Supply Chain Issues Killing Brewers’ Buzz
Business owners who weathered the pandemic are nursing a new headache: kinks in the supply chain.
“Saying covid [as the cause] covers a lot—but these issues often ripple out,” Brewers Association economist Bart Watson said in an email. “Covid is shutting down ports, plants, putting pressure on labor supply and more, so there are often unexpected ripples that are hard to account for.”
A few other events causing ripples include a massive increase in online shopping, Texas winter storms, and a container ship trying to Tokyo drift through the Suez Canal.
In a recent survey by the National Federation of Independent Business, nearly 90 percent of small business owners reported that supply chain disruptions were impacting their operations to some degree. The beer industry is no different.
“Cans have obviously been the biggest one over the past 18 months, though there are signs that may be loosening,” Watson said.
However, the need for aluminum isn’t a supply chain issue, it’s a demand issue. In 2020, fewer people were out having beers at the taproom and instead were filling their storage rooms with toilet paper and six-packs—the essentials.
Greg Fetzer, owner and head brewer at Denver’s Empourium Brewing Company, didn’t start canning (other than crowlers) until the pandemic forced his hand. The brewery targets a local customer base and he only orders one or two pallets of cans at a time. Fetzer said since their orders are smaller, they fall lower on the totem pole as suppliers favor their more lucrative clients.
He got by with a little help from his fellow brewers, like his neighbors, Call to Arms Brewing Company, who sold Empourium leftover cans they purchased from a mobile cannery.
Larger regional brewery O'Dell had to get creative. Taproom operations lead Phil Linkchorst said they had to re-allocate their seasonal cans for their standard brews and used old bottles for their rotating batches. Today, Linkchorst said operations have mostly returned to normal.
The consequence of all the extra to-go and distribution business is the effect on brewers’ pocketbooks.
“We can sell a pint across the bar for $6.50, or we can sell a can to the liquor store for $2 for the same amount of beer,” Fetzer said.
Before the pandemic, on-site sales made up 10 to 12 percent of the market. That dropped to 2 percent during the pandemic. Currently, it’s back up to 8 percent, according to Watson during a presentation at the recent Craft Beer Conference.
And that drop in bar business doesn’t include the price of materials.
Cardboard is the latest packaging problem. According to an article in The Economic Times, corrugated box prices surged 60 to 70 percent over the past seven months due to increased e-commerce and exports of paper pulp to China.
Ingredients have been an issue too, which is particularly challenging for beer, which needs to be as unwavering as your morning Starbucks latte.
“Consistency is so damn important,” Fetzer said.
Empourium tries to source all its ingredients from the location the beer is from; malt for their German pilsner from Germany. They had issues getting stock from Europe, so they’ve had to break their own rules a bit. And he said blackberries for their popular blackberry sour have been hard to find.
What’s fascinating about the supply chain problem is the revelation of how interlinked seemingly unrelated events actually are. Fetzer mentioned how some breweries ran into some roadblocks sourcing CO2. During the lockdown, people were not driving anywhere (other than the liquor store for beer). Over 50 ethanol plants that collect CO2 for the food and beverage industry closed down.
Each owner has had to be equal parts flexible and creative to address their specific problems. Watson said some are planning further out. Some are reducing production. Some are putting expansions on hold. Some are buying from new suppliers or brokers. What they haven’t done is raise prices, at least for now.
“Brewers may be hoping that the supply chain issues are transitory and so they won’t need to increase price in the longer run,” he said. “Many brewers are still rebuilding volumes, so they may be wary of price increases until they see volumes come back.”
The crystal ball for what the future holds is as cloudy as a hazy IPA.
Watson said he doesn’t have a forecast for the coming months because we don’t know what the next year of the pandemic looks like. He said labor supply issues may go on for years, and the workforce is changing too. The 18 to 22 year old cohort is smaller than usual, and the baby boomers are retiring.
“While some markets may look “normal” in the next year, I’d expect we’re going to continue to see at least some disruptions for years,” Watson said. “I’m urging brewers to think further out and build more robust strategies that anticipate disruptions.”