In the mid-2010s, the craft brewery was the epicenter of millennial life, a place to solidify one’s hipster pedigree and sip an IPA or four. Less than a decade later, breweries are making their last call, shuttering their taprooms for good. The businesses still open are scrambling for solutions to return their trickle of customers back to a flood.
“We got to put our big kid pants on, so to speak,” Julie Rhodes, craft beverages consultant at Not Your Hobby Marketing Solutions, told Fortune. “Business-wise, it's not bootstrapping and grassroots marketing and stuff like that anymore. That's not going to fly in today's market.”
Facing headwinds from an overcrowded market, financially wary consumers, and the ascendency of both non-alcoholic drinks and spirits, breweries have struggled to survive. Big Beer isn’t faring much better. Anheuser-Busch InBev, the world’s largest brewer, has struggled to grow its U.S. sales, even as it shakes off conservative boycotts following a partnership with transgender influencer Dylan Mulvaney. Heineken has been unable to rebound from a challenging 2023, when tough economic conditions rattled profits.
Both industry giants and small business breweries face an inconvenient truth for the future of beer: People just aren’t drinking it like they used to. Last year, beer consumption fell to its lowest in over 20 years, with beer shipments predicted to fall below 200 million barrels for the first time since 1999, according to Beer Marketer's Insights (BMI).
“It was a tough year for beer," David Steinman, BMI vice president and executive editor, told CNBC.
Bar tabs go up
It’s actually been a tough several years for beer. In addition to the pandemic throttling sales for breweries that rely on taproom visits to stay afloat, it’s fundamentally changed how people drink beer, Adam Romanow, CEO and founder of Castle Island Brewing Co. in Massachusetts, told Fortune.
Prior to the pandemic, the 5 p.m. rush was big for his brewery. But with most people still working from home on Mondays and Fridays post-pandemic, Castle Island can no longer count on the happy hour crowd for big sales.
“There's one large revenue day that gets chopped down pretty significantly, but the foot traffic is also not there,” he said.
The rising cost of beer has also soured customers’ taste. The price of brews has risen 5.9% from April 2022 to April 2023, according to data from the U.S. Bureau of Labor. Prices are up 72% since 2000.
Consumers can blame Covid, which wrought havoc on beer supply chains, causing shortages in the carbon dioxide needed to give the drink its signature foaminess and forcing some brewers to pay three or four times as much as usual. And as breweries turned to retail and wholesale to offset their empty taprooms, they found aluminum cans hard to come by and began buying expensive pallets whenever they became available.
Beer companies began passing those cost increases onto consumers. While that was the case for all beer, small breweries in particular were vulnerable. With slim margins and small batches, they had little option but to hike prices and hope customers would understand.
“Craft beer is not the cheapest option on its own,” Romanow said. “It never has been, but the gap between craft beer and macro beer has widened because of inflation.”
Changing tastes
Already dealing with price-sensitive customers, beer producers have found themselves competing with a slew of other vices for wallet share.
“People really have to start making decisions about where they're going to spend their money, whether it's on alcohol or online sports betting or on cannabis or anything else that they might want to be doing,” Romanow said. “And that also definitely creates a headwind for us.”
Hard seltzers, ready-to-drink pre-make cocktails, and spirits have taken a chunk out of beer’s market share, but don’t pose as much of a threat as a growing temperance movement that has hampered demand for booze in general. With many people giving up alcohol or limiting how much they drink, demand for beer has dwindled, craft beer consultant Rhodes said. People may still be drinking beer, but certainly not as much as they used to.
For the craft beer industry in particular, there’s an irony that comes along with dried up demand: The demographic that launched small breweries to ubiquity and success are now the ones laying off the suds. Millennials have aged and are now homeowners and parents with young children taking on more responsibility.
“It's really hard to go out and have three or four 7% IPAs, wake up the next day, ready to start fresh,” Romanow said. “It's just sort of a natural life cycle to a degree.”
But the next generation, who are the same age as millennials at the peak of their IPA-guzzling days, wants little to do with beer.
Gen Z shakes things up
Gen Z is imbibing on average 20% less than their millennial counterparts did when they were younger, with most citing health reasons as a consideration for cutting back on alcohol. It’s a movement that’s launched brands like non-alcoholic beer producer Athletic Brewing—which recently doubled its valuation to $800 million—into the shopping carts of young consumers.
Even sporting events, functions known to let alcohol flow freely, have dried up. During the Euro football championship in June and July, sales of no- and low-alcohol beer skyrocketed 38% in UK grocery stores on England’s match days. That’s compared to a 13% increase in alcoholic beer, according to data from market research firm Kantar.
“When we launched in 2018, the world was a very different place,” Luke Boase, founder of UK-based non-alcoholic beer producer Lucky Saint, told the Guardian. “Alcohol-free used to be a dry January thing, but now it’s year-round.”
That’s not to mention Gen Z’s growing demand for marijuana, which has snowballed as more states legalize the substance. According to a Thursday note from Bank of America, 42% of young people consumed cannabis in 2023. New Frontier data from May 2022 found 69% of young people aged 18 to 24 preferred cannabis to alcohol.
Big Beer has adapted by expanding their offerings to their budding audiences, creating alcohol-free alternatives like Heineken’s 0.0 brand and helping the non-alcoholic beer market reach a value of $22 billion. But craft beer has a difficult road ahead, Romanow said. The industry has matured and is expected to shrink. He just hopes it will mean higher standards and better beer.
“We're seeing breweries close at a fairly accelerated rate compared to past years. I unfortunately don't see that slowing down or stopping,” he said. “But for those who survive, and those who decide that they do want to enter the market, they're gonna have to really sharpen their tools, and that’s not a bad thing.”
