Beer kegs in a brewery
American beer companies have shipped nearly 1.9 million fewer barrels of beer this year compared to 2019, according to figures from the Washington D.C. trade group the Beer Institute (BI).
The BI, citing unofficial estimates of domestic tax paid shipments from the Alcohol and Tobacco Tax and Trade Bureau (TTB), last week reported that U.S. beer deliveries in the month of May fell 6.6% (1 million barrels) versus the same period a year ago.
U.S. brewers also shipped 700,000 fewer barrels in April 2020 (13.5 million) compared to April 2019 (14.2 million), a decline of 4.9%.
Although the group said it expects “significant revisions” to March, April, and May figures after the TTB gave manufacturers an additional 90 days to report shipment volumes during the coronavirus pandemic, the steep drop over the last two months begins to paint a picture of how tough it has become for brewers to hit volume targets while bars, restaurants and other on-premise venues have been forced to close or operate at reduced capacity levels.
“The loss of the on-premise channel was a big hit to our wholesale business,” said Castle Island Brewing founder Adam Romanow, who noted that half of his Massachusetts-based company’s sales-to-retailers (depletions) are typically made to on-premise clients.
“In April and May, our net depletions to those accounts were negative due to keg returns, dragging our wholesale business down by 60%,” he said. “And as if the loss of sales wasn’t enough, buying back those kegs cost us more than $40,000 before adding in the cost of destroying the out of code beer.”
Before COVID-19 began rapidly spreading across the U.S. in March, overall U.S. beer shipments were relatively flat. Domestic brewers had moved just over 38 million barrels of beer and were only down about 200,000 barrels from 2019.
But when governors across the country ordered bars and restaurants to halt on-site consumption in an effort to slow the spread of the coronavirus, beer that was sitting in tanks waiting to be filled in kegs and served on tap either had to be destroyed or packaged into smaller vessels and sold at off-premise retail accounts.
“Like many, we shifted all production to packaged beer and saw huge spikes in off-premise sales,” said Port Brewing and Lost Abbey owner Tomme Arthur, who added that on-premise and taproom sales account for 70% of his San Diego-based company’s business.
According to market research firm IRI Worldwide, which tracks scans at major retail chains, volume sales of beer at large grocery, convenience and club stores are booming. Category-wide volume sales are up 13.6% year-to-date through June 14, 2020, and dollar sales are approaching $19 billion.
But that hasn’t been enough to offset declines for many breweries.
“Total brewery production volume remains down at least 30% year-to-date as of right now,” Arthur said, adding that his distributors only started placing orders for draft beer two weeks ago.
“It will take a long time to see that pipeline coming back to full strength,” he said.
Much of the current off-premise growth is being driven by sales of flavored malt beverages — including hard seltzer — which are up 88.7% year-to-date, according to IRI.
Moreover, since the week ending March 21, 2020, off-premise weekly dollar sales of hard seltzer specifically have exceeded last year’s best-selling period — the week of July 4 — according to research firm Nielsen.
“The week ending June 13, 2020 represented the fourth consecutive week during which hard seltzer drove more than $100 million in retail off-premise dollar sales, and the 10th consecutive week during which annual retail hard seltzer dollar sales increased by at least $50 million,” the firm shared recently.
Surging sales of hard seltzer is not all that surprising. Consumer interest in the fizzy alcoholic beverage is growing steadily. According to Nielsen, one million U.S. households bought a hard seltzer product for the first time in April.
Meanwhile, the on-premise channel for hard seltzers remained relatively underdeveloped heading into 2020, shielding the segment from most of the coronavirus-induced headwinds.
For their part, craft brewers and other alcohol manufacturers who rely heavily on over-the-bar sales say they will be monitoring on-premise developments while continuing to identify creative opportunities to slow overall volume declines through the balance of the year.
“We were notified yesterday that bars, wineries and breweries that don’t serve food must cease operations at midnight tonight, so the channel just shrunk again,” said Arthur, who launched direct-to-consumer beer deliveries and started selling vintage beer from his cellar in the wake of the pandemic.
Meanwhile, Romanow recently turned his brewery’s parking lot into an outdoor beer garden and teamed up with a local catering outfit to “create a safe and socially distant space to grab a bite and a beer.”
“Without taproom and on-premise revenue, the beer garden is a major shot in the arm that allows us to stave off any additional furloughs or layoffs,” he said. “We actually hired an additional 10 seasonal employees to run it, and it is enabling us to once again provide top notch hospitality to our guests, something we haven’t been able to do since early March.”
