When it comes to adult beverages, beer has admittedly seen better days. The category has struggled to grow and has lost share to wine and spirits over the last several years, according to Nielsen’s State of the U.S. Beer Market report. Despite this overall decline, there are still product segments that continue to grow, albeit some, like craft beer, at a decelerating rate.
In Nielsen’s U.S. off-premise measured channels, the craft beer segment grew 3.4% in dollars in the 52 week period ended Oct. 7, 2017. Yet, within a segment as fragmented and variety-rich as the craft realm, there are still many healthy pockets of growth. For instance, 40 of the top 100 craft breweries across the country (based on dollar sales) are driving double-digit growth to the category.
For these elite 40 craft beer brands, expanded distribution has been a notable factor behind their growth, though that expansion has slowed more recently.
When looking more closely at the path to double-digit growth across this elite 40, it’s clear that there is no one-size-fits-all approach to success. Instead, a diverse set of factors have contributed to growth. As part of this analysis, Nielsen highlights three areas that apply to one or more of these large, but also fast-growing, craft beer brands: 1) top states where the top growing craft breweries are based; 2) for some brands, backing by large, mainstream beer companies, and 3) diversity in product portfolio.
Select States and Regions Are Driving Craft Beer Growth
The western part of the country leads the pack from a regional perspective, with 12 craft beer breweries calling this part of the country home: six from California, three from Washington, two from Oregon and one from Utah. But regional strength doesn’t end there. Midwestern states, which represent 10 of the 40 elite, have also posted strong growth. In the Midwest, Michigan and Ohio are top contributors, with each state housing three top-growing craft beer breweries.
Seven of the 40 top-growing craft beer brands hail from states where craft beer as a whole is less developed as a share of the total beer category. This indicates that they’re finding ways to break through in states that typically generate disproportionately more of its volume from the non-craft portion of the category. The handful of breweries from Texas and Florida, historically big beer states, are a great example of craft breweries growing double digits in states where there is room for craft to grow.
A brewery’s home state is particularly important to overall sales. Notably, the elite 40 growing craft beer breweries generate an average of 42% of their dollar sales (excluding breweries located in states with restrictive beer selling laws) from their home states.
Big Beer’s Investment in Craft’s Growth
The list of elite 40 includes both craft brands run by small, independent breweries as well as 12 that are owned by major brewers. Of these 12, four are among the 10 largest craft beer breweries growing by double digits.
For larger beer companies with craft brands in their portfolios, distribution is a key factor helping to drive growth. Though gains from distribution have slowed for many of the elite 40, big beer owned brands continue to outpace their independent counterparts when it comes to distribution expansion.
Craft beer breweries owned by big beer companies have also expanded their sales beyond their “home” states over the past four years. In fact, sales from these breweries’ home states has dropped to 44% from 54% four years ago.
Diversifying the Craft Beer Portfolio
One size does not fit all when it comes to product portfolio. For example, the India Pale Ale (IPA) style is by far the largest beer style in the overall craft segment, accounting for nearly 30% of total craft sales. Within the elite 40, however, IPAs account for an average of 40% of sales. IPAs from six of the breweries account for more than 70% of their overall sales, while some breweries generate very little or dollar sales from IPAs, and are instead, generating substantial growth from other styles in their portfolios.
Brand extensions are another key consideration for craft breweries, with the portfolio size (or the number of individual brands) among the elite 40 breweries varying from six to more than 50 brands within their portfolios. The average portfolio size for a craft brewery is 23 brands, and the largest concentration of breweries (18) have between 10 and 25 brands available. With slowing overall craft segment growth and shelf space at retail outlets less expandable than in the past, very broad portfolios aren’t likely to be sustainable in the longer term unless each brand is generating sufficient returns in stores.
Insights from this article were derived from:
- Nielsen Retail Measurement Sales, Off-Premise Outlets, 52 weeks ended Oct. 7, 2017 (top 40 craft beer brands/breweries with at least double-digit growth rates in last year; excludes flavored malt beverages and ciders)
- Nielsen “State of U.S. Beer Market” report, May 2017