Bart Watson, Chief Economist at the Brewers Association, recently joined our ShipCompliant webinar to discuss trends in the beer industry. We received some great questions, which we have compiled for Bart to answer. If you are interested in viewing the full webinar, you can watch it on-demand here.
Questions and Answers
Q: Do you anticipate any new regulatory burdens on the beer industry within the next few years, especially regarding the import/export market in light of the new administration’s trade positions? And in the same vein, do you anticipate relief from regulatory burdens — especially on the state side — as more communities embrace the craft market?
A: As always, this will vary by state. Lots of states are looking to raise revenue, so brewers will certainly have to be on the watch for excise tax increases. At the same time, I do think states generally accept that more market access through limited self-distribution and some direct-to-consumer sales are good things, so I think we’ll see the trend of states granting more of those rights continuing. At a certain point, we may see pushback from retailers. At the federal level, it is very hard to know what will happen in imports/exports. The biggest potential impact is on barley from Canada.
Q: Do you have a sense of the number or rate of breweries and brewpubs closing? What kind of churn should we expect in the industry (a sign of a healthy market), and what might be signs of developing problems in the industry?
A: Right now it’s historically low, as you can see in these numbers. I expect 2016 numbers to be slightly higher and that closings will trend upward. Breweries are never going to look like restaurants — 60 percent close in their first three years — but I wouldn’t be surprised to see churn rise a great deal in the next five years.
Q: How is the tremendous growth in the craft beer market affecting supply chains? Are we seeing signs of hops/malt shortages, or other resource scarcity? How might these supply chains be affected by a possible increase in border control (i.e. import taxes)?
A: They’ve been remarkably adaptive. The hops industry has totally transformed in the past decade and there is plenty of supply. We’re seeing growth in micro-maltsters. Even in places where there have been challenges — cans for very small brewers — we’ve seen new solutions popping up (shrink, mobile canning, etc.).
Barley for malt is the biggest potential for challenge, though barley is a global commodity, so that would mean price increases more than availability problems.
Q: Can you speak more specifically to certain product trends? What kinds of sours are dominating the market — traditional, wood-aged sours, or are “quick” styles like Gose more dominant? Do you see Gluten-free and low-calorie alternatives (like alcoholic seltzers and pre-mixed cocktails) having legs, or are they more of a flavor of the month?
A: On sours – We’re working with one of the scan data companies on this right now, so I don’t have the numbers yet. Gluten-free is small, I don’t think it will be huge despite some steady growth. It faces stiff competition from other products like cider.
Predicting consumer preferences is tough, but my sense is that seltzers will act like FMBs. Even if the category grows, it will be flavor driven and very cyclical. BA members can read more here.
Q: Do you anticipate that Millennials and Gen-Xers will keep their taste for craft beer? Or will they turn to other product types — like spirits and wines — as they age?
A: Their tastes will certainly change, but it’s hard to pinpoint exactly how. I do think Millennials will move more into craft as they advance in their careers and make more money. Whether Gen-Xers shift from craft to wine is hard to forecast. Past generations have drifted away from spirits (moreso) and beer (some) into wine. I think there’s a volume opportunity for craft to capture some of the shift out of macro beer and spirits as both groups age.
Q: Do you have any data on draft house sales in comparison to store sales? How is the draft house — purely on-site consumption — market holding up?
A: If you’re talking about consumption at breweries, it’s growing like crazy (up roughly 60 percent this year). Total draught is fairly flat overall, probably up a bit for craft.
Q: What kind of opportunities are out there for ultra-premium products? Twenty dollar bombers and four-packs are now common — how likely are these kinds of products going to last, and where is there opportunity for brewers to join in?
A: The fastest growing segments of craft are the highest priced. I have a bunch of data on this. It’s a great space to be in, but not necessarily one that’s easy to join, since it requires customers to recognize the value. Focusing on creating differentiation in brand and product is the key.
Q: Is there still a place for homebrewers in the industry? Or are the days of moving from brewing in a garage to factory production gone?
A: The days of going to large factory production are largely gone, no matter who you are. There will always be room for new ideas — think restaurants — at the small end. Homebrewers will certainly continue to be part of the group that populates that space. That said, with competition as high as it is, it takes more than great beer to get into the business. Homebrewers still have opportunities to go pro, but their business skills need to be as good as their homebrew.