Craft Beer Industry Report

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Crat Beer Production August 2013

Industry Performance

Current Perormance

Increasingly knowledgeable and healthIndustry revenue conscious consumers are trading up for higher-quality beers and other alcoholic 15  beverages. Bulk beverage sales declined declined as a result of health-conscious 10 individuals switching to high-quality     e products in smaller quantities. q uantities.    g    n    a 5 Therefore, although per capita alcohol    h    c consumption stayed relatively constant    % during the past ve years, consumers 0 shifted away from big-name beers like Budweiser, Miller or Coors and −5 Year 05 07 09 11 13 15 17 19 substituted them with regional and high-quality industry products. This SOURCE: WWW.IBISWORLD.COM trend has stimulated growth in the craft  beer segment because consumers are  willing to pay more for a smaller quantity  quantity  higher on-premises prices. As a result, of high-quality beer. industry revenue is expected to grow at  Although disposable income dipped an annualized rate of 10.9% to $3.9 in the past ve years, it resulted in a  billion in the ve years to to 2013, shift toward drinking at home. This shift including 11.9% growth in 2013 spurred enabled many consumers to continue  by rising disposable income enabling enabling paying for higher-end beers because higher prices and increasing industry  they did not have to tip servers or pay  production volume.

Proft challenges

Craft beer producers are often not able to take advantage of mass production and do not have the ability to negotiate the larger supply contracts that come with economies of scale. Therefore, they are disproportionately  exposed to uctuations in the supply  of inputs, and must charge higher prices than big beer companies to stay  in business. During the past ve years, a shortage of hops and high, unpredictable grain prices aggravated this. In the ve years to 2013, 2 013, the  world price of coarse grains is expected to grow at an annualized rate of 5.4%.

In response to increasing grain prices and enabled by rising demand,  brewers increased prices of their their products. Many brewers also boosted recycling and energy-saving efforts to cut costs. For example, major company  Sierra Nevada Brewing Company  installed solar panels in 2008 and continually recycles waste materials. As craft breweries produce a higher  volume of beer, they are better better able to negotiate bulk prices for inputs and can also afford to implement advanced technologies that decrease per-unit costs, which enabled prot to expand to 9.6% of industry revenue in 2013.

Attractive opportunity

The craft brewing industry has consistently attracted new businesses thanks to low barriers to entry. Brewing

craft beer is a cottage industry, meaning it can be done from one’s living room.  Although industry enterprises enterprises only 

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