Economic and Demographic Industry Update | NBWA: America's Beer and Beverage Distributors

Industry Trends

The U.S malt beverage industry grew by an estimated 14.4 million cases in the first half of 2016, for a solid 1 percent increase.  Growth was driven by imports from Mexico and marginal improvement in domestic trends from increasing share of high-end specialty beverages. Domestic volumes were up against easy 2015 first half comps when domestic tax paid fell almost 1.5 percent.  For year-to-date June 2016, the domestic trend is running down less than 3 million cases for a 0.2 percent drop. This is a marked improvement over past years and a good sign moving into the second half of 2016.U.S. Malt Beverage Industry, YTD June 2016

From a beer package perspective, canned beer continues to drive industry growth, posting a 2.7 percent increase. Both imports and domestic can volumes grew in the first half of 2016, pushing this segment’s share to 56 percent share. Note that the volume added by domestic can business was more than three times greater than imports. Craft and other specialty beverages have successfully adopted the can package in the high-end segment – even the wine industry is hopping on board and finding opportunities. Total bottle volume was down 0.8 percent to 43 percent share. Import volumes grew by 9.1 percent but could not compensate for the larger domestic bottle share decline of 5 percent. Draft beer in both domestic and imported segments reported less volume but continues to maintain the 10 share.

Overall, there are continued signs of progress for the beer market. The six-month trend at 1 percent is slightly higher than the running 12-month moving average of 0.8 percent. In both cases, these trends indicate the industry has the potential to maintain per capita consumption levels against wine and liquor in 2016. However, the second half comps may prove a challenge with July Domestic Tax Paid from the Beer Institute and import data from the U.S. Department of Commerce reporting slower trends that bring the seven-month year-to-date trend closer to 0.5 percent. But then a strong August Tax Paid at +3.3 percent tapers the July declines. Moreover, with so many small brewers reporting on a quarterly basis, revisions to the Domestic Tax Paid volumes will certainly be greater than in years past. The industry will continue to see wide ranging fluctuations in short term trends; however, the fundamentals backing a positive full year of volume growth remain likely.

Macro-Economic Trends – Employment and Wages

The current business cycle continues into its seventh year of expansion, and the U.S. economy continues to add jobs. Growth is at a much slower pace than anticipated, and there is very little upward pressure on wages. However, the economy has added more than 1.3 million jobs in the past seven months.

With growth there has come a structural shift. Over the past six years, more than 90 percent of new jobs have been in the service sector and, more importantly, around the country job creation in metropolitan areas continues to outpace rural areas. This has left traditional good producing areas and their beer drinkers in many rural parts of the country on the sidelines of the economic recovery. On the wage front, nominal average weekly wages of $876 per week has increased 1.3 percent in 2016. This is only slightly ahead of the Consumer Price Index inflation measure, currently running at 0.8 percent on a 12-month seasonally adjusted basis. On a year over year basis, since the end of the recession, wage earners and employers have experienced little upward pressure from a slowly expanding economy and growing employment.

US Average Weekly Wages Annualized Average 2007 to YTD 2016

Demographic Shifts Transform the Industry

Demographics are changing the U.S. beer business in many ways. More than 73 percent of the population is now over 21 years of age, and the majority of the millennial population (defined as 18 to 35 year-olds) have now turned 21. At the same time, average household size and birth rates are at all-time lows. Even home ownership rates are at all-time lows despite historically low mortgages rates. According to recent U.S. Census data, home ownership rates are now below 63 percent and are at the lowest recorded rates since 1995. The beer industry is in fact facing a very different demographic than just a few years ago. When, where and how consumers purchase alcohol beverages is transforming the marketplace. This shift is creating challenges and great opportunities for brewers, distributors and retailers.

Legal Drinking Age Population Ration 2006 to 2015

These demographic impacts are most evident in traditional on-premise accounts. Data from the Bureau of Labor Statistics show that the number of “drinking establishments” – bars and taverns that primarily serve alcohol for their revenue – has fallen consistently since 2010, and there are now absolutely fewer establishments in this category despite a growing economy. However, over the same period of time, there has been a marked increase in the number of nontraditional (blended on- and off-premise) establishments where people can purchase and/or consume alcohol. For example, in California, recent legislation will allow more than 40,000 barbershops and beauty salons to serve limited amounts of alcohol beverages without an alcohol license. Additionally, grocery stores around the country (where permitted) have added on-premise alcohol beverage sales that also may include take-home growler (draft) sales. Even the zoo industry is getting into the business. The “Watering Hole” at the Philadelphia Zoo and “Zoo Brew” at the San Diego Zoo now offer patrons on-premise alcohol beverage options. This trend continues into farmer’s markets and open-air festivals around the country now including on-premise consumption, with some offering take-home purchases as well.

Within the industry, brewery beer gardens, taprooms and brewpubs all function as blended on-off premise establishments and are now part of many small, medium, large and even globally owned breweries' business plans. In fact, the tax determined beer business is the fastest growing measured segment in the beer industry. Tax determined is a little known segment in the industry that includes beer brewed and served directly to consumers from serving tanks. Historically, this segment accounted for less than 0.5 percent of total industry volumes; however, in late 2014, this segment took off on an exponential growth curve and has quadrupled its reported quarterly volumes in just a few years.  With continued trends, the tax determined segment may soon be a significant part of industry volumes. These small volumes also are reported on a quarterly basis and tend to be subject to the largest revisions in the TTB Domestic Tax Paid data.

Tax Determined Beer Quarterly Volumes 2010 to 2016

With evolving demographics and a redefined economy, many new opportunities are in the future for brewers, distributors, retailers and beer consumers. More importantly, a new and vibrant direct-to-consumer segment is rapidly growing within the industry and creating a retail channel that will prove difficult to measure and track. Remember that this is a blended, on- and off-premise retail channel that is not tracked in the syndicated data services and not typically part of the three-tier system. Locally oriented beer distributors, with frontline market insights, will be best suited to work with their brewer and retailer partners to succeed in tomorrow’s rapidly changing beer industry.