The State of the Craft Beer Raw Material Supply Sector; or Beer, Hops and Barley

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

Nov-2011 Jan-2012 Mar-2012 May-2012 Jul-2012 Sep-2012 Nov-2012 Jan-2013 Mar-2013 May-2013 Jul-2013 Sep-2013 Nov-2013 Jan-2014 Mar-2014 May-2014 Jul-2014 Sep-2014 Nov-2014 Jan-2015 Mar-2015 May-2015 Jul-2015 Sep-2015 Nov-2015 Jan-2016 Mar-2016 May-2016 Jul-2016 Sep-2016 Nov-2016 Number of Breweries, Nov 2011-Nov 2016 6,000 5,000 4,000 3,000 2,000 1,000 0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 8,000 Breweries and Brewery Permits, 1995-2016 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

Growth Rate (%), Comparable Base 20 18 16 Annual and Average Growth Rate, 2007-2016 (Mid-Year) 15 18 18 14 12 12 12 13 13 10 8 6 6 7 8 4 2 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (MY)

US Craft Beer Production Volume (MM US BBL) 25.8 est 30.0 24.1 25.0 22.2 18.8 20.0 13.2 15.0 11.5 5.3 5.3 5.4 5.5 5.5 5.8 6.3 7.1 8.0 8.5 9.1 10.1 10.0 5.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0.0 Production Year

3,500,000 Craft - Domestic Barrel Additions, 2007-2016 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

2,000 Average Barrels Added, Production Breweries 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

The long, long tail of craft beer Less 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

1939 1945 1947 1949 1950 1951 1952 1957 1958 1960 1966 1969 1974 1979 1981 1985 1988 1990 1994 1996 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Percent who said Yes Alcohol Consumption Over Time 80 70 60 50 40 30 20 10 0 Source: Gallup Poll, 2016.

Gallons of Ethanol Per Capita (LDA) 3.0 Per Capita Consumption of Ethanol U.S. from 2000 to 2015 ABV for Beer 4.6%, Wine 11.5% Spirits 38% 2.5 2.0 1.5 1.0 0.5-2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Beer Wine Spirits

Pennsylvania Colorado Oregon Massachusetts Idaho Vermont Washington Montana Nebraska Maine Wisconsin New Jersey New Hampshire Michigan New Mexico Wyoming Connecticut Delaware California Iowa Hawaii Minnesota Illinois Ohio Georgia Arizona District of Columbia Virginia West Virginia New York Indiana Maryland Utah Missouri North Carolina South Dakota North Dakota Rhode Island Alaska Texas Tennessee Nevada Florida Kansas Kentucky Mississippi South Carolina Oklahoma Alabama Louisiana Arkansas 100% Craft Brewer/Beer Share of Beverage Alcohol By State 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Craft Other Beer Other Bev Alc

How important is local in purchase decisions? 80 70 60 50 67 71 Nielsen Surveys: Sum of very/somewhat important Total 21+ 21-34 53 45 40 34 34 30 20 23 25 10 0 Craft Beer Wine Spirits 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 Vendors San Diego Supermarkets Local Craft Brewer Dollar Sales passed Non-Local Craft Brewers sales earlier this year Dollar Sales San Diego Local Breweries Non-San Diego Breweries $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 Source: IRI InfoScan IRI San Diego, CA FOOD Market Quad Weeks Jan 27, 2013 through July 12, 2015

Local Craft vs Other craft Vendors Chicago Supermarkets Local Craft Brewers Dollar Sales passed up Non-Local Craft Brewers earlier this year Dollar Sales Chicago Local Breweries Non-Chicago Craft $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 Source: IRI InfoScan IRI Chicago, IL FODO Market Quad Weeks Jan 27, 2013 through July 12, 2015

4 Wk01-27-13 4 Wk02-24-13 4 Wk03-24-13 4 Wk04-21-13 4 Wk05-19-13 4 Wk06-16-13 4 Wk07-14-13 4 Wk08-11-13 4 Wk09-08-13 4 Wk10-06-13 4 Wk11-03-13 4 Wk12-01-13 4 Wk12-29-13 4 Wk01-26-14 4 Wk02-23-14 4 Wk03-23-14 4 Wk04-20-14 4 Wk05-18-14 4 Wk06-15-14 4 Wk07-13-14 4 Wk08-10-14 4 Wk09-07-14 4 Wk10-05-14 4 Wk11-02-14 4 Wk11-30-14 4 Wk12-28-14 4 Wk01-25-15 4 Wk02-22-15 4 Wk03-22-15 4 Wk04-19-15 4 Wk05-17-15 4 Wk06-14-15 4 Wk07-12-15 Local Craft vs Other Craft Vendors Oregon state supermarkets Oregon Craft Brewers are Outselling Non-Oregon Craft Brewers in Dollar Sales Dollar Sales OREGON LOCAL BREWERIES Non-Oregon Breweries $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 Source: IRI InfoScan IRI Oregon State - FOOD Quad Weeks Jan 27, 2013 through July 12, 2015

SKU Proliferation 1,200 Average Number of SKUs 1,000 800 600 400 200 0 2006 2008 2010 2012 2014 Count of SKUs Source: NBWA, Distributor Productivity Report.

Reported Gallons Reported Gallons Reported Gallons Reported Gallons Changing On-Premise Landscape Brew Pubs and Tap Rooms California Florida 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2013 2014 2015 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2013 2014 2015 Texas Iowa 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 2013 2014 2015 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 2013 2014 2015

2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 TTB Premise Use Data, 2010-2016 2010 2011 2012 2013 2014 2015 2016 Premise Use Projected % of Production 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00%

20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 US Domestic, Keg and Premise Use Production, 05-16 2005 2010 2015 2016 Premise Kegs % of Draught 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

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? Looking for more variety Looking for better quality Looking for more flavor options More available in restaurants, bars, brewpubs There are more seasonal offerings 65% 60% 58% 49% 41% It is more available in the stores in which I shop 31% More disposable income Looking for natural ingredients 17% 15% Indicates increase or decrease of at least 4 points from 2016 vs 2015 survey 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 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. 87% of TOTAL Craft Beers Drinkers AT HOME/AT A FRIEND S HOME 93% of WEEKLY Craft Beers Drinkers GROWING OCCASIONS At an OUTDOOR recreational activity During a craft brewing FESTIVAL/EVENT While visiting a CRAFT BREWERY While eating out at a RESTAURANT While out with my friends at a BAR/CLUB DOWN VS. YEAR AGO Source: Nielsen's Craft Beer Insights Poll (CIP) conducted June 2016 by Harris Poll (n=1,018 Craft Drinkers; n=555 weekly craft drinkers)

Annual Hop Survey PPB

Aroma Hop Acreage as % Total Acreage

Top 10 hops varieties Hop Survey

Projected Craft Hop Usage 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 Total Domestic Hop Lbs Craft Hop Lbs Craft Usage (%) 2013 2014 2015 2016 2017 2018 2019 2020 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00

Contract or die!!

Era of Dealer Held Inventory

Surplus Hop Acres from 2016

Surplus Hop Acres expected in 2017

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

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-beerresearch-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