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Craft brewers upend their business models in fight to stay alive

1011-18

While the days of explosive growth were already behind the craft beer industry when the COVID-19 pandemic hit, small independent brewers were still increasing their numbers each year—and there was no sign that any major reversal was on the way. Yet by spring, the numbers could be devastating.

Despite those many Zoom happy hours and tales of day drinking as you work from home, total beer sales haven’t changed much year to date, says Bart Watson, chief economist for the Brewers Association. And small breweries have had to pivot their business models to stay in business, as taprooms shut down, and restaurant draft business dried up.

Many have increased their production capacity to sell to-go beer. A limited number have been able to do direct shipping to customers. The looming cloud on the horizon, though, is that demand is about to dip.

“COVID really hit during the best period of the year for small brewer sales,” says Watson. “This is the time brewers make money to survive the lean times. That might be enough to get them through now, but we’re going to see what the winter brings…An event like this has to be drawing down the cash reserves and causing financial harm, so I do think there’s the potential we’ll see an elevated closure rate over the next six to 12 months.”

At Ale Asylum in Madison, business is down 40% so far this year, says cofounder Otto Dilba. That’s despite the brewery-restaurant having a large patio, which has reopened, a bustling pickup business, and the launch of a wildly successful beer—aptly named “Fvck Covid” —which sells out as soon as they can put it on sale.

The inside dining room at Ale Asylum has stayed shut so far to decrease the chances of the virus spreading. As winter hits, though, that might not be an option. And that presents another problem.

“We’re also a production facility,” he says. “If we had to quarantine for two weeks, our business would go under.”

Fvck Covid has proven to be a bright spot for Ale Asylum. The pilsner (and Fvck Covid 2.0 hazy IPA) has been in high demand not only at the brewery and through Wisconsin and Illinois, the usual distribution range for the brewery, but also in 12 other states as well. Up next is a line of beers called Apocalypse Bingo, which will be sold alongside Fvck Covid. The first beer will be called Murder Hornet Pale Ale.

While most breweries have replaced draft and taproom sales with canned products, that has been more challenging for smaller brewers who don’t have their own canning line. Mobile canning companies have been in high demand, meaning it’s harder to slot time to get the beer into cans—and the cost of working with those services cuts into margins.

Perhaps more concerning, a can shortage is looming. Ball Corp., the world’s largest manufacturer of cans, told investors last month that can demand in North America is growing at a pace of 8 billion to 10 billion cans a year, and it’s struggling to keep up.

“That reduces the ability of some brewers to pivot,” says Watson. “Some are re-sleeving misprinted cans. Some people are considering bottling, but there’s not as much mobile bottling options…There really isn’t a great option. This isn’t a problem that’s going to be solved until more canning capacity comes online.”

While many breweries are seeing a surge in direct sales, their efforts to supplement income via wider distribution aren’t progressing as quickly. Partnering with a beer distributor isn’t something that’s normally done quickly since it can have long-term repercussions. But some brewers are sidestepping that hurdle by partnering with Tavour, a beer shipping service.

So far this year, 90 new brewers have partnered with Tavour. And beer lovers have responded. The company’s business has tripled since March.

“They’ve been a great partner for a lot of breweries that did have excess capacity,” says Neil Fisher, cofounder and head brewer at WeldWerks Brewing Co. in Greeley, Colo.

WeldWerks has been one of the fortunate breweries in the pandemic, seeing sales increase and actually increasing its staff by 33% since March.

“We’re definitely in the minority,” says Fisher. “We’ve been very, very fortunate. We just have a lot of the right business model and the ability to adapt very quickly. We’re not so big that we have so much static friction based on long-term forecasts and plans made 18 months in advance…but we’re big enough to have commodities like our own canning line and access to cans.”

WeldWerks is the exception, though. A joint study by the Beer Institute, the Brewers Association, the National Beer Wholesalers Association, and the American Beverage Licensees estimates retail beer sales will drop by more than $22 billion due to the pandemic. And more than 651,000 jobs supported by the U.S. beer industry will be lost by the end of the year because of COVID-19.

In Texas, as many as two-thirds of local craft breweries could be forced to permanently close by the end of 2021, according to a survey from the Texas Craft Brewers Guild.

“This is do-or-die time for a lot of us,” says Dilba. “Right now, your local brewery needs you more than ever.”

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