James E. McNellie’s Public House, with two locations in Oklahoma, is known to have one of the most extensive beer menus in the state, boasting 60 different beers on tap with a focus on craft and imported labels. But like other on-premise operators around the country, parent company McNellie’s Group is finding that draft beer sales aren’t as frothy as they once were. “Draft beer is still a huge seller for us, but customers seem to be shifting toward hard seltzers,” partner and COO Jim O’Connor says, adding that cocktails and lower-calorie options are also on the rise.
The widespread closure of on-premise venues in 2020 and 2021 resulted in a significant decline for draft beer sales. Draft’s share of total beer volume plunged from 10% in 2019 to about 6% the following year, then rebounded to 8% of all beer sold in 2021, according to the National Beer Wholesalers Association (NBWA). While full year 2022 data wasn’t available at press time, Danelle Kosmal, vice president of research at the Beer Institute, says that for the first half of the year, draft’s stake in on-premise beer sales remained subdued. “The draft business continues to face challenges like labor shortages in the hospitality industry and rising inflation, which has created new hesitancy among consumers and caused some drinkers to scale back on their alcohol purchases, particularly in on-premise channels,” she says.
The draft beer sector has been impacted by a perfect storm of sorts. The Covid-19 pandemic forced the closure of numerous on-premise accounts and reduced operating hours at others. According to Nielsen IQ’s CGA division, which provides on-premise insights, as of October 2022 there were 3% fewer on-premise outlets in operation as compared to 2019. Supply-chain pressures have also added to the problem. O’Connor notes that European kegs, for example, have become difficult to access, particularly from Germany.
Draft beer’s slowdown is also a function of the beer industry’s overall volume woes. “Categories such as hard seltzer and RTDs have expanded their reach in the on-premise in the last number of years,” says CGA division regional director for North America Matthew Crompton. Moreover, demographics for draft beer consumers have skewed older in recent years, he adds. According to CGA, 46% of today’s draft beer consumers are aged 55 and older, as compared to 42% in 2019. Finally, increased prices of draft beer may be adding to the toll. John Lane, co-owner of the Ohio-based Winking Lizard Tavern chain, notes that with recent price hikes, ounce for ounce, draft beer is inching up to the price of packaged beer. “Considering that it costs a lot to run a draft program, the returns aren’t what they used to be,” he says. “I wouldn’t be surprised if higher draft prices are pushing some operators to focus more on packaged beer.”
Craft beer, which traditionally over-indexes on draft when compared to total beer, has been particularly hard hit. According to Crompton, craft is the most popular draft beer sub-segment, accounting for 22% of all on-premise beer sales. But these days, craft brewers confirm that demand for their beer on tap has slowed. At Chicago’s Revolution Brewing, chief strategy officer Doug Veliky notes that draft comprised 33% of the company’s volume pre-pandemic and fell as low as 15% in 2020. “Now, it’s partially recovered, back up to 25% draft in 2022,” he says. Similarly, Mat Connolly, sales manager at Seattle’s Georgetown Brewing, notes that while the company’s draft sales are growing again, they’re not at the 2019 level. Prior to the pandemic, 40% of Georgetown’s volume was draft, but by late last year, draft was only at 81% of its 2019 volume, Connolly says. Georgetown brews include its flagship Bodhizafa IPA and limited releases like Bob’s brown ale.
To be sure, draft beer is gradually recovering from the onslaught of the pandemic and related supply-chain upheavals. Leading draft beer retailers report brisk business at the tap. “Although it’s taken us a while to get here, we’re seeing very good trends on draft beer,” Lane says. He attributes the performance to Winking Lizard’s concentration on core brands. “While the constant rotation of draft offerings approach was cool, it’s gone by the wayside now,” he says, adding that customers today prefer to go into a bar and know that the beer they want is available. Draft beer accounts for 75% of the Ohio chain’s beer sales, with 33 brews typically on tap, priced at $6-$8 a 16-ounce pint.
“We’re right back to where we were pre-pandemic with draft beer,” says Justin Hendrichsen, who owns four on-premise venues in Sioux Falls, South Dakota, two of which are alehouses. Noting that he wasn’t forced to shut down his bars at the peak of the pandemic in 2020, Hendrichsen says, “our biggest problem with draft beer was that we struggled to get any, as the brewers all stopped producing it.” Today, the taps at Independent Ale House and Monk’s Alehouse—each offering at least 50 beers on draft, priced at $6-$8 a pint—are flowing fine, he says.
On-premise operators have employed a number of solutions to improve returns on investment on slowed draft beer. “Bars and restaurants have limited the number of draft beers they carry to simplify their buying,” says Revolution’s Veliky, and are focusing more on proven sellers while taking fewer risks with new products. Late last year, for example, McNellie’s removed three draft beer handles and replaced them with craft cocktails. Lane says that while 33 draft handles have “always been my magic number,” these days he wishes he had three or four fewer handles.
A few years ago, craft beer bars scrambled to rotate draft beer offerings, priding themselves on never repeating a brand, but many have scaled back on that practice today. “Operators are definitely not rotating beers as much,” notes Connolly, adding that some of Georgetown’s small-batch releases “aren’t moving as quickly at accounts as in the past.” But in South Dakota, Hendrichsen’s alehouses are still quick to rotate. In fact, the challenge he’s had lately is finding new beers as brewers have moved to slim down their offerings to accounts and are reserving new releases for their own taprooms.
Featured promotions on draft beer continue to be important tools for driving sales of the brews. At McNellie’s, where draft pours range from $5-$10 a pint, about eight new offerings are rotated in every month, and pint glass giveaways are scheduled every Monday. Winking Lizard continues its “buy the beer, get the glass” program too, Lane says, although he concedes, “that type of promotion is running its course.” Late last year, the chain partnered with Great Lakes Brewing on a promotion in which customers received a knit hat with the purchase of a Great Lakes Christmas ale, and the effort was successful, Lane says. Hendrichsen, meanwhile, says his alehouses recently began offering 5-ounce pours of their draft beers so customers could sample a few options without over consuming. The move has been a success, he notes, as prices were set to allow for better margins than full-serve pours.
Innovation is also key going forward. Beer marketers are working to help their on-premise partners return their draft beer business to pre-pandemic levels through new offerings. Veliky points to the introduction last year of Freedom Lemonade, a lemonade-themed sour beer that turned into one of the brewery’s biggest surprises. Launched as a packaged product, Veliky notes that Freedom Lemonade wasn’t expected to be big on draft, but it turned into one of the brand’s biggest surprises of 2022. While Revolution’s top-selling brew, Anti-Hero IPA, has continued to perform well on tap, Veliky concedes that other brands in the portfolio have suffered on draft “due to limited opportunities.” The uniqueness of Freedom Lemonade, however, “offered bars and restaurants something they couldn’t get anywhere else,” he says.
And then there’s Suntory’s “Kami-Awa,” or “creamy foam” pour, for its Premium Malt’s pilsner, which is derived from high-quality ingredients and drawn using a flash chiller dispenser with a two-line faucet (one for the beer and one for the foam). “The phrase that we hear the most from retailers and consumers in the U.S. when they try Kami-Awa is that it’s ‘totally different,’” says Makoto Tsurumoto, general manager for international strategy at Suntory Spirits Ltd.’s beer department. “Kami-Awa stands out in the competitive draft beer category in the U.S.”
Through innovation and other tactics, brewers and on-premise operators will continue to rebuild draft beer sales. “The market is still recovering, but we’re seeing positive results and possibilities to return to pre-Covid draft share levels,” explains Crompton. The Beer Institute’s Kosmal agrees. “Brewers are more primed than ever to fuel new growth for the on-premise,” she says. “Bars, restaurants, and sporting venues are where beer brands develop and thrive. In 2023, the beer industry will really embrace the on-premise to rebuild the draft beer business.”