Craft beer is now drowning in brands and products

Source: MarketWatch

By Jason Notte

Mar 14, 2016

We may not be at “peak beer” or even close to it, but it’s getting a lot more crowded in the beer marketplace than it’s ever been.

If you don’t know what a beer stock keeping unit (SKU) is by name, you certainly know the various cases, kegs, bombers, six-packs, four-packs, bottles, cans and brands that comprise them. We’ve heard craft beer brewers weigh in on them, but to get to the heart of what’s going on, you have to talk to the beer industry’s unsung heroes: the people who’ll spend more time poring over the numbers than they will pouring pints. We’re talking about the economists and statisticians.

Bump Williams Consulting has made a living providing analytics to the beer, wine and spirits industries since 2008. In that time, it’s watched the number of beer SKUs rise from 4,843 to 11,833. Craft beer SKUs alone have soared from 2,274 in 2008 to a whopping 7,400 last year, more than tripling the amount of products that the industry sent into the marketplace.

Bart Watson, chief economist for the Brewers Association craft beer industry group, thinks that the inflated craft number may be an underestimate. He notes that seasonal offerings often share a SKU number, which means a brewery could fit as many as four beers under the same SKU. He also notes that some breweries have multiple products under the same SKU.

National Beer Wholesalers Association’s 2015 Distributor Productivity Report

Meanwhile, it’s starting to tax the people who have to bring that beer to retailers. Independent beer distributors were carrying an average of just 262 SKUs in 2007, according to the National Beer Wholesalers Association’s 2015 Distributor Productivity Report. Just last year, those same distributors were dealing with an average of 981, with a reported range between 600 to more than 1,600. They’re also dealing with an average of 35 breweries, compared with just nine two decades ago.

“The beer industry is focused on providing beers that consumers want, while being mindful of the complexities that wholesalers and retailers face as more beer choices abound,” says James McGreevy, chief executive of Washington, D.C.-based industry trade group The Beer Institute. “As consumer tastes and preferences in beer evolve, the industry is meeting that demand by presenting more choices in packaging, styles and flavors.”

The burden of that increased SKU count isn’t just on distributors and stores. While the beer industry’s SKU count has increased 244% since 2008, total U.S. beer output has actually dropped 3.3% during that same span – from 213.3 million barrels to 206.3 million. While it’s true that craft beer’s production has nearly tripled in that time – from 8.4 million barrels to 22.2 million in 2014 – and its brewery count has soared from 1,500 to more than 4,000, there’s a catch.

According to data from IRI, a Chicago-based market research firm, 48.85% of all craft beer sales came from the top 10 brands alone: Samuel Adams, Sierra Nevada, New Belgium, Shiner, Lagunitas, Small Town (Not Your Father’s brands), Deschutes, Stone, Goose Island and Bells. A whopping 62% come from the top 20.

While a few of IRI’s top 20 wouldn’t fit under the Brewer’s Association’s definition of a craft brewer, BA’s Watson didn’t argue the point. In fact, he noted that “regional breweries” – which the Brewers Association says can produce up to 6 million barrels – produced roughly 79% of craft beer’s total volume in 2014, when they comprised just 135 of craft’s 3,418 breweries.

“I certainly think that the 80-20 rule still applies, where there’s a small number of SKUs that make up the vast majority of volume,” he says. “There are only 150 to 160 regionals, maybe a few more this year, and they’re producing the vast majority of volume, so their SKUs will be driving the majority of the volume. The flip side of that is when you look into the SKUs off-premise; the vast majority of those are pretty small and, while they do add up to a lot of volume when you put them all together, in their home markets they’re still small brands.”

Overall, that isn’t such a bad thing. Despite all of the (OK, our) fretting about an impending #SKUpocalypse, Watson notes that SKUs from smaller brewers tend to be more locally focused, which dovetails nicely with beer drinkers’ interests. As Nielsen noted last year, 56% of beer drinkers think of “craft” as small and local. On top of that, while just 45% of beer drinkers think it’s important that their beer is brewed locally, 53% of drinkers ages 21 to 34 think so. Among craft beer drinkers, that sentiment resonates with 52% of all drinkers and 55% of younger drinkers.

However, this only makes certain markets friendlier for SKUs. Alabama, for example, has roughly two dozen breweries and less than 1 per 100,000 drinking-age adults. However, Nielsen notes that craft beer volume in Birmingham jumped 63% last year with help from friendlier beer laws, and craft beer’s portion of the overall beer market grew to 5.6%. Meanwhile, Oregon has roughly 250 breweries and more than 7 per 100,000 – including about 70 in Portland alone. As Nielsen notes, craft’s share of the market in Portland is 43%. That’s great for craft beer overall, but tough for any new brewer trying to penetrate that brewery-rich market.

“Portland is a great example of a place where, if you put a new beer on tap, you might have to bump one off,” Watson says. “I don’t think there are a lot of places that are going to be adding another SKU or adding another tap.”

Watson notes that there’s a bit more room for competitors in shops and supermarkets than there is in bars and taprooms, but there’s no room for error. He points to the glut of pumpkin beers still lingering from fall and says that poor forecasting by breweries led them to miscalculate the growth of seasonal beers. In contrast, he points out that the addition of new year-round brands has actually helped brewers like Sierra Nevada, Samuel Adams and New Belgium.

In that growing, crowding marketplace, analysis and statistics matter almost as much to the sale of beer as the quality of the beer itself. While it helps to have your brewing down to a science, a broadening wall of beer brands and packaging suggests breweries might want to polish up their math a bit … or at least buy a statistician or economist a pint every so often.