Last week, the Brewers Association released the annual figures for its Export Development Program. The numbers show that, though craft beer exports to Western Europe are beginning to level out, volumes to Japan and the Asia-Pacific region, which includes Australia and New Zealand, have increased by 22.6% and 12.9% respectively. Western Europe, on the other hand, has seen a minuscule growth of 0.4%. With this territory taking the bulk of U.S. craft beer exports that leave continental North America, that brings overall export growth down to 4.4%.
It’s a pretty stark decrease from 2016’s figures. Last year, the Brewers Association reported a monstrous 33% growth of craft beer exports in Western Europe and a 16% growth overall. This sudden flatlining can be attributed to the fact that some of the largest U.S. exporters are no longer included in these figures.
Brewers like Founders, Lagunitas, and Goose Island are all making huge splashes into the export market, particularly in Europe and the UK. But since all of these breweries are owned completely or in part by other organizations, they no longer fit the BA definition of “craft,” which means their own export growth is no longer included in the stats.
One interesting takeaway from this years report is that the UK, which was previously the fourth largest export market for U.S. craft behind Canada (which accounts for more than 50% of all U.S. craft beer exports), Sweden, and Ireland respectively, has leapfrogged into second place. The UK now sees 10.1% of BA-defined craft beer exports. That’s a 10% share of 465,617 barrels, and an estimated retail value of $121 million.
"I think it's all part of the growing trend towards quality craft beer, whether that comes from a domestic or international brewer, craft beer is in the ascendancy,” says BA President and CEO, Bob Pease. “We recognize the emergence of a new craft beer culture in the UK, and we are totally comfortable with that because we're after more beer drinkers discovering the plethora of styles and drinking full-flavored, authentic craft beer. If that happens through an American import or a domestic craft beer, it's all good."
U.S. craft brewers exporting their product to the UK is far from new. Brooklyn Brewery and Sierra Nevada have been on taps and shelves here for more than a decade already. But when these brands first began exporting across the pond, Britain hadn’t yet adopted a version of U.S. craft beer culture as its own. These days, plenty of British brewers are drawing inspiration from the U.S.—just as U.S. brewers were inspired by traditional British brewing in the 1980s and ’90s.
As a result, U.S. brewery activity in the UK has ramped up significantly in the past 18 months. Goose Island is a notable example, but they’re hardly the only one. Stone, Founders, Brooklyn, Sierra Nevada, and even smaller brewers such as Modern Times and Captain Lawrence are all competing for taps and shelves.
All of which is to say: competition is rapidly changing from friendly to fierce, and the modern wave of British breweries—many of which have barely five years under their belt—are now suddenly faced with new arrivals who have significantly larger capacity and decades of market experience. These Britons are going to have to learn to adapt—and fast.
Founders UK representative Tim Traynor says his Grand Rapids, Michigan employer is forecasting “significant” growth within the UK market in 2017. It’s common to regularly find All Day IPA on tap in cities like London and Manchester. We even get Kentucky Breakfast Stout on our shores. But how does a brewery like Founders work with the UK market, as opposed to competing against it?
“Since moving to the UK, I’ve gotten to know many local brewers who cite Founders as an influence,” Trainer says. “There’s a lot of mutual admiration and respect for each other’s craftsmanship. Our brewmaster and two other production team members came over last spring to brew with the Beavertown folks and the secret-sharing and collaboration that ensued was great fun for all involved. At the same time, I feel like a little friendly competition is healthy for the industry. It makes everyone step up their game.”
Rachael Weseloh works as a UK brand ambassador for Brooklyn Brewery. When we chatted for the GBH podcast, she revealed that 45% of Brooklyn’s beer is now sold overseas. It’s expected to pass 50% this year, too. While the New York metropolitan area remains the brewery’s biggest market, the UK and Sweden are its second and third respectively.
“Our export market program as a whole is very important to us,” she elaborates. “Brooklyn Brewery has been exporting since the early days, and as the U.S. beer market gets more competitive, we’ve grown our exports. We are currently the largest craft beer exporter in the U.S. In the not-too-far future, our export market will surpass sales in our domestic market.”
In recent months we’ve seen U.S. craft breweries eschew the typical route to market. Usually, breweries would access the consumer via the growing chain of specialist craft beer bars and bottle shops. But there simply aren’t currently enough of these to support the volume and turnover these breweries desire. The answer, instead, is to head to larger pubs and into the grocery chain, especially as some of the UK’s larger supermarkets—including our largest, Tesco—are rapidly expanding their craft beer offerings.
Oskar Blues and Stone, along with long-existing exporters like Sierra Nevada and Brooklyn, are examples of breweries chasing those grocery chains. These deals come with far more attractive pricing for breweries, and Tesco is not a company that competes with independents on their own terms. All of which means the inherent value of these products, both in terms of margin and as a brand, is reduced.
For example, the typical price for a 330ml (11.6oz) can of a popular Pale Ale such as Beavertown Gamma Ray will fetch an average price of roughly £2.50 ($3.11) per can in an independent bottle shop. Beers like Stone IPA and Dale’s Pale Ale are being sold in grocery chains for less than £2 ($2.50) per can. While this might seem expensive to American eyes, take my word on this, especially once you take into account our significantly higher rate of alcohol taxation, that’s one cheap can of craft beer.
The danger here is that this kind of pricing could have an adverse affect on the margins that smaller producers and specialist retailers need to survive. It could also reflect badly on the image of these breweries as a whole as UK consumers gradually move towards supporting small and local instead of larger breweries that are exporting their beer from thousands of miles away.
Stone, in particular, has an advantage here. Its brand new $25 million facility just outside of Berlin, Germany is now up and running—and it has more than three times the capacity of even some of London’s largest craft breweries like Beavertown or Fourpure Brewing. Stone’s move makes sense, as the UK craft beer market is already more developed in terms of both education and awareness than Germany’s.
“The UK is the biggest and most developed craft beer market in Europe from a volume and value point of view, and therefore also very important for us,” says Stone Berlin’s European sales director Frank Reinwand. “So far the consumer response to Stone Brewing Berlin has been amazing, and the openness of retailers in off- and on-premise is really great to see.”
Stone Berlin has a plan, meanwhile, to support smaller bars and bottleshops while it focuses on larger grocery chains to push its core lineup. “We have a range of more experimental beers for our independent retailers which will not be going into the national grocery chains, offering our independent customers a point of difference,” Reinwand says. “We want to support our independents as much as we can, as they have been supporting us right from the start.”
Andrew Morgan is the managing director of UK Beer distributor The Bottle Shop, which focus heavily on the U.S. craft imports like Green Flash, Alpine, and Modern Times. I ask Morgan if he thinks the price points breweries like Stone and Oskar Blues are setting could be detrimental to the UK craft beer marketplace.
“There's two sides to this story,” he says. “This beer going into supermarkets is going to allow a lot of people to be exposed to it who otherwise wouldn't. This isn't a bad thing as long as the beer is good. Stone should be pretty fresh, and is a big step up from the other beers available in Tesco. Oskar Blues is unlikely to have been well looked after. Maybe it's been refrigerated on its journey to the UK, but unlikely thereafter given the sub-£2.00 price point it's selling for. However, these price-points are detrimental to the growth of the market. The selling price of Stone IPA is only pennies more than the price paid by those buying direct from Stone's UK distributor. This isn't anything new with supermarkets but it's new to this level of craft beer. Ultimately, Stone don't care whether they sell to Tesco or their UK distributor as it'll be at the same price.”
These low price points are also affecting specialist independent retailers, such as Hop Burns & Black in South London. [Full disclosure: I write a bi-weekly column for them.] Co-founder Jen Ferguson says that difficulties arise when supermarkets begin to push competing products with price structures that eat into their margins.
“We've seen our U.S. section halve in size since we opened nearly two and a half years ago,” she elaborates. “Part of this is due to the wider availability of American beers in supermarkets, part is due to our customers' increasing knowledge of the UK craft beer scene and the recognition that UK brewers are producing beers that are as good as, if not better, and in most cases much fresher, than a lot of the beer which arrives from the U.S.”
U.S. beer exports to the UK are still growing rapidly, due to many of the major protagonists either falling outside its definition of craft or being based in another country. Although it might affect some retailers and distributors negatively in the short term, those that survive will have learned what it takes to sustain their businesses. While many think of the U.S. beer market as more mature than the UK’s, these pricing challenges will force the UK market to compete harder—arguably to its benefit.
“Cheap craft in supermarkets isn't going to sound the death knell for the entire UK indie beer retail industry,” Ferguson says. “Independent wine shops have been holding their own for a while now. But I think we'll see a shakedown. As supermarkets increase their craft offering, retailers are going to have to bring their A-game to survive.”