This could be the year that craft beer sales finally stop showing growth. The latest data from both Nielsen and IRI indicate that beyond a few select categories, beer sales in terms of both volume and dollar amounts are in serious decline. One of the only things really keeping the craft beer segment in positive territory at the moment isn't beer at all, but rather flavored malt beverages like hard seltzer.
That bodes well for brewers like Boston Beer (NYSE:SAM). Its Truly brand is the second largest brand of hard seltzer White Claw, which controls more than half the market. But it also indicates we may be approaching a time when craft beer sales suffer a decline.
Actual beer sales are weak
An article at industry site Brewbound details how far the craft beer industry has fallen. Citing data from the market researchers at IRI, it notes that through May 19, craft beer volume sales at off-premise locations, such as package-goods and convenience stores, were 1.9% higher, while dollar sales were up 3.1%. The beer category as a whole was up 0.5% and 2.8%, respectively.
Although that sounds positive, the strength of craft beer actually rested upon flavored malt beverages (FMB), whose volume sales surged 23.3% for the period. Boston Beer's Truly berry-mix hard seltzer led the way, soaring 604%, followed by White Claw's variety pack and black cherry flavor, with each jumping over 300% year to date through May. Nielsen found volume sales of hard seltzer were up 193% through April 20.
India pale ale (IPA), craft beer's largest style category, saw volume and dollar sales rise 14% for the period. Otherwise, the four next-biggest styles by volume -- including Belgian witbiers, seasonals, pale ales, and variety packs -- all were negative. The broader pale ale category fell the most, plunging nearly 16% from last year.
Mexican imports still resonated, with 12-month dollar growth of 37% through April. Constellation Brands (NYSE:STZ), which has come to own the category, saw Corona enjoy a 7% increase in depletions in fiscal 2019, while its Modelo brand jumped 12%. Constellation's entire beer portfolio was, in fact, the No. 1 driver for growth in the U.S. beer industry last year.
It doesn't matter how you define it
It's important to note the IRI definition of a craft brewer is decidedly different than that of the Brewers Association, the industry trade group for craft brewers. The latter has three requirements for a brewer to be considered craft:
- Be small, producing less than 6 million barrels annually.
- Be independent, meaning 25% or less of its operations are owned or controlled by a mass brewer.
- Make beer for sale in any amount.
IRI, on the other hand, does not have an ownership limitation, thus it puts beer such as MillerCoors' Blue Moon and Anheuser-Busch's Shock Top into the craft category.
Yet even narrowing the field by imposing the Brewers Association's definition makes it difficult to see how craft beer can post growth this year. The trade group has pointed out that the 50 fastest growing breweries these days are really tiny, producing on average just 1,350 barrels a year, or about 10% of craft beer's total growth by volume. To put it in perspective, Boston Beer produced 4.3 million barrels last year, about 8% of the industry's total, and its beer sales have fallen hard over the past few years.
The brewer's Samuel Adams flagship brand has failed to produce a single quarter of positive depletion growth in over four years (depletions are an industry proxy for consumer demand that measures sales from distributors to retailers). The only thing really carrying Boston Beer along is its FMBs: the Truly line of hard seltzers and Twisted Tea hard tea. Its Angry Orchard brand of hard cider, which bounced back strongly last year when it introduced its rose extension, saw depletions fall again last quarter.
Craft beer's hard fall
The same was true with IRI's biggest craft beer brands: Blue Moon Belgian White, Sierra Nevada Pale Ale, Shiner Bock, Lagunitas IPA, and Shock Top Belgian White all saw sales fall year over year.
Although there are more craft breweries than ever operating now, actual craft beer sales may now fall. The Brewers Association once again changed its definition of "craft beer" to allow FMBs to count toward industry volumes, meaning year-over-year production may show growth, but 2019 may be the year that real craft beer production goes into decline.