The State of the Craft Beer Raw Material Supply Sector;

or…Beer, Hops and Barley

Damon Scott

damon@brewersassociation.org

Technical Brewing Projects Coordinator

Brewers Association

Brewers Association Technical Committees

• Technical Committee• Technical subcommittees

• Draught Beer Quality• Quality• Safety• Sustainability• Supply Chain• Engineering

More breweries than ever before

0

1,000

2,000

3,000

4,000

5,000

6,000N

ov-

20

11

Jan

-20

12

Mar

-20

12

May

-20

12

Jul-

20

12

Sep

-20

12

No

v-2

01

2

Jan

-20

13

Mar

-20

13

May

-20

13

Jul-

20

13

Sep

-20

13

No

v-2

01

3

Jan

-20

14

Mar

-20

14

May

-20

14

Jul-

20

14

Sep

-20

14

No

v-2

01

4

Jan

-20

15

Mar

-20

15

May

-20

15

Jul-

20

15

Sep

-20

15

No

v-2

01

5

Jan

-20

16

Mar

-20

16

May

-20

16

Jul-

20

16

Sep

-20

16

No

v-2

01

6

Number of Breweries, Nov 2011-Nov 2016

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Breweries and Brewery Permits, 1995-2016

12

67

1213

15

18 18

13

8

0

2

4

6

8

10

12

14

16

18

20

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (MY)

Gro

wth

Rat

e (

%),

Co

mp

arab

le B

ase

Annual and Average Growth Rate, 2007-2016 (Mid-Year)

25.8 est

24.1

22.2

18.8

13.2

11.5

10.1 9.1

8.5 8.0

7.1 6.3

5.8 5.5 5.5 5.4 5.3 5.3

0.0

5.0

10.0

15.0

20.0

25.0

30.0

201620152014201320122011201020092008200720062005200420032002200120001999

Production Year

US Craft Beer Production Volume (MM US BBL)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Craft - Domestic Barrel Additions, 2007-2016

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Average Barrels Added, Production Breweries

The long, long tail of craft beerLess than 4% of all craft breweries make more than 15,000 bbls year

• 177 “Regional Craft Breweries” (+ 3)• Produce more than 15,000 bbls/year

• 3151 “Microbreweries” (+ 158)• Produce less than 15,000 bbls/year• Does not include brewpubs

• 1889 “Brewpubs” (+ 61)• More than 25% of production volume sold on-site

*as of 2/28/17, parentheses - as of 1/4/17

Alcohol Consumption Over Time

0

10

20

30

40

50

60

70

80

19

39

19

45

19

47

19

49

19

50

19

51

19

52

19

57

19

58

19

60

19

66

19

69

19

74

19

79

19

81

19

85

19

88

19

90

19

94

19

96

20

00

20

01

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20

16

Perc

ent

wh

o s

aid

“Ye

s”

Source: Gallup Poll, 2016.

Per Capita Consumption of Ethanol U.S. from 2000 to 2015

-

0.5

1.0

1.5

2.0

2.5

3.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Gal

lon

s o

f Et

han

ol P

er C

apit

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DA

)

Beer Wine Spirits

ABV for Beer 4.6%, Wine 11.5% Spirits 38%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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Craft Brewer/Beer Share of Beverage AlcoholBy State

Craft Other Beer Other Bev Alc

How important is “local” in purchase decisions?

67

45

34

23

71

53

34

25

0

10

20

30

40

50

60

70

80

Craft Beer Wine Spirits

Nielsen Surveys: Sum of very/somewhat important

Total 21+ 21-34

Source: Nielsen Quick Query Omnibus Survey, 12-17, 2015. (Base: LDA consumers who drink at least several times per year)

Local Craft vs Other Craft VendorsSan Diego Supermarkets

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

Dollar Sales

San Diego Local Breweries Non-San Diego Breweries

Source: IRI InfoScan IRI San Diego, CA FOOD Market Quad Weeks Jan 27, 2013 through July 12, 2015

Local Craft Brewer Dollar Sales passed Non-Local Craft Brewers sales earlier this year

Local Craft vs Other craft VendorsChicago Supermarkets

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

Chicago Local Breweries Non-Chicago Craft

Source: IRI InfoScan IRI Chicago, IL FODO Market Quad Weeks Jan 27, 2013 through July 12, 2015

Local Craft Brewers Dollar Sales passed up Non-Local Craft Brewers earlier this year

Dollar Sales

Local Craft vs Other Craft VendorsOregon state supermarkets

$0

$1,000,000

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$7,000,000

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-24

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-14

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k12

-29

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k01

-26

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-23

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k05

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k06

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k07

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4 W

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4 W

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Dollar Sales

OREGON LOCAL BREWERIES Non-Oregon Breweries

Source: IRI InfoScan IRI Oregon State - FOOD Quad Weeks Jan 27, 2013 through July 12, 2015

Oregon Craft Brewers are Outselling Non-Oregon Craft Brewers in Dollar Sales

SKU Proliferation

0

200

400

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1,000

1,200

2006 2008 2010 2012 2014

Average Number of SKUs

Count of SKUs

Source: NBWA, Distributor Productivity Report.

Changing On-Premise Landscape Brew Pubs and Tap Rooms

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

2013 2014 2015

Rep

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allo

ns

California

0

200,000

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1,000,000

1,200,000

1,400,000

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1,800,000

2013 2014 2015

Rep

ort

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allo

ns

Florida

0

100,000

200,000

300,000

400,000

500,000

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800,000

900,000

2013 2014 2015

Rep

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allo

ns

Texas

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2013 2014 2015

Rep

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Iowa

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2010 2011 2012 2013 2014 2015 2016

TTB Premise Use Data, 2010-2016

Premise Use Projected % of Production

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

2005 2010 2015 2016

US Domestic, Keg and Premise Use Production, ‘05-’16

Premise Kegs % of Draught

Source: Nielsen's Craft Beer Insights Poll (CIP) conducted June 2016 by Harris Poll (n=1,018 Craft Drinkers; n=555 weekly craft drinkers)

Variety, quality, and flavor options, are top reasons why drinking more craft

Which of the following are reasons you drink more craft beer than a year ago?

15%

17%

31%

41%

49%

58%

60%

65%

Looking for natural ingredients

More disposable income

It is more available in the stores in which I shop

There are more seasonal offerings

More available in restaurants, bars, brewpubs

Looking for more flavor options

Looking for better quality

Looking for more variety

Indicates increase or decrease of at least 4 points from 2016 vs 2015 survey

At home remains key location for craft beer drinkers, with increases outside the home

Which of the following describe when you typically drink craft beer? Please select all that apply.

Source: Nielsen's Craft Beer Insights Poll (CIP) conducted June 2016 by Harris Poll (n=1,018 Craft Drinkers; n=555 weekly craft drinkers)

AT HOME/AT A FRIEND’S HOME

GROWINGOCCASIONS

DOWN VS. YEAR AGO

While eating out at a

RESTAURANT

While out with my friends at a

BAR/CLUB

While visiting a CRAFT BREWERY

At an OUTDOOR recreational activity

During a craft brewing

FESTIVAL/EVENT

87% of TOTALCraft Beers

Drinkers

93% of WEEKLYCraft Beers Drinkers

Annual Hop Survey PPB

Aroma Hop Acreage as % Total Acreage

Top 10 hops varieties – Hop Survey

0.00

10.00

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50.00

60.00

70.00

80.00

90.00

100.00

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

2013 2014 2015 2016 2017 2018 2019 2020

Total Domestic Hop Lbs

Craft Hop Lbs

Craft Usage (%)

Projected Craft Hop Usage

Contract or die!!

Era of Dealer Held Inventory

Surplus Hop Acres from 2016

Surplus Hop Acres expected in 2017

Parameter Target Measure purpose

Flavor distinctive flavors and aromas new product development

FAN <150 ppm micro and flavor stability

Diastic Power <150 Lintner "too hot", diminished conversion control

Protein Modification S/T 35% to 45% varietal dependant, not malting parameter

Protein Content 10.5% Max balance: enzyme/starch

Beta Glucan <140 ppm wort viscosity

https://www.brewersassociation.org/attachments/0001/4752/Malting_Barley_Characteristics_For_Craft_Brewers.pdf

AMBA Malting Barley Breeding Guidelines

Putting our money where our mouth is

•$440,000 for supply chain-related research

•13 of 19 are barley related

• 40% of malting barley consumed by BA-defined craft brewers

• ~50% total craft beer

• https://www.brewersassociation.org/resources/craft-beer-research-service-grants/

Not the only ones eating money!!

• The American Malting Barley Association’s (AMBA)

• EASTERN VARIETY DEVELOPMENT & RESEARCH

• MIDWEST VARIETY DEVELOPMENT & RESEARCH

• WESTERN VARIETY DEVELOPMENT & RESEARCH

• NATIONAL & OTHER RESEARCH

• http://ambainc.org/content/10/barley-research

Questions?

Damon Scott

damon@brewersassociation.org

Technical Brewing Projects Coordinator

Brewers Association