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Craft Beer Surges In First Half As Key Players Step Up Investment

August 18, 2011

With overall U.S. beer volume receding at low single digit rates over the first half of 2011, the craft beer segment, which surged over the same time period, has only increased in importance as a source of dynamism within the industry. According to the Colorado-based Brewers Assocation, representing U.S. craft brewers, crafts’ dollar sales jumped 15% year-on-year in the first half, while volume rose 14% to 5.1 million barrels. That represents an acceleration over 2010’s volume and value advances of 11% and 12% respectively. Meanwhile, Nielsen data covering food, drug, liquor and convenience stores in the 52 weeks through July 23 found a 16.6% increase in craft beer dollar sales to $1.97 billion and a 15.2% hike in volume to 62.3 million (2.25-gallon) cases (5.7m barrels), representing a 7.2% dollar share of the U.S. beer market and a 4.5% share of volume.

The Brewers Association puts the number of U.S. craft brewers—which it defines as those producing less than 6 million barrels annually and less than 25%-owned by a non-craft brewer—at 1,740 as of last month, and growing quickly. The ranks of U.S. breweries under development jumped to 725 as of the end of June, nearly double the tally at this time last year, and almost triple that of two years ago.

With more and more smaller brewers entering the business, well-established craft brewers like Sierra Nevada, Boston Beer and New Belgium Brewing are seeing increased competition in the segment. Boston Beer, far and away the craft market leader with revenues of $464 million in 2010, ramped up its advertising, promotional and selling spend by $11.8 million, or 18%, over the first half of the year to help maintain its position amid the proliferating number of upstarts. Boston Beer’s first-half sales volume increased by 6% to 1.14 million barrels. California’s Sierra Nevada, meanwhile, is currently looking to create an eastern outpost by building a new brewery in the Southeast.

Kim Jordan, CEO of New Belgium Brewing in Colorado—which does around 660,000 barrels annually under its Fat Tire brand and others—recently told Shanken News Daily she expects that, amid the tough competition, craft beer’s pie will continue to expand despite the difficulties of operating as an independent in a market still dominated by big players like AB InBev and MillerCoors. (Like many craft brewers, New Belgium still has plenty of room to grow geographically. This month it entered the Virginia, Maryland and Washington, D.C. markets, and is now present in 28 states.) “I think we will continue to gain market share collectively. There is still a lot of blue sky,” she says.

The craft category’s momentum is being reflected at retail, where large chains are reporting strong sales. “Craft beer continues to show the highest growth (in the brewing industry),” says Annette Alvarez-Peters, assistant general merchandise manager-wine, spirits & beer at Costco. “The 750-ml. craft beer segment is showing huge growth from a small base. Domestic and imported beers continue to comprise a larger percentage of volume, but they’re not trending like the craft segment.”

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