Signs of a maturing craft beer market

Craft beer trade group the Brewers Association has been releasing its annual trove of data about the industry, revealing a trend in national statistics in 2017 that often, but not always, reflected what we’ve seen here in San Diego.

“The headline number is craft beer grew 5 percent by volume,” said Bart Watson, the organization’s chief economist, during a telephone press conference. Though it experienced smaller growth than recent years, the craft sector still gained in volume in 2017 — producing 25.4 million barrels compared to (a revised) 24.5 million in 2016. That number is up from 15.5 million as recently as 2013.

While the volume of beer sold in the U.S. declined by a percentage point last year, the craft sector’s share of the market increased to 12.7 percent in 2017, up from 12.1 percent in 2016, and 7.8 percent in 2013. That boosted the retail value of craft beer by 8 percent to $26 billion.

The San Diego Brewers Guild reported that San Diego craft brewers generated $638 million in revenue in 2016, so if local numbers released later this year follow the national trend, we could be looking at $689 million as a benchmark for local revenue for 2017. However, Watson notes that, “The most developed areas for craft are growing a little bit slower,” so there’s a likelihood local numbers will lag compared to the national average.

Watson characterizes these and other shifts as a “maturing” of the craft market, which also includes the number brewery closings rising a whopping 70-percent, as 165 breweries closed nationwide. A similar increase was experienced in San Diego last year, when no fewer than seven of approximately 150 breweries shut their doors.

Watson expects the number of closings to rise again in 2018, saying, “We should expect a certain percentage of closures, particularly in areas where there are a higher number of breweries.”

Likewise, whereas small-scale brewpubs and microbreweries fueled craft beer’s growth, larger so-called regional breweries, struggled by comparison. Defined as craft breweries producing more than 15-thousand barrels annually, these number around 200 nationwide, and have seen growth stagnate and slow due to rising competition in both established and developing markets, and craft beer drinkers showing a preference for local product.

“We’re seeing regional brewers react, reduce,” said Watson, whereas, “brewers that have a tighter distribution profile… do better.” That lines up with layoffs and/or divestments witnessed by two of San Diego’s largest breweries — Stone Brewing and Green Flash Brewing —over the past year-plus. Last week, the Brewers Associetion reported Stone has risen a spot to become the nation's 8th largest craft brewer, while Green Flash dropped from 37 to 43. Karl Strauss is now San Diego's second largrest craft brewer, holding on to its national ranking at 41.

On the whole, small breweries are growing fast, however, and a strong overall demand for craft beer keeps bringing new entries to the marketplace. As in San Diego, the number of new breweries opening also increased nationwide in 2017, with 997 new breweries in 2017 raising the national total to 6266, supporting 135,072 jobs. While growth has slowed, that’s a number that seems poised to go considerably higher. Watson’s estimates show as many as 2500 future breweries are in the planning phase.

Nevertheless, small breweries comprise only a very small part of the overall beer market. As Watson points out, “75% of the breweries in the country make less than 1% of the beer.”