Growing Craft Beer Segment Boosts Overall Category

by Aaron Baar, Mar 5, 2008, 10:36 AM

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Craft beers--those brewed by small local and regional breweries--continued to push the beer category forward, with sales of independent brewers up 12% by volume and 16% in dollars last year, according to the Brewers Association.

Craft brewery dollar sales have increased 58% since 2004, reaching $5.74 billion in sales last year, it said. However, craft beers still only account for a small segment of the overall beer category--about 4% of production and 6% of retail sales, according to the Brewers Association.

But Americans' growing propensity to "trade up" in food and other categories, coupled with an interest in locally created products, means the segment will likely continue to grow, according to association representative Julia Herz.

"Americans like trading up, and craft beers offer diversity and complexity," Herz tells Marketing Daily. "It's the same as chocolates, coffee, ice cream and tea. We don't go for the same flavors anymore."

Nearly 70% of those craft breweries--defined by the Brewers Association as an independent brewer selling fewer than 2 million barrels and having at least 50% of its volume sold in malt beers--were brewpubs that sell most or all of their beer on premises. According to the association, the United States had 1,449 total breweries working in 2007, 1,406 of which were craft breweries.

"Clearly, consumers are going to have a lot of choice in their beers for quite a while," says Eric Shepard, executive editor of Beer Marketer's Insights.

Unlike the boom of craft beers that took place in the early 1990s, the current segment's growth seems more sustainable, with more professionals and less hobbyists in the market now than before, Shepard says. "There's a lot of strong, small brewers now to make sure [it's sustained]," Shepard says. "In the '90s, there were a lot of people [in it] who weren't really brewers ... There was a novelty aspect to it."

That said, there are some challenges ahead. Craft brewers are starting to face higher commodity costs for ingredients such as hops and barley, Shepard says. "It looks like they're going to be forced into aggressive price increases to reflect those costs," he says.

And with the segment growing as quickly as it has, some of the larger breweries are taking even more notice--either by acquiring smaller brands or creating their own small batch brands, Herz says. "When the larger players take their cues and strategies from the smaller players, you know [the smaller ones] are on to something," she says.

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