By Pam Flora, Director – Retail Research, Americas Center of Excellence Research
Craft brewing is by no means a new trend, but it is one that has gained exponential popularity over the last decade. It is closely tied to the evolving consumer culture. Americans love beer, and as the “foodie” culture has grown, so has the taste for quality, innovative brews. Americans have become more urban and environmentally conscious fostering a concern with how things are made and where ingredients are sourced. To that end, the premium price that craft beer consumers are willing to pay for quality is driving the increased demand for craft beer production.
Growth in the craft brewing industry – namely small, independent brewing operations – has been progressing at a healthy annual rate both by volume and by dollar value. To meet this increasing demand, craft breweries are opening across the U.S. at a rapid pace. According to the Brewers Association, between 2006 and 2016 the number of craft breweries in the U.S. nearly quadrupled to more than 5,200 with another 1,500 in the planning pipeline. It’s hard to find a market in the U.S. where the locals won’t say it’s a growing trend, other than those where they boast that it’s already a huge economic driver.
Craft breweries are an integral part of their communities whether serving as a gathering place, a tourist destination, an event venue or as a local landmark. To help foster loyalty from the local communities, craft brewers often build strong ties through volunteerism and charity, and participate in events to help promote their brand while giving back. Craft breweries create jobs and attract tourism. Revenue earned by these businesses finds its way back into the local and state economies in the form of earnings, capital expenditures & taxes. The industry also provides short-term impacts to local communities through large capital investments, equipment purchases, and the build-out of new manufacturing facilities and brewpubs.
The commercial real estate impact of the craft brewing trend has profoundly impacted both the retail and industrial sectors particularly when it comes to redevelopment. The initial investment when opening a brewery is significant based on the necessary equipment alone, so well-trafficked commercial space can become unaffordable. While brewery deals for second-generation retail space have included traditional restaurant/bars or suburban strip malls, they have more commonly been concentrated among freestanding urban locations such as rehabs of auto repair shops or renovations of historic churches. Abandoned mills, obsolete brewing facilities and vacant manufacturing space make up the industrial side of the equation where brewers can focus on production, while also incorporating a retail component to sell product on site.
Breweries can attract customers to out-of-the-way locations by creating a destination with quality food and drink, unique aesthetics and planned events. The promise of an overall experience taps right into the heart of their primary demographic, the Millennial generation. When the micro-brewing concept started, the brewery tour was the entertainment. Now breweries are also incorporating open spaces for various activities, like live music or film screenings, backyard-style games and even yoga classes, thus creating a fun environment that attracts both beer-drinkers and non-drinkers to a enjoy a common social setting.
Brewpub operators understand that beer and food go hand-in-hand, and develop menus to pair their edible items with their drinkable offerings. As an alternative to having an in-house restaurant concept, some microbreweries partner with local food trucks or even allow customers to bring in or have food delivered from local restaurants. Either way it is achieved, incorporating a food component helps prolong the customer visit, hence increasing the average beer sales.
As the number of brewers in the United States multiplies, incorporating a direct-to-consumer distribution component at brewing locations is becoming more vital. Shelf space in grocery and liquor stores is limited, and even local restaurants that boast the most taps have to rotate brands to accommodate the increased competition. As the distribution channels become more congested, the smaller, independent brewers are able to create their own “shelf space” by opening taprooms and selling their product one pint or growler at a time. There is an added advantage to selling on-site in that none of the money is shared with distributors or third-party retailers. As the business evolves, breweries are putting a larger emphasis on front-of-house retail as a way to grow business.
As with any industry that sees this rate of growth, chatter has been rampant about a craft beer “bubble.” Has it grown too much? Because most craft breweries are small and locally focused, it helps keep the production limits from growing out of control. In the most mature craft brew markets, it is much more likely that the divide between strong and weak concepts will widen. Many individual markets may face a shakeout in the next 12 to18 months. However, we certainly do not see the trend ending soon, nor do we see it reversing itself, even in those markets where competition is fiercest.
Pam serves as Research Director focusing specifically on Retail across North America. Her primary responsibilities include leading data collection and market analysis efforts for C&W’s Retail Services platform to support thought leadership and client needs. Ms. Flora has 22 years of experience in market research focused on real estate.