making beers that were incredibly hoppy or super boozy or overwhelming packed with oddball ingredients—or sometimes all three of those things! The breweries that made their mark during this time were ones like Dogfish Head (started in 1995), an early pioneer in culinary beers utilizing things like apricots, algae, herbs and spices, and even boiled lobsters. Or Stone Brewing (1996), famed for hop bombs with bold names like Arrogant Bastard and Ruination. Breweries like these, and even smaller ones like Russian River and The Lost Abbey, would soon bring the geeks into the fold, who seemed to like collecting the beer as much as they liked actually drinking it. The mold had been broken and this country finally had a beer scene to be proud of—and one completely different from what was going on in the rest of the world.

Dollar sales of the leading craft beer brands in the U.S. 2020

This statistic depicts the dollar sales of the five leading craft beer brands in the United States in 2020, based on dollar sales. For the 52 weeks ended December 27, 2020, Blue Moon was ranked first in the United States with sales of nearly 400 million U.S. dollars.

Craft Beer in the United States

Craft beer is paving the way for a new crop of beer makers. While the 1990's and early 2000's saw a big rise in brew pubs, the trend today leans more toward microbreweries that aim to distribute their product. Between 2012 and 2020, the number of new brewery openings has been at near unprecedented levels the highest total since the 1880's. And every year, hundreds more are opening. In 2020, the craft brewing industry provided approximately 138 thousand jobs across the country.

The innovative nature of these craft brewers has driven the market. Many customers have grown tired of light lagers, which is what fueled the craft movement. The concept that every brewer is brewing something new and original has carved a lucrative niche into a once thought-to-be cornered market.

Craft breweries have a few things working in their favor, perhaps the most important of which is a customer base that's culturally diverse. Brewers will also focus their marketing efforts on capturing the expanding consumer base represented by female consumers. Craft beer lovers also tend to stay abreast of local trends in the market and are generally eager to try something new. If they like what they taste, they quickly spread the word, meaning hometown customers can quickly become evangelists for a brewery's product as they visit and move to different cities.

U.S. Craft Beer Production Experienced Its First Modern Era Decline In 2020 [Infographic]

The Brewers Association has released its annual Craft Brewing Industry Production Report for 2020 which shows that the pandemic has had mixed fortunes for the American craft beer sector. While production experienced its first decline in the modern era, the number of operating breweries still climbed to an all-time high. Last year, in highly challenging circumstances, small and independent brewers churned out 23.1 million barrels of beer. That represents a 9% decline which resulted in craft's share of the overall beer market falling from 13.6% to 12.3%. The overall beer market itself experienced a 3% contraction between 2019 and 2020.

Even though production declined, the number of operating craft breweries still continued to climb despite the impact of Covid-19, reaching an all-time high of 8,764 in 2020. That figure includes 1,854 microbreweries, 3,219 brewpubs, 3,471 taproom breweries, and 220 regional craft breweries. While conditions were extremely tough for small-batch brewers who saw their draught sales evaporate, only 346 breweries closed while 716 new enterprises opened. There was still a noticeable impact on revenue due to the production shortfall, however, with the $22.6 billion brought in last year 22% lower than in 2019.

The official domestic beer power rankings

True story: The first time I got drunk was freshman year of college. While inebriated, I sent an email to the entire school that included, among other things, the lyrics to “The Super Bowl Shuffle” as well as a (false) claim that I’d defeated the computer Deep Blue in a chess game. The moral? Always drink responsibly.

And now, without further ado, I ado hereby present the unerring, unredacted and 100% correct L.A. Times Domestic Beer Power Rankings. For the purposes of this rankings, I have sampled and judged a large selection of popular domestic beers. And while I’m certainly not implying that any of the beers listed below are “watery” or “swill” or “bad” in any sense of the word, I’ll just say that the $22 Ironfire Outcast Dead Imperial Red Ale you like so much will not be found within this article.

I ranked the beers based on two qualities: 1) taste and 2) chuggability, a highly scientific metric I devised to measure how easily a given brew goes down the hatch, like a refreshing mountain stream tickling your esophagus.

1) Miller High Life

How are you going to argue against the Champagne of Beers? How could you not proclaim a beer with an elegantly sloped neck designed to resemble that of a champagne bottle, and occasionally bedecked with gold foil to reinforce the point, the finest American beer in all the land? This, beyond all, is the beer that says luxury, affluence and esservescence.

Miller High Life has a bouquet that tastes pleasingly of apple juice and Corn Nuts, light and sweet with just a hint of toffee. It’s highly drinkable and is remarkably skunk-free considering it comes in a clear glass bottle. The fact that it comes in squat little 7-ounce ponies for lightweights like me is all the better.

2) Bud Light

Like Natalie Imbruglia and this ligament in my left ankle, I’m torn. This was a contender for No. 1, and it could have gone either way. Bud Light is clean, crisp and ideal for hot-weather consumption. It tastes like a slightly alcoholic cream soda. It also positively crushes, sales-wise, every other beer in America. By, like, a lot. Bud Light shipped around 33 million barrels in 2017, double that of the second most popular beer, Coors Light.

And, yes, because I am a human being with a soul, I also enjoy Spuds MacKenzie, the sunglasses-wearing, skateboarding bull terrier from 1980s Bud Light commercials. But it wasn’t quite enough to push this beer into first place.

3) Rolling Rock

There’s something very welcoming about the deep green glass of the Rolling Rock bottle: It says comfort, hominess, the forest, high school. This is a malty-tasting beer with a clean and quite smooth finish, but the flavor that sings through (if there really is one) is one of a general toasted-ness. Make sure this is very cold when you drink it.

4) Yuengling

Much like the wagyu slider, the name of this beer makes you think it could be somewhat Asian upon further inspection, you realize it isn’t at all. Established in 1829, Yuengling Brewery, which bills itself as the country’s oldest, got its start in Pottsville, Pa. The beer is very difficult to find on the West Coast and has a strong local feel to it, despite pumping out a couple million barrels a year.

The flavor is fairly stolid, much like the Midwestern temperament — a bit sweet with a slight lingering bitterness in the back of the throat.

5) Bud Light Lime

You know what? I’m just going to go ahead and admit that I like Bud Light Lime. I’m not sure there’s actually a more perfect beach beer — it’s just as good as a Corona or Pacifico. And when soaking up unhealthful UV rays, the lime flavor tastes remarkably not like a cleaning product.

Things change under the dark, sobering shadows of an actual bar, of course. Would you order Bud Light Lime in a bar? You certainly would not.

6) Coors Banquet

Founded in 1873, Coors has fully embraced the Rocky Mountain aesthetic of rugged dudes doing rugged dude things: Hiking. Panning for gold. Roping a steer. Or, if you’re a hot young St. Elsewhere-era Mark Harmon, putting on some waders and walking through a cold mountain stream.

The beer itself has a malty-sweet flavor — the finish is a little more sour than I’d have imagined from the breath of the Rockies, but at least it doesn’t linger.

American Craft Beer Market Rakes in Revenue - Recipes

Craft beer has no reason to fear a beeropoly.

While Anheuser-Busch InBev's proposed $104 billion acquisition of SABMiller would undeniably create a behemoth in the highly consolidated beer market, the potential merger can also be viewed as a victory for the craft beer industry. Why? The move comes as both companies have lost market share to craft brewers. Here's why craft breweries have an edge over the big guys.

1. Craft beer continues to grow like gangbusters.

Craft brewers accounted for 11 percent of U.S. beer production volume in 2014, up from 5 percent in 2010, according to data from the U.S. Brewers Association. Last year marked the first time that independent breweries accounted for 10 percent or more of the annual U.S. beer production market. Craft brewers also grew annual sales to $19.6 billion last year, a 22 percent increase between 2013 and 2014.

What accounts for this growth? Millennials would rather support small, local brewers, even if they have to spend a little more money, according to Jason Wilson, founder of Alabama-based craft brewery Back Forty Beer Company, which grew annual revenue to $2.2 million in 2014 from $52,000 in 2010. "The new drinking-age adults grew up in a world where they had the ability to research companies," he says. "What's driving craft is this idea of a local, sustainable product where you know the people who are producing it." Meanwhile, older generations are increasingly looking at craft beer as a culinary treat, Wilson adds.

2. Craft beer entrepreneurs are cashing in--without completely selling out.

Last month, Heineken bought a 50 percent stake in California-based Lagunitas Brewing Co. for an undisclosed sum. The deal gives Lagunitas access to the resources of the world's third-largest brewer, which has a plan to take craft beer to the global market. MillerCoors also recently acquired San Diego-based craft brewery Saint Archer Brewing Co., while Anheuser-Busch bought Golden Road Brewing, the largest craft brewery in Los Angeles.

3. Craft brewers are making money for investors.

Craft breweries have become attractive investment targets for private-equity firms. In 2012, New York-based PE firm KPS Capital Partners made nine times its money by combining small brands including Labatt USA, Magic Hat and Pyramid into a single entity and selling the combined company for $388 million.

While it remains to be seen whether an approved merger of Anheuser-Busch and SABMiller will have a negative impact on craft beer, chances are good that a more dominant player in the global market will lead to new challenges for some smaller breweries.

"As these entities start to merge and get larger and larger, their ability to influence their wholesalers becomes more and more of a concern," Wilson says.