Technology is giving us a lot of information; do we really understand what it says?

There is no dearth of opinions concerning the impact COVID-19 virus has had, and will have, on the craft beer sector. Direction(s) from our leaders have not been consistent or precise and that in-and-of-itself is a tragedy for brewers who have relied on taproom or brewpub sales. Confusion reigns supreme also for the craft beer consumer. The remediation efforts for the problem will probably last well into this year (2021). But there may be a bright spot; craft brewers have time to assess opportunities going forward.

Whether you are a homebrewer, a craft beer partisan, or a small brewer, the past 12 months have affected the craft beer industry in unforeseen ways. For one example, consider now many brewers are confronted with aluminum can shortages. A real champion of the craft industry is the Brewers Association (BA), who has focused on solutions to the debilitating effects of the virus.

There are many issues that will impact how fast the craft beer industry will regain a semblance of normalcy:

• 50 states (and the District of Columbia) have differing laws governing all aspect of beverage alcohol, from production to sales. More consistency would be helpful.
• Three Tier Distribution and franchise laws by state need to be tailored to craft beer industry, along with self-distribution laws.
• There are evolving changes underway in consumer taste and beverage alcohol preferences. We want the whole community to survive and add to the fabric of conviviality fostered by the craft beer industry.
• There are increased costs of operation that are having major impacts. This includes new debt service, equipment, new employee costs, and resupply of raw materials for brewing.
• Supply shortages, as noted with aluminum cans, is having an impact. Supply issues are not really in the purview of brewers or even consumers but do impact decision making.
• New products and packaging ideas are also front and center in responding to trends.

The last national trauma we had was 9-11. That however did not shut the economy down on a national scale. The craft beer industry now is dealing with cultural, economic, employment, and community/local oriented considerations. Not everything came to a halt. The work of BA helped get tax relief laws made permanent for craft brewers, that was a significant accomplishment that came at the end of 2020. As an aside, for our consumer readers, craft beer, juxtaposed to spirits and wine, is a time sensitive product, having a shelf-life component that is somewhat short. Craft beer is distinct from the rest of beverage alcohol for many reasons. Distribution is important and o-line sales is here, but craft beer issues are distinct. In on-line sales wine and spirits can survive storage and handling longer than beer.

The Brewers Association offers a lot of information that craft beer aficionados would enjoy, but its primary emphasis is on supporting brewers (commercial and homebrewers). They are involved with every aspect of keeping craft beer moving ahead in quality, ingredient research, advocacy efforts, and market research for its members.

“Research doesn’t assure definite positive rewards (or outcomes), but it assures less risk,” says Amit Kalantri. But even the craft beer consumer and homebrewers can get a lot of information about craft beer from looking at research on the Brewers Association website. To paraphrase a wine quote in Vine Pair, “The more you know about beer the more you enjoy it!”

From 2020 and going forward, the indicators showing growth aren’t looking good. “Small and independent brewers are on track to see their numbers decline by 7-8% in 2020,” say Dr. Bart Watson, PhD, and Chief Economist for BA. He goes further to explain that the small brewers took the biggest revenue hit (down approximately 30% in 3^rd quarter) due to their reliance on draught and at-the-brewery sales. Here we see the importance of distribution strategies and cost associated with trying to expand marketing reach through other channels-retail in cans and bottles. (Aluminum can shortages will have an impact.) Without shelf space and distribution this (retail) is a tough strategy to quickly implement. “In the final analysis it will take craft until 2022 to recover to its previous levels in 2019,” says Watson.

Of all channels of distribution, on-premise sales were impacted dramatically because of COVID lock-downs. The impact was approximately a 25% loss in the 3^rd quarter sales, however there are some indications the 4^th quarter may be slightly improved to nearly 2^nd quarter sales levels. Two holiday periods helped along with some easing of state lockdowns. This segment should see more improvement later in 2021 as vaccines become more available to the younger population in Tier 3 and 4.

Bart Watson expects the final number on brewery openings to have been down approximately 30% in 2020 versus 2019. “2021 looks like openings and closings will be a push. But the decline is probably attributed to a trend that started in 2019 and not just the pandemic.”

Like in the wine and spirits industries, premiumization has really defined craft beer. Watson feels that the beer market is inelastic and is not generally going to be negatively impact by premiumization and inherent pricing associated with premium beers. Noted previously, there is a decline in craft beer revenue, however, the craft beers priced above established premium brands (that being mega brewers) have seen a significant increase in sales. “The downturn has hit the low wage workers the hardest. Noted above, premium beer drinkers have not seen employment and wages hit as hard as lower wages workers.”

Here is what is most striking in Bart Watson’s research: “The percentage of 21+ population that drinks craft has risen from 35% in 2015 to 44% in 2020.” Now consider, this younger demographic will continue to grow as a percent of the population and in the future is becoming the core of the craft market. Further, Gen Z coming of beverage alcohol consumption age are already exhibiting changes in preferences. Lower beverage alcohol ABV is one example.

About 5 years ago I wrote an article about low alcohol wine trends and met the CEO of (ConeTech) Spinning Cone Technologies in Santa Rosa, CA. They had a technology used by the wine industry to reduce the alcohol in wine without impacting the aromas or taste of wine. Mr. Tony Dann said this trend was going to be strong in the future of all beverage alcohol. In fact, Vine Pair had a story the first week in January (2021) about a winery in Sonoma that had launched a “healthy wine” called Mind and Body–90 calories and 9% ABV. That trend is also in the craft beer sector with increased products of low alcohol content.

The sweet spot for this beer (low alcohol) is the sessionable styles, such as blonde ales, golden ales, Kolsch and lagers with ABV of less than 5%. The IPA’s are getting ABV’s of 6% and higher notes Watson.

Aside from low ABV craft beer trends, flavor is still the driver in craft beer. For example, here are the flavor trends Watson has researched:

Juicy/hazy: This IPA is big with female drinkers and 21–25-year-olds, 21–34-year-olds and 35–44-year-olds. This is still a significant growth area.

Crisp: Appreciated by female drinkers and the 21-25-year-olds and 21-35-year-olds. These are clean crisp beers, mostly lagers.

Tart: Interesting to the 21-25-year-olds, session sours with higher ABV. It likely has run room to grow driven by the next generation of craft drinkers, according to Watson.

Moving on, distribution is going to remain a challenge into 2021, especially for small and new entry level brewers. Some smaller brewers are telling me that the best solution for them is to focus on direct sales to on-premises locations and retail (augmenting their distributor efforts). As in all industries, direct sales are time consuming, expensive, and requires good co-operation with the distributor. Small producers do not command the attention of distributors who have significant high-volume brands in their stables.

In states that allow for self-distribution, direct sales solution can still be cost prohibitive.

E-commerce is an alternative that is not ideally conducive to craft beer. As mentioned earlier, shelf life is one of the issues. Prior to the pandemic Watson’s research showed that only 0.1% of beer’s total retail sales was via e-commerce. Still, there are many beer clubs now that have programs to deliver premium beer to the door. “Expect this to continue, and for-e-commerce growth to re-accelerate in 2021. Younger aged consumers are comfortable buying on-line. Even the pandemic has benefited this channel of distribution.”

Another way to look at a response to those impugning craft beers impact on health. I have been enamored for a long time with the back-and-forth about health benefits of beverage alcohol and abuses. Not to leave any research stone unturned BA has even taken on this subject. Personally, craft beer makes me feel healthy and anointed! The subject does need to be touched upon, even briefly.

There have been some discussions initiated by health professionals that this pandemic and even prior, beverage alcohol consumption is careening out of control…hello prohibition! Fortunately, Dr. Watson has dissected this data and found some interesting points. My doctor said my diet needed more grain; barley to the rescue and White Labs yeast for pro-biotics!

“The Wall Street Journal recently quoted a 20-year rise in Americans’ drinking,” noted Watson. Yes, Americans are drinking more, but there is a significantly larger population in absolute numbers in 2019 versus 1999, the period used in that study. Watson’s study points out there are 51.9 million more 21+ year-old’s in 2019 versus 1999. Yes, considering that 64% of Americans drink and the beverage alcohol servings on a per capita level (21+) is 0.3% higher annualized, that equates to 1 more drink per week per capita consumer (of drinking age). Is that cause of alarm? But wait there’s more.

“But when we take a step back and look at the data more comprehensively, this case weakens. First, what year(s) you pick really does matters. 20 years seems ideal to prove a case you want to make. However, if you pick 30 years. Per capita consumption is down 5%. If you pick ten years. It’s up only 1%,” explains Watson.

For purposes of furthering this discussion, the craft beer brewer looking at the consumption data should realize that beverage alcohol servings closely mirror population size, age, and the impact of macro-economic changes. The final point that comes from this analysis: Population growth alone is not always good research data points to look at overall market potential and trends.

Looking at export markets to increase revenues? That is not a good view currently either. bw 166 reports, exported beer declined 31% by volume over the last 12 months. Even looking at the last quarter of 2020 exports declined 23%. From a marketing perspective, is the brand strong enough to stand up in a new market?

Now, on to all thing’s seltzers. “Pay no attention to the man behind the curtain.” But do so at your own peril.

 A brewed product that has gained a lot of acceptance over the past few years is seltzer or hard seltzer. Maybe now is a good time for some brewers to look at seltzer as a way to augment offerings. According to the Brewers Association Chief Economist, the percentage of craft drinkers saying they drink seltzer at least once a month has steadily increased from 28% in 2018 to 36% in 2019 and 50% in 2020. If you look at weekly craft beer consumption, the percentage who drink seltzer at least once a month went from 49% in 2018 to 70% in 2020. In general, it can be said that 51% of craft drinkers are seltzer drinkers.

Now lets layer in the corner stone belief of craft beer consumers.

Here is where all craft and brewers need to understand what the “market” data is saying.

• Craft beer is built upon a moniker of being small, local, and independent.
• Local is a recognized descriptor of craft brewers and is important to approximately 64% of craft drinkers, says BA research.
• The more frequent craft consumers are loyal to the “local” identity.
• On the issue of new products, which is always discussed, seltzer is part of marketing considerations. If highly loyal craft drinkers are consuming seltzer (as part of beverage alcohol choice along with craft beer), obviously seltzer has and does have brand loyalty also.

The analysis says that seltzer is consumed weekly, along with craft beer, by the majority of craft drinkers and they are hugely committed to “local”. In 2020 Boston Beer’s Truly seltzer had sales in excess of $950 million. When done right, seltzers can have a Gen Z and Millennial appeal because the flavors can be natural. Yes, even hops are making their way into craft beer seltzer recipes.

As reported in Vine Pair in a comment by Bump Williams Consulting, “A lot of on-premises retailers have made it clear that their growth strategies for 2021 and 2022 are to capitalize on the health and wellness craze, to expand the presence of packaged hard seltzers throughout their entire chain or business operations, and to find the right partner that can produce a high-quality, sustainable, kegged hard seltzer.” Kegged seltzer, what is the world coming too? Next it will be wine in cardboard boxes…?

Hidden in the overall seltzer analysis, “local” brewery/craft drinker brand should respond with seltzer offerings based upon their demographics. “The local/seltzer drinking sweet spot is mid to late 30’s. But if the taproom serves a demographic that is say 50+, seltzer is probably not a product in demand by that age consumer. Seltzer or no seltzer in the product line? Brewers should look to build new products that align with their identity and they will probably have more success in the long run was Watson’s thinking.

Finally, Gen Z demographics should probably start being addressed sooner than later. These are the new consumers born in 1996 and later. They are already exhibiting some subtle differences in preferences from the Millennial generation (1977-1995). Just watching the news will give hints to the Gen Z attitudes. They seem to gravitate more to products emphasizing quality, being healthy, natural, sustainability, responsibility, and less about “local and small”. In December, a segment aired, reporting that Gen Z er’s expressed displeasure with corporations in general. Yet, sustainability, health, business practices, relational values are attributes most valued by Gen Z consumers, not so much the brand name—image differentiation.

Remember, there are a lot of brewers that are establishing a brand identity around regional identity. Such as: Our beers are made from locally sourced ingredients. Ruhstaller Beer in Sacramento is one such brewer. Course you need locally available ingredients such as hops. Point is, “local” is still a good strategy.

Let’s put some numbers to the above statements. 57% of21–25-year-olds appreciate the “local” attribute (being somewhat or especially important). 70% of the 35–44-year-olds said being local was important. Interestingly, in 2015 nearly 70% of the 21–24-year-olds said “local” was important. (Source: BA.) This tells us that age demographics need to be looked at based on generations not simply age categories without consideration to generational categories. For example, preferences of a 21-25 Gen Z are vastly different than a 21-25 Baby Boomer (1946-1964).

“Gen Z cares less about who you are and more about what you do.” Not paying attention to “change” can also have a downside. Remember, Schlitz at one time was the number one brewery in America, it made Milwaukee Famous. The slogan was—When your out of Schlitz your out of beer. Does anyone also remember Polaroid? There is a point here—survival is about smart change.

From long conversations with Bart Watson and spending time with some of his research data I think the pandemic may be the defining moment for craft beer consumers, brewery owners and the homebrewer to get under-the-hood and explore new strategies going forward. “Small and Local” by itself, as a brand strategy, may need some fine tuning to be more generationally inclusive in the future. “Separate out the differences between Gen Z and Millennials that are real differences in world view from those that are differences based on age and life stage.”

Here are some random thoughts about where change can impact us consumer:

Customer: Before the brewer can develop, expand, change, or create a brand, know the target market. Further, if brewers already have a customer base maybe ask: What are the current customers wanting? Is your customer base changing in any way? What are the demographics of your market? If craft beer is about “local” and “small”, is that the image you are delivering on? Has 2020 and 2021 changed the craft beer consumer in a given market?

Branding: Can you answer the question: What does my name, logo, product, packaging, or service say about the brand you brew or drink (as a consumer)? There are a lot of components of branding, but maybe one word will help-Image.

Marketing: Traditionally marketing has been about Price, Place, Product, Promotion and then I add People. People are separated because they are the “customer contact” point that can drive image and brand. I have heard may at a taproom try and answer a customer’s question about a beer and it is painfully obvious they have no idea what they are talking about.

Innovation: Innovation for the sake of being innovative is not a good plan. For example, research I have read on seltzer, it is a good product innovation. Seltzer beverage alcohol is basically making craft beer, replacing malts for sugar. If you don’t like seltzer then don’t brew it, but your competitors go with it then what is a good response? If you are a homebrewer or craft beverage alcohol consumer you are probably into seltzers.

Expanding: Assess the company’s financial capabilities to expand or change. For example, can you expand product, territory, distribution, and impact on your core business-will it require risking brand?

Thanks to Dr. Bart Watson, PhD. at Brewers Association for giving me access to his research and time. The craft beer industry is only .4% of the total market but it is a force to reckoned with because of some smart, creative, and committed people. Bart Watson got his PhD in Political Economics at UC-Berkley, spent time teaching at UC-Berkley, University of Iowa and at the University of Iowa. While at University of Iowa he accepted the opportunity to be Chief Economist for the Brewers Association.

“99 percent of all statistics only tell 49 percent of the story.” ― Ron DeLegge II, Gents with No Cents. Brewers Association is picking up the other 51% for those who are consumers, homebrewers and brewers. Hopefully this has bee a fun and informative read.

Cheers!

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