Food & Beverage

Overall beer market to see lower volumes, but craft should enjoy 5 to 6 percent growth, report says

Key Points
  • The Brewers Association projects U.S. craft beer will generate 8 or 9 percent sales growth this year, below the 10 percent pace clocked in 2016.
  • The craft market's volume growth is forecast to 5 to 6 percent higher this year, although far from the double-digit pace of the previous decade.
  • Still, craft's volume growth compares favorably with a decline forecast this year in the overall beer category, according to a Susquehanna report.
  • There are also "signs that the second half of the year has been a little bit better than last year," says the brewer trade group's economist.
3,500 beers on tap at the Great American Beer Festival
3,500 beers on tap at the Great American Beer Festival

Craft beer's days of heady double-digit growth may be over, but it is expected to produce volume growth of 5 to 6 percent this year and outperform the broader category, according to a new report.

Susquehanna analyst Pablo Zuanic said craft beer is forecast to represent about 12 percent of total beer volume this year, up slightly from 2016 levels. He's basing the information on briefings with the Brewer Association's chief economist, Bart Watson.

Most of the new volume growth this year within the craft beer segment will come from the smaller breweries, the analyst said. Also, he points out that retail shelves won't help much since stores are not adding space to the packaged category.

The analyst said what's growing is essentially "concentrated mainly among the local and regional players," not the big-name brands like Boston Beer and Sierra Nevada.

As a result, Zuanic wrote that he's "somewhat concerned" when it comes to Boston Beer's medium-term outlook. Last month, Boston Beer reported weaker-than-expected revenue as its flagship Sam Adams and Angry Orchard brands remained challenged.

Indeed, the larger brands such as Boston Beer have suffered in recent years from a perception of being not viewed as authentic craft anymore. The company is still fighting back with new products, including new ale in cans to draw millennial consumers.

"Certain big breweries are struggling to maintain volume and any kind of growth," said Jeremy Cowan, founder of Shmaltz Brewing, an upstate New York-based boutique brewer. However, he said, there's still excitement and growth in the craft beer segment "but you have to go in and fight for your spot."

He concedes the retail shelf space is tight for craft brewers but said part of the issue is the big brands are taking up that space with 10 or 20 packaged selections that are often the same beer. "All of that space in my mind should be allocated more evenly and more fairly," he said. "We're lucky as craft brewers if we have 2 or 3 products of ours in one store."

Meantime, the forecast for 5 to 6 percent volume growth in craft beer this year compares with the 6 percent pace in 2016, which broke more than a decade of double-digit growth in the category. The peak year for the industry was 2014, when it added 3.3 million barrels; this year the forecast is for craft to add about 1.5 million barrels.

"There's some signs that the second half of the year has been a little bit better than last year," the Brewer Association's Watson told CNBC in an interview. "The first quarter was clearly worse than the second quarter."

The total U.S. beer market last year was $107.6 billion, with the craft beer portion representing about $23.5 billion of the total and showing 10 percent sales growth, according to the brewers trade group. Watson is forecasting the craft industry will see roughly 8 or 9 percent growth in retail dollar sales in 2017, based on current volume estimates.

Overall, the U.S. beer market is forecast to show volume declines of about 1 percent to 1.5 percent this year, according to Susquehanna's report.

Anheuser-Busch InBev, the world's largest brewer, last month reported that hurricanes in Florida and Texas were to blame for its third-quarter volumes falling 6.1 percent in North America. Also, Watson said the weather impact wasn't just felt on the big brewer side but among craft brewers too.

Zuanic points out that craft beer is a relatively "small part" of AB InBev's business, as it is for rivals Molson Coors Brewing and Constellation Brands.

Even so, some of the major brands such as AB InBev have spent upwards of $200 million in recent years to buy independent craft breweries, including Goose Island, Blue Point Brewing and Wicked Weed Brewing, among others.

Also, some of the Japanese companies are getting in on the action and snapping up independent breweries. In August, Japan's Sapporo paid about $85 million for Anchor Brewing, a San Francisco-based brewing pioneer with roots dating back to California's gold rush.

Nearly 6,000 U.S. brewers are expected to be in operation by the end of this year, up from about 5,300 at the end of 2016. The vast majority of the new breweries are expected to be small and locally focused, according to Watson.

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