How big can the craft beer industry grow?
The number of breweries in America has already surpassed historic highs. Soon it will eclipse 8,000. Is that oversaturation?
The easy answer is yes. But the truth would appear different. If the craft beer industry has grown too large, then we would expect the number of brewery closings to outpace openings. That’s what happened the last time the industry dramatically shrunk, after the bubble burst in the late ‘90s and early ‘00s.
Instead, we have the opposite.
“Right now, there are triple the number of brewery openings than closings,” says Sam Hendler, co-founder of Jack’s Abby, which opened in Framingham, Mass in 2011. “I wouldn’t be surprised to see 20 to 30 more breweries open this year in just Massachusetts alone.”
Which begs the question: how many more breweries can this industry support?
“Can we double the number of breweries in this country?” Hendler asks. “Probably not. But the number of breweries in this country keep growing.”
Which has intensified some category trends while squeezing out others. Below we look at what will define craft beer in 2020 as the industry continues to reach new heights.
1) The Taproom Era
If the category has so much more room to grow, then did taprooms save craft beer?
It’s an honest question. Not long ago the biggest concern with craft beer was whether retail shelves could ever hope to contain all these new brands. Consumers were struck with paralysis by analysis. Overwhelmed by all those different cans and bottles, how could people make a choice?
And how was that not a sign of a bubble about to burst?
Now in 2020, consumer choice is easier because they just pick breweries and taprooms.
With retail shelves still brimming with brands, many newer brewers forgo broader distribution, and instead focus on taprooms sales. They might self-distribute locally, but the bulk of their income occurs onsite.
“The taproom model definitely isn’t going away,” says Hendler. “It’s the lifeblood of a lot of breweries. The vast majority is now taproom-only, with little-to-no distribution. These people are doing really fun things. At this point, they’ve become a critical part of the overall health of the brewery community.”
This industry shift has understandably worried beverage alcohol retailers. Rather than buy what’s local at stores, consumers spend those dollars at taprooms. But is that necessarily a bad thing, in the long run, for retailers?
“We have three taprooms, and in the surrounding areas around those, our sales to retail accounts have actually increased,” says Clay Robinson, co-founder of Sun King Brewing in Indianapolis. “Yes, there were some accounts in those areas that took us off their shelves because they thought we were competing with them. But we’re finding that people who are already on the Sun King train will keep buying our products, both from our taprooms and from those retail accounts.”
Taprooms may not be as bad for retailers as previously imagined. The businesses that have likely lost the most traffic from taprooms are the local bars and mall.
“We’re in the age where people don’t go to malls anymore because everything is on an app,” says Hendler. “Breweries are now the place where people are going on Saturday afternoons to see and engage with friends and have a good time.”
Larger, established brewers like Jack’s Abby have also benefitted from this development.
“Taprooms have become a great proving ground for our beers,” says Kyle Fitzsimmons, general manager of Elysian Brewing Company. “That’s where our new Contact Haze IPA came from. That’s where consumers can get more of our small-batch stuff. It’s a great opportunity for us to introduce more consumers to the craft beer category, and trial new brews to see what works.”
The taproom movement has also given rise to broader tourism, as brewery centers emerge.
“Five years ago, your brewery was a destination,” says Tim Brady, founder of Whetstone Station Restaurant and Brewery in Vermont. “Now, communities of breweries have become the destinations, where people can visit four or five breweries at a time that are close to one other.”
Brady addressed the Connecticut Brewers Guild during their inaugural conference at Sacred Heart University, which recently launched a brewing science certificate program. In Connecticut alone, there are more than 100 breweries.
“What’s most important today about your brewery is your story,” Brady says. “What separates your brewery from the one that might literally be across the street? People today want to know all the little details behind your beer and brand.”
Otherwise, taprooms themselves risk oversaturation.
“Taprooms are critical if you want to start a brewery. That said, the more there are, the less unique they become,” says David Walker, cofounder of Firestone Walker Brewing Company. “So it’s no longer a guarantee that ‘if you build it they will come’.”
2) Hazy is Here to Stay
After taking root in New England, Hazy IPAs have expanded across the country. In terms of their category impact, there are pluses and minuses.
On one hand, their juice-forward, easy-drinking profiles have brought many new consumers into the craft beer category. If you do not like the bitterness of beer, especially West Coast IPAs, then these “juice bombs” are the perfect brew for you. And with their opaque, orange juice-like hue, they photograph well in glassware, making NEIPAs a natural fit for social media.
On the other hand, their ubiquity, especially in New England, has somewhat dampened innovation. A fair number of breweries in recent time have turned into “haze houses,” producing a disproportionately large number of NEIPAs in lieu of a more-varied portfolio. For craft beer aficionados, this lack of diversity can be frustrating.
Or have Hazy IPAs diversified just fine?
“You are now seeing the same bifurcation that we saw in traditional IPAs starting to happen in Hazy IPAs,” says Dharma Tamm, president of Rogue Ales. “There are now Hazy Pale Ales, Hazy Imperial IPAs, Hazy Session IPAs — and yet the core Hazy IPA style is still growing. Batsquatch, our Hazy IPA that was released in the beginning of 2019, quickly became our second-best-selling beer.”
In the near future, there’s no reason to think that the haze craze will ebb. Longer-term, however, one wonders whether consumers might grow tired of all these similarly flavored juicy beers. Thus, you might see more breweries attempt a balance between modern juicy flavors and the classic hop bitterness.
Springdale, the ale-making arm of Jack’s Abby, is in the process of launching Springdale IPA. This new flagship is a “balance between West Coast and New England IPA,” explains Hendler. “It has a little bit of haze and a little bit of bitterness, for a more-pronounced balance.”
Coming out of a company known for classic lagers, Springdale IPA would seem somewhat of a hedge.
“I think we’ve just about hit the peak of the haze craze, but it’s not going away,” Hendler adds. “Everybody is already in that game, so I’m not sure how much higher it can go. I do think there are opportunities for new looks at subtler takes on it. We’re looking to build a lane for ourselves that’s a little off where the focus has been for the last few years.”
Some brewers do think that we’re later into the lifecycle of the haze craze.
“Every trend has an end. I believe consumers are starting to realize that ‘hazy’ and ‘good’ are mutually exclusive terms,” says Dogfish Head Brewmaster Mark Safarik. “There will always be a market for good beer. I think consumer tastes will move toward more-refreshing, less palate-saturating styles over the coming years. Hazy IPA will not go away, though.”
3) Core Craft Comes For Big Beer
Craft beer’s share of the overall U.S. beer market is around 12%. This percentage has plateaued in recent years as craft beer sales settle into single-digit yearly gains.
Still, there is potential for large market-share growth in the future. This relies on the habits of younger consumers.
“Craft beer is so much more interesting to consumers than the mass-produced beer once drunk by masses of people,” says Walker of Firestone Walker. “I am not sure, other than price, what these traditional-branded beers have to offer a modern consumer.”
“I am not knocking their quality or heritage,” Walker continues. “I’m simply saying consumers want to have dimension in everything they do, which doesn’t lie in doing what their parent’s generation did. I think craft beer has a chance to win those consumers, and the big brewers still service the majority of them with their aging proposition. We are a long way from craft beer saturation.”
Many younger LDA consumers have always drank craft beer over macro. Why would they do differently as they get older?
“The newer generation doesn’t use the word ‘craft’ when describing our products. They just call it ‘beer’,” says Mike Stevens, co-founder of Founders Brewing. “To them, beer is beer is beer.”
Whish is great for the future of the category. But what about right now? How can craft combat macro brands in 2020?
“Craft beer has to connect with a bigger audience, because Big Beer is losing steam,” says Stevens. “And somebody has to get it.”
For craft beer to expand beyond its 12% market share in the immediate future, the category must transcend its traditional consumer base. Craft must go after macro drinkers.
“In order to attract all those other people, those people need to be sold to differently,” says Stevens. “They need to be marketed to emotionally.”
“In this industry, we’re good at making beer, but bad at marketing it,” he adds.
Founders is hoping to change that, in part by focusing marketing efforts on a core set of brands rather than a wider portfolio.
“Innovation is still critical, but in terms of marketing, you’re going to see three of our brands getting most of the attention instead of all 24 of them,” says Stevens. Founders will allocate most of its marketing dollars behind All Day IPA, Solid Gold and Centennial IPA. “We’re going to keep building those brands and connecting emotionally with consumers,” says Stevens.
Many of other big craft breweries have a similar strategy for 2020.
“We now have seven core products, with the recent addition of Dreamland Lager to our core brews,” says Tamm of Rogue. “Dead Guy Ale and Batsquatch are our two best-selling beers and we will always focus on these fan favorites while still continuing to innovate and make beers that we want to make.”
4) Low-ABV is a Big Deal
The health movement has reached craft beer. Although few people would mistake brews as nutritional, that does not mean the category has to be so loaded with calories.
Enter low-ABV beers.
These fall into two camps. Either their ABVs are lower than normal — under 5% for styles like porter or double IPA — or they are considered “non-alcoholic” with ABVs under 0.5%.
Sufferfest Beer Company, launched in San Francisco in 2016, is the former. Their lineup includes craft staples like kolsch (3.5% ABV) and stout (4.3% ABV). Last year, the company was acquired by Sierra Nevada.
Like other breweries making these kinds of beers, Sufferfest markets towards active-lifestyle consumers.
“Alcoholic beverages are following the natural progression we’ve seen in the ‘Better for You’ food movement at grocery,” says Sufferfest Founder Caitlin Landesberg. “As today’s Millennial generation takes on the buying power at grocery, today’s shoppers are looking for food and beverage products that provide additional benefits, but without settling on taste or quality.”
That’s a lot of people with big buying impact.
“There are 73 million Americans aged 25-39, and 40% of this group consider themselves ‘fit’, working out three-to-five times per week,” Landesberg says. “83% of this group takes a daily multivitamin, and their eating habits are often described as ‘plant-based healthy snacking’.”
“This is all to say that today’s shoppers are healthier, more informed and more demanding than ever, and this trend continues to produce alcohol beverage options designed to fit specific health-conscious occasions,” Landesberg adds.
With ABVs under 0.5%, Athletic Brewing of Stamford, Connecticut, produces non-alcoholic beer. Founder Bill Shufelt says that 80% of their customers are between 21-44 years old, and almost evenly split between male and female. What all those people have in common is discovering a product that did not exist just several years ago.
“No-ABV is no longer just for the ‘sober’ and ‘penalty box’,” says Shufelt. “50% of U.S. adults have 0.1 drinks or less per week, and people are seeking flavor and quality above mind-altering effects. There have just never been good options for people in this category. There were no new brands introduced between 1992 and 2017, when taste and diet preferences had totally evolved.”
“Our beers are half the calories of even the lightest beers on the market (50-70 calories), and certified organic, so you don’t need to have a ‘cheat’ meal to enjoy one or even three,” Shufelt adds. “The craft beer and wine worlds are incredible at providing tasty beverages for short windows in Friday and Saturday nights, but you could argue they’re missing out on the other 90% of occasions during the week.”
But not every brewer is so convinced of low-ABV’s staying power.
“Sigh,” says Hendler of Jack’s Abby. “Can that be my answer for this question? Low-ABV is clearly something big, because a lot of breweries are putting a lot of money into the market behind it. But I worry for a lot of these brewers about whether low-ABV truly resonates with whatever brand they’ve already built. Are they muddying up the craft brand they’ve spent years building up? It’s a delicate balance for brewers to walk, and not everybody is doing it successfully.”
5) CBD Beers Emerge
Legal cannabis is spreading across America, and with it come CBD beers.
They are made with the non-psychotropic components of the cannabis plant. (CBD won’t get you high, of course.) And now these beers have an easier path forward thanks to the federal legalization of some forms of hemp at the end of 2018.
“I would expect more innovation and new products including CBD in 2020,” says Tamm of Rogue.
The Long Trail Brewery of Vermont already has a limited-edition lineup of IPAs and APAs, called Medicator, which is brewed with hemp oil and terpenes.
On the West Coast, Coalition Brewing has released Two Flowers IPA, infused with cannabidoil. Like Long Trail, Coalition plans a series of CBD beers if the concept proves popular (and legal) in the long run.
The government has not necessarily made it easy for CBD beers. Years before the 2018 Farm Bill legalized hemp, Dad & Dudes Brewery in Colorado got TTB-approval for a CBD-infused beer, only for the DEA to block it. And in 2018, Down the Road Beer Co. of Massachusetts was rejected by the state’s Alcoholic Beverages Control Commission when applying to add CBD into beer.
Given the relentless (it not sloppily executed) rollout of recreational cannabis — plus the growing market for CBD — these governmental headaches might just be early growing pains for CBD beer. More breweries will likely explore the idea in 2020.
Though not all brewers agree.
“Much of that depends on the FDA, who are still conflicted like most commerce wrapped up in this emerging category,” says Walker of Firestone Walker. “I can see it playing a roll, but in a niche format, and more so on the medicinal front. In my simple mind, CBD is a supplement — like vitamins — and we don’t buy beer in search of the vitamin content. There are easier ways to do that.”
6) Sours Enjoy Wide Appeal
Sour beers have seemingly found a solid niche in recent years. While nobody expects these funky, fruity, tart brews to suddenly blow up in sales, they have become reliable mainstays on beer menus.
“Sour beers will continue to outperform other styles in growth on a percentage basis, but not in absolute volume of styles like IPA,” says Safarik of Dogfish Head.
Sour beers have become increasingly diverse, and appeal to a large demo of consumers.
“Sour styles like gose and Berliner Weiss meet the increasing desire among consumers for products that are flavorful, yet low in alcohol/calories/carbs,” Safarik says. “Sours also have crossover appeal among wine and cocktail drinkers who have yet to discover this part of the beer spectrum.”
Sours can be light and smooth, or bold and fruity. They can satisfy wine drinkers who occasionally dabble in beer, or the hardcore beer nerds. Barrel-aged sours, while perhaps overproduced in recent years, are still a fan favorite among craft aficionados.
“We think sours will be very popular and just added three 90-barrel foeders to our Eastside Pub in Portland, which has now become our official sour house,” says Tamm of Rogue.
But while beer geeks may gawk at the size of a brewery’s coolship, don’t expect this to translate into massive retail sales.
“Three-to-four years ago, sour beer was supposed to pop,” says Stevens of Founders. “A lot of people were parroting that, but we never did experience a full pop. But we have experienced a slow-burn build up. Sours resonate with a lot of people who are not traditionally beer drinkers. It may never pop as people had prognosticated, but it’s steadily growing.”
7) High-ABV Becomes Niche
Once upon a time, customers lined up outside of breweries for the release of limited-edition barrel-aged beers.
Nowadays, when people queue up around the block, most likely they’re waiting for a trendy brand of New England IPA. The “white whale” stouts have fallen out of fashion.
“The days of those unicorn beers are likely over,” says Stevens of Founders. “KBS was one of the first of those beers in the early 2000s, along with about half a dozen other breweries doing similar things. Now, there are more than 7,000 breweries, and everybody is doing barrel aging. You don’t have to wait in line anymore because there are now more than six breweries doing this stuff.”
Visit any retailer now and you’ll see plenty of high-ABV stouts collecting dust on the shelves. Beyond the oversaturation of barrel-aged beers, there’s also the consumer trend of healthier living. A 15%-ABV barrel-aged monster hardly fits into the lifestyle of a calorie-counting drinker.
Breweries have adjusted. Founders last year announced the discontinuation of CBS, one of the original unicorn beers. But the brewery will not stop making KBS. Instead, Founders extended the line in 2019 with a new KBS espresso variant. And don’t expect the brewery’s popular barrel-aged line to tail off, or stop innovating.
“You really have to pick and choose which barrel-aged bottles you produce now,” Stevens says. “We’ll probably put out less volume of KBS, but more brands of it. You’ll see four-to-six brands of barrel-aged beer come out, but at lower volumes.”
And in different formats.
“There are issues from a pricing standpoint,” says Hendler of Jack’s Abby. “People have stopped wanting to buy bombers at $15, which were much more popular at the beginning of the last decade.”
So we’ll likely get more barrel-aged beers in premium 4-packs of cans, or single-format 12-oz. bottles. Or even single-format cans. Which speaks to how niche this segment has become.
“That core beer-geek circle will always be looking for and appreciating these beers,” says Stevens. “There will always be room for it.”
Hendler agrees. “There remains a group of consumers that’s interested in these beers,” he says, “and we’ll continue putting out stuff that’s most relevant to those people.”
So much talk around craft beer last decade surrounded a potential bubble. But with the continued boom of taprooms, it does not appear that this category is nearing a cliff.
Retailers may not like that consumers spend so much money now at taprooms. However, the retailer/taproom economic relationship may not be zero-sum. Rather, retailers may actually benefit from more people drinking craft beer as consumers explore and discover brands. Taprooms could fuel a rising tide of new drinkers that lifts all boats.
And with larger craft breweries setting their sights on stealing consumers from Big Beer, 2020 seems poised to be another year of growth for craft beer, rather than the beginning of a bubble burst.