A decade ago, few would have predicted that a collection of small, local breweries and brewpubs would pose a competitive threat to dominant US beer-making institutions like Anheuser-Busch and MillerCoors. With intense merger and acquisition activity throughout the 2000s turning these massive brewers into international behemoths, the Breweries industry has become increasingly dominated by just two companies, which mainly produce pale pilsners and low-price light brews. However, over the past decade, renewed consumer interest in unique flavors and locally produced food and beverages has sparked a brewing phenomenon. The Craft Beer Production industry has grown rapidly as thousands of small breweries have opened to cater to growing demand, reenergizing competition between the world’s brewing giants in the process.
Over the past five years, the Craft Beer Production industry has transformed from a peripheral industry comprising local brewpubs and regional brewers into a major component of US beverage sales. IBISWorld estimates the Craft Beer Production industry’s revenue will grow at an annualized rate of 19.0% to $4.2 billion over the five years to 2014. The Brewers Association defines American craft breweries as small (producing under 6.0 million barrels a year) and independently owned (they cannot have greater than 25.0% investment by a noncraft-beer alcohol company). Craft beer encompasses a range of beer styles typically featuring high-quality ingredients and close attention to detail; it also represents the fastest-growing alcohol category in the United States. Much of the industry’s success can be attributed to craft beer’s increasing popularity among casual beer drinkers. Unlike homebrewers and beer enthusiasts that have enjoyed craft beer for many years, casual drinkers represent the Craft Beer Production industry’s largest and most promising source of growth.
Summer season, fall flavors
The Craft Beer Production industry brews a diverse selection of beers ranging from pale ales, lagers, wheat beers, fruit beers and extra-strength stouts and bocks. Within the industry’s diverse product categories, there is one that presents the largest opportunity for growth and receives the most attention from the industry’s newly converted masses of beer drinkers: seasonal beers. Seasonal beers are limited-edition styles of craft beer that are typically brewed and sold at the start of a new season, with each release offering a twist in flavor or ingredients to reflect seasonal changes in the weather. Fall beers might emphasize malted barley to produce a richer, amber-colored beer, provide additional wheat for greater texture or, most commonly, offer a pumpkin beer flavor to signify the cooling season. In addition, winter offerings typically feature heavily caramelized malts or extra-strength stouts that boast greater alcohol by volume, while spring and summer offerings showcase lighter beers with added fruit or citrus flavors.
IBISWorld estimates that seasonal beers comprise 23.7% of the Craft Beer Production industry’s total revenue; recent trends show that this market segment is likely to continue growing strongly over the next five years. Many of the industry’s most prominent brewers have responded to the increasing popularity of seasonal beers by pushing their 2014 fall releases forward. Once advertised as the perfect beer to complement the Labor Day weekend, pumpkin craft beers are commonly distributed to shelves by August and are already being consumed now at brewpubs across the country.
In the same way that the Christmas season seems to inch forward each year to accommodate the holiday shopping patterns of US consumers, many craft brewers have noted that midsummer may be just as good a time as ever to give craft beer drinkers what they want. Sierra Nevada began shipping its limited edition fall pack for 2014 in the first week of August, while competitors Shipyard, Elysian and Traveler began distribution of their fall flavors to retailers by the second week of August. Not to be beaten, the Boston Beer Company released its flagship Samuel Adams Octoberfest brand in the last week of July. Many coffee and donut franchises have similarly engaged in this “seasonal creep” by introducing their pumpkin spice coffee and latte flavors in early August. Industry brewers recognize that the fall season is the most popular time of year for limited-edition varieties and have responded accordingly by expanding their fall beer production timeline well into the middle of summer to fulfill consumer demand for limited-edition flavors, particularly for enormously popular pumpkin spice flavors.
A beer for all seasons?
With so much pent up demand for fall beers, what is to stop craft beer brewers from brewing these wildly popular, limited-edition flavors in small batches every month of the year? The reasons are two-fold.
From the supply side, purchasing the added ingredients, adjuncts and flavors necessary to produce seasonal beer would be cost prohibitive for most of the industry’s smaller establishments. Additional ingredients, such as nutmeg, pumpkin spice and cinnamon, require additional upfront costs and supply contracts. Additionally, even though the popularity of the seasonal brands during peak months generates plenty of revenue to make up for the added cost of ingredients, the relatively slow demand during off-peak months would likely not be enough, particularly for smaller brewers, to justify continual brewing. The industry largely consists of small, local brewers that do not have large sums of cash on hand and only work with a limited number of brewing kettle systems, many of which need to be used to brew year-round flagship brands. When the time comes to brew seasonal varieties, these brewers must set aside several of its key brewing systems at a time and use them to the brew limited-edition seasonal beers. Expanding seasonal production to a year-round production schedule would require that operators maintain these once-seasonal brewing systems by either sacrificing capacity to produce flagship brands or expanding overall capacity through costly investments in new systems.
Demand for seasonal beers, although impressive, is not high enough to support year-round brewing of these specialty flavors. Simply put, consumers have shown that, even with popular styles of pumpkin beer, there can always be too much of a good thing. Many local brewpubs and craft breweries that have begun selling their fall seasonal beers in mid-August are now planning on shutting down the production of these varieties by October, the month in which Octoberfest should naturally dictate the largest level of fall beer sales. By the time the colder, later months of fall arrive, consumers are already looking toward winter-style stouts and darker malted styles.
Craft beer will likely continue to boast the fastest revenue growth of any alcoholic beverage industry over the next five years, with the growing popularity of seasonal beverages expected to play an essential role in tapping into a substantial customer base of casual drinkers. The Craft Beer Production industry is expected to grow at an average annual rate of 7.4% to $6.0 billion by 2019. In comparison, the broader Breweries industry is anticipated to grow 1.4% per year on average to $29.8 billion over the same period. Seasonal beverages, particularly limited-edition fall flavors, are a major opportunity for both craft breweries and the major breweries to attract new business. As a result, seasonal beers are expected to occupy a growing portion of retail space over the next five years.