Glut of craft beers is starting to wreak havoc on sales
Some of the country’s largest craft brewers are grappling with declining sales, hit by an overabundance of competitors cluttering retail shelves and mega-brewers trying to win over some of their rivals.
“It’s more competitive than ever,” said Ken Grossman, founder and managing director of Sierra Nevada Brewing Co., America’s second-largest craft brewer.
His company’s retail store sales fell 7.5% this year through July 16, according to Beer Marketer’s Insights. The brewer’s shipping volumes fell 6.9% in 2016, its first drop since the Sierra Nevada was created in 1980. Just two years ago, the Chico, Calif., Company recorded record sales after opening a second brewery in North Carolina.
After years of strong gains, America’s craft brewers are now gearing up for a reshuffle. Shipments are down for many independent brewers caught between local niche brands and heavyweight-bought competitors such as Anheuser-Busch InBev and Molson Coors.
Besides Sierra Nevada, those losing ground include Sam Adams’ maker, Boston Beer Co., the world’s largest independent brewer, as well as smaller producers such as FX Matt Brewing Co., which brews Saranac in the north of the ‘New York State, and Abita Brewing Co. in Louisiana, according to Beer Marketer’s Insights.
Benj Steinman, chairman of the traceability company, said many craft brewers trying to break into regional and national markets find they hit a wall once they go over 100,000 barrels. Some have stretched too far and lost ground in their home markets, while others have taken on too much debt to expand their brewing capacity, the brewers said. As they grow, they also lose the cachet of being a local brand, which many consumers are looking for.
“They used to say that a rising tide lifts all boats. And that’s certainly not the case now,” Mr. Steinman said. His company estimates that shipping volumes declined for 16 of the top 36 US craft-style brewers last year.
The unrest continued this year. Retail sales of craft beers – from brewers large and small – fell from $ 143 million to $ 2.3 billion in the first half of 2017, according to Nielsen data. Craft beer shipments have grown in double digits for years, even as overall beer sales have plummeted. But the demand for crafts started to decelerate in 2016.
“We really had to put on our big boy’s underwear and improve our game,” said Sam Calagione, founder and CEO of Dogfish Head Craft Brewery in Milton, Del., Whose volumes were stable last year. “Is the market too crowded? We’re almost at the rate of two new breweries a day. This rate is not sustainable.”
Shipments continue to increase for many of those craft brewers that sold to Big Beer, including Lagunitas, which was acquired by Heineken in May; Goose Island, owned by AB InBev since 2011; and Ballast Point, which was purchased by Constellation Brands Inc. for $ 1 billion in 2015. These brands benefit from the distribution channels, capital and marketing of their parent companies.
Earlier this month, Constellation, which distributes Corona in the United States, expanded its push into the craft beer market, acquiring the small Funky Buddha brewery in South Florida for an undisclosed amount. The microbrewery, which has seen 30% growth in volume so far this year, was looking to expand its distribution beyond Florida and start production in cans. These moves would have required a capital investment of between $ 6 million and $ 8 million, its founders said in an interview.
“The local continues to grow and the bigger ones are having trouble,” said co-founder Ryan Sentz. “We saw this as a potential hurdle going forward. We knew aligning ourselves with a partner would be exponentially easier.”
Microbreweries like Funky Buddha continue to grow rapidly: the 5,000 small brewers shipping less than 100,000 barrels per year recorded an average volume growth last year of 14%, double the growth rate of the craft category in overall, according to Beer Marketer’s Insights.
Dogfish Head, Saranac, Abita and other brewers struggling with low sales say they are cutting costs, spending more on marketing, and speeding up new product launches. Some try to seduce lovers of whiskey, wine or margaritas with beers aged in barrels, infused with grapes or flavored with lime.
After a product recall in January, Sierra Nevada is “getting back on track,” Grossman said, with increased commercialization and an accelerated program of testing new products. These experimental beers are often released first in the company’s tasting rooms or in its rare beer club.
Boston Beer recently surprised analysts with second quarter results showing the decline in sales had moderated; shipments to retailers fell 3%, following a 14% drop in the first quarter. To regain ground, executives say the company is cutting costs and offering its products, including cider and hard tea, to younger and more diverse consumers.
“When the growth stopped, we had over-built,” Boston Beer general manager Martin Roper said in an email. “Our first reaction was to wait and see if we could expand again… so it was a bit of a denial of continuing new trends from flat to negative.”
Write to Jennifer Maloney at [email protected]