Dear Client:

Bart Watson has had a busy couple of days. 

The chief economist for the Brewers Association released the 2019 tallies for craft on Tuesday and hosted an hour-long follow-up video call from his personal office to discuss the results. 

Then Bart took back to his office yesterday to carry out a virtual edition of “everyone’s favorite segment” from the Craft Brewers Conference, The Bart and Paul Show, but had to do a one-man routine with senior vice president at the BA, Paul Gatza, absent. (We’ve heard through nefarious backchannels that Netflix may try and poach Paul to lift “Brews Brothers’” struggling ratings. We kid, but it’s a good idea.)

Despite only half of the dynamic duo on the screen, the presentation was illuminating as always.

The state of the union from Bart was very matter of fact. He touted craft’s successes over 2019 for sure, like: Craft sales hit an all-time high ($29.3 billion); craft’s volume share of total beer reached new heights (13.6 share); and while 4% volume growth in 2019 looks a little slow, it’s actually pretty similar to the type of growth we saw at the beginning of the decade (12%) if you look at it in absolute terms, close to a million barrels of growth then and now. 

But he pointed out some harsh realities to viewers too, like…

EXISTING CRACKS IN AT-THE-BREWERY SALES. While the COVID-19 crisis has no doubt exposed some of the weaknesses with taproom/brewpub models, Bart said cracks were already showing in the model pre-COVID.

Yes, more people are visiting breweries every year, rising from 50 million unique visitors in 2015 to almost 70 million in 2019, Bart showed. But there are “some worrisome signs here.”

For starters, the number of visitors may be increasing, but “they’re not increasing as fast as the number of breweries out there.” Plus, “the brewery sales per brewery isn’t really growing anymore either.”

To put it plainly: “We’re adding breweries faster than we’re adding visitors, and we’re growing at-the-brewery sales, but they’re not increasing per brewery very much anymore.”

How slow are we talking? The median growth of at-the-brewery sales for breweries that opened before 2018 is 4%, “so most breweries aren’t seeing their onsite sales grow very rapidly anymore.”

COULD IT CAUSE ANOTHER CRAFT CRUNCH? Even before COVID-19 dealt its devastating blow to the brewpub/taproom model, Bart wondered if the popularity of the model could cause another crunch. “The last crunch” we saw in craft “happened when a lot of breweries made the same bet on national distribution… They all made the same bet at the same time,” he said.

Bart wonders if we’re seeing this again with taproom/brewpub sales: “is everyone focusing on the same model?” It’s something to watch, he said, “because the health of most breweries depends on those sales.” 

WEAKER PRICING. Bart also called attention to some troublesome trends he’s seen in pricing, showing how “6-pack price growth has slowed year over year since 2015.” That suggests to Bart that “brewers are making a little less money on every 6-pack they sell because of the more competitive marketplace.”

Indeed, it’s just getting tougher out there. “Even if demand grows for small brewers, for any individual company to capture any of it is very, very challenging,” Bart noted.

Yep, and it would appear that, at least prior to the pandemic, if you were a new brewer on the block you had a better shot of capturing that demand.  

NEARLY ALL GROWTH COMING FROM NEW BREWERIES. As we reported earlier this week, the BA has pegged 2019 craft volume growth at about 4%, about a 900,000-barrel increase over 2018. And you can chalk up nearly all of that growth to relatively new breweries, according to Bart.

Indeed, 94% of total craft growth in 2019 came from breweries that opened in the last five years – with breweries that opened in 2018-2019 contributing 48%, and breweries that opened between 2015-2017 contributing 46%. That means breweries that opened 2014 or earlier were only responsible for 6% of total craft growth in 2019.

A LONG, LONG SKINNY TAIL. Hearing Bart share how small the majority of breweries are nowadays is always a bit of a shock. 

A total of 26.3 million craft beer barrels came from 8,275 craft brewers last year, but the median craft brewer in the U.S. makes 375 barrels.

Then get this: Bart pointed out that there are more breweries that produced between 119 barrels and 260 barrels than breweries that made more than 1,500 barrels last year.  Wow.

PRODUCTION TO CAPACITY RATIO STABILIZING. Another noteworthy slide year after year in this presentation is how production and capacity stack up next to each other. It’s a given there will be excess capacity, but how much?

Well, Bart says that over the last few years the ratio “really hasn’t changed that much,” that’s because “the era of building out new capacity is largely over.” Therefore, the production to capacity ratio “has settled into a more stable place.” 

Though Bart cautioned that “stable doesn’t necessarily mean healthy.” He still thinks there is plenty of excess capacity out there, but he believes we’ve reached a point in which the brewers that need extra capacity will simply take advantage of the excess out there rather than build out. He added that the “resale market” this year could be “a big one” as there will likely be “a lot of new tanks coming online this year as breweries go out of business.” 

A FIFTH OF ALL CRAFT BREWER EXPERIMENTING WITH BEYOND BEER. To no real surprise, Bart shared that more and more craft brewers are “moving from beyond beer, and making different types of beverage alcohol.”

After talking with thousands of brewers across the country, they’ve found that 21.1% of craft breweries have reported some level of non-beer bev alc production. Bart said he expects that number to rise in coming years.

Their findings showed that beyond beer products now make up nearly 2% of regional brewers’ volume, and those types of products are growing 157% for them. 

Microbreweries/brewpubs/taprooms are experimenting a little more with beyond beer, as it makes up 3.3% of their volume, and they’re growing triple digits for these types of brewers as well, up 132%.

SHINER DONATES HALF A MILLION TO TEXAS RESTAURANT RELIEF FUND

Texas-based Spoetzl Brewery, maker of Shiner beer, today announced a $500,000 donation to the TX Restaurant Relief Fund, which aids the local restaurant industry and displaced workers. 

The brewer is also encouraging its social media follower to donate to the

Relief Fund by texting “TRRF” to 31996, “and post a toast to those

affected in the restaurant, foodservice or hospitality industry using the hashtag #ShineOnTX.” 

The TX Restaurant Relief Fund, created by the Texas Restaurant Association, has a goal to reach $10 million. Its mission is to “provide immediate financial relief to Texas independent restaurants and their employees impacted by COVID-19,” and help keep them operational, where possible. It issues grants of up to $5,000 per restaurant unit. 

“All of us have been affected by COVID-19. As of today, our brewery is fortunate to continue brewing with enhanced health and safety measures,” said brewmaster Jimmy Mauric. “But we are saddened to know that restaurants and bars throughout Texas—that are independent like us—are in distress. We hope that our collective fundraising efforts will help them respond to the challenges that they’re facing.” 

Until tomorrow,

Jenn, Jordan, and Harry 

“I’m thirty years old, but I read at the thirty-four-year-old level.”

– Dana Carvey

———- Sell Day Calendar ———-

Today’s Sell Day: 12

Sell days this month: 22

Sell days this month last year: 22

This month ends on a: Thurs.

This month last year ended on a: Tues.

YTD sell days Over/Under:  +1