Is the Craft Beer Rocket Ride Fizzling Out?

Craft beer is still growing as a segment of the total beer industry. Like wineries, there is a craft beer brewery in all 50 states. Craft brewing, as a category in the alcohol beverages industry, has only been around for approximately four decades; however, there is no specific event to delineate an official genesis of the industry. In 1859 the Anchor Brewing Company in San Francisco started brewing operations. Unfortunately, until 1965 the company had a sordid history of financial failures in making fine beer. However, since 1965 it has a stellar record of success and is now recognized as America’s first craft beer brewer. Wood Craft Valley

Despite the growth in breweries, the craft beer industry is experiencing significant issues. For example: constantly changing consumer trends; rapid industry expansion; growth in product offerings (this includes new products such as hard cider); distribution restrictions; response to market trends; and, imports. However, in December the new tax law took effect and should free up capital to fund expansion and marketing programs without incurring debt. “CMBTRA (Craft Beverage Modernization and Tax Reform Act-2017) as part of the new tax bill is cutting the excise tax bill in half for the nations small brewers,” reports Bart Watson-Chief Economist for the Brewers Association. That’s a decent chunk of capital for reinvestment. “There are benefits for wine/spirits producers as well.”

Per capita beer consumption in the U.S. has been flat for about a decade. However, and this is a major point, “craft beer” appears to be up approximately 5% in 2017. The major concern in the “here-and-now” is the loss in shipments that occurred in 2017 for the industry in total. Beer Institute economist Michael Uhrich notes, “the 2.2 percent decline in shipments (through November 2017) is the largest percentage decrease in annual domestic beer shipment volume since 1954.” This begs the question: Does this signal changes in the industry? Beer sales are reported by barrels shipped; the 2017 numbers indicate 3.8 million fewer barrels shipped. In 2017 U.S. brewers produced 170 million barrels; each barrel representing 248 glasses of beer. A barrel of beer is 30 gallons versus wine’s 60 gallons barrels. As an aside, the craft spirits industry realized a 4% increase and wine is expecting to report a 2% increase in production.

Mr. Bart Watson, attributes the decrease in domestic shipments in 2017 to consumers trading their domestic lager and light lager domestic brand preferences for imported brands. Further, issues with marketing/branding, distribution, demographics shifts, etc. are impacting the industry also. “I would expect this trend to continue for the medium term,” Watson writes. “In addition, wine and spirits growth in market penetration are two other reasons.” Craft brewers are leading the way in addressing new niches such as in style and marketing. Wood Craft Valley

U.S. households who consume wine, beer and spirits (26 percent of households and 55 percent of sales dollars for adult beverage) now outnumber those that consume only one or two of those, according to Nielsen Homescan figures. A Harris Poll conducted Jan. 16-18, 2017 found that 39 percent reach for beer first, while 29 percent go for wine, 27 for spirits and 4 percent for hard cider. That’s up for wine from 21 percent who said it was their choice a decade ago but down for beer from 45 percent and for spirits from 32 percent. This reflects a shift toward wine as the millennials get older.

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