USA: US beer shipments forecast to decline by 1-3% this year

The Beer Institute (BI) is forecasting U.S. beer shipments to decline between one and three percent in 2018, chief economist Michael Uhrich shared during the national trade association’s “State of the Industry” webinar on May 10.

“We’ve been flat to down the last two years,” he said. “In 2018, I’m expecting the beer category’s total performance to fall between a range of down one and down three.”

Uhrich admitted that the projection is “a pretty wide range,” but that’s due to “a lot of uncertainty” and headwinds facing the industry, including tariffs, increased input costs, “falling penetration rates” with new legal-drinking-age consumers between the ages of 21 and 25, and discounting by wine and liquor companies in off-premise retail accounts.

Uhrich added that he isn’t expecting the U.S. to fall into a recession in the next two years. That’s an important prediction for beer executives because the industry typically gains about 0.25 basis points of share during a recession. However, that isn’t necessarily good for the industry, Uhrich added, noting beer typically loses about double the amount of share it gained in the years following a recession.

According to Uhrich, inflation, which is projected to be about 2.2 percent this year, is negatively affecting beer companies as consumers may be less willing to spend. He added that the industry has likely already seen the benefits of falling unemployment rates.

“We can’t expect continued decreases in unemployment to help us moving forward,” he said.

However, the news wasn’t all bad. Uhrich said increases in the gross domestic product (GDP) and disposable incomes are likely to help businesses and consumers.

“Personal incomes are growing at about double the rate that they were last year, and that’s really great,” he said. “We’re hoping that will translate into more beer spending.”

Recapping 2017, Uhrich said beer once again lost market share to wine and spirits. Although beer still holds the majority of the share of alcohol servings (49.7 percent) versus hard liquor (34.9 percent) and wine (15.4 percent), the category lost nearly 1 percent of share in 2017.

“We peaked in share in the mid-90s at a little over 60 percent, and now beer has fallen to slightly below 50 percent of total alcohol servings,” Uhrich said. “According to my estimation, it’s actually the lowest share of the alcohol category that beer has ever had.”

Uhrich attributed some of those declines to wine and liquor companies discounting their products off-premise.

On the topic of discounting, Uhrich said price cuts, along with the move from 12-packs toward 15-packs, helped “economy” offerings become the only beer segment to improve its overall performance last year.

According to Uhrich, total craft beer volumes (including those brands owned by larger companies like Anheuser-Busch and MillerCoors) grew 1.6 percent in 2017. He added that it was “the slowest growth rate craft has seen in the last 10 years” and that much of the growth came within brewpubs and taprooms, where sales grew 24.2 percent.

“The own-premise channel accounts for one in 12 [craft] beers sold,” he said. “The remainder of craft sales actually declined last year.”

Both the craft and import segments gained share last year — 0.4 percent and 0.7 percent, respectively. Those gains came mostly from the “mainstream” beer segment, which lost about 1 share point in the U.S., Uhrich noted.

Mexican imports, Uhrich added, continued to drive import volume growth. While the segment grew 3.2 percent last year, the growth slowed compared to recent years.

Uhrich also said U.S. exports accounted for 3.7 percent of U.S. beer production in 2017.

“I expect it to continue growing as export markets becomes a more important part of the business model for U.S. beer suppliers,” he said.

Nevertheless, U.S. consumer spending on beer increased about 0.7 percent last year to about $119.3 billion. However, Uhrich said the growth rate has slowed from previous years and price increases by U.S. beer companies have met some resistance.

Meanwhile, off-premise channels gained share from on-premise channels, Uhrich said, noting that the strongest off-premise retail sales growth in 2017 came within the grocery channel. Beer sales at U.S. convenience stores also grew.

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