Brewery

Craft Brews and Covid-19: Bobbing and Weaving these Tumultuous Times

April 19, 2020 by kkast

Over 8,000; that’s how many craft breweries operate in the United States. Covid-19 is wreaking havoc on all business, especially those small in stature. Breweries, by and large, are small businesses that started among family or friends. It’s that beginning that has created a tight knit community beyond the brewhouse walls. A lot has been swirling in the news about the future of craft beer in this tumultuous time. Call me an optimist, but the industry is filled with fighters, well-prepared to weather this storm.

Helton Brewing is from the desert valley of Phoenix. It recently purchased a canning line and signed with a regional distributor. Both of which have been helpful in that they’re able to take advantage of the uptick in retail alcohol sales.

Social distancing and the required closure of taprooms has wreaked havoc on the craft beer industry, especially considering that taproom sales had generated the most profits and income for many small breweries. Breweries scrambled to implement alternative structures to help offset this huge hit. They updated their websites to permit online alcohol orders, set up curb-side and walk-up sales, and arranged for delivery direct-to-consumers.

The Brewers Association (BA) and state brewery organizations have been invaluable to the craft beer industry. They’ve helped guide breweries through the changing government regulations. They’ve also advocated for relief from stringent regulations. For example, breweries have been classified as essential businesses, allowing them to remain in operation during the pandemic. Also, breweries are temporarily permitted to deliver beer direct-to-consumer’s homes. This was previously prohibited nationwide as a violation of the three-tier system. However, extraordinary times call for extraordinary relief measures. In New York alone, the industry accounts for a $5.4 billion addition to the state economy and 20,000 jobs. Pretty nice bargaining chip as to why breweries should receive decreased regulation during these difficult times. Elected officials don’t want these revenues and jobs going anywhere.

Some breweries have continued generating similar or even greater revenues, like Brewery ARS. Except for the outliers, brewery revenue and profits are generally a fraction of what they were pre-Covid-19. A recent survey from the BA showed “a sharp drop in craft category sales, massive furloughs or layoffs, and the high likelihood of large numbers of brewery closings without a swift end to social distance measures… or rapid government support for small brewers and hospitality more broadly.” More than ever, breweries need the help from their local community.

Brewery ARS is a South Philadelphia microbrewery with great beer. What has allowed them to thrive in these tumultuous times is an undersaturated local market and the fact they have their own canning line. While other breweries in the neighborhood are limited to filling crowlers, Brewery ARS is only limited to getting cans from suppliers.

There are many factors affecting how this pandemic has affected a brewery’s business. A short list includes a brewery’s alternatives to draft sales, packaging shortages, and high overhead.

Breweries rely on draft sales because profits are much higher than those on sales to distributors and retailers. Based on this disparity, it was a smart decision to build around the taproom. Covid-19 is teaching craft breweries that relied heavily on draft that having other revenue outlets is a must. This is especially so considering that alcohol sales have actually increased significantly during the pandemic, but most small breweries have been left out. That’s because these sales have been generated from retailers, such as grocery and liquor stores. Breweries needed to be distributing before the pandemic to take advantage. Breweries that were, such as Helton Brewing, are able to continue stocking the shelves of the retailers that have seen an explosion in sales. Having this option helps soften the inability to sell draft from a brewery’s taproom.

What happens when a majority of 8,000 breweries shift from mostly draft to all packaged beer? Suppliers unprepared to satisfy the explosion in demand for growlers, crowlers, and cans. Currently, crowlers are on back order. When Fifth Hammer Brewing heard of the shortage, it started using a canning machine to fill cans straight from their taps. Still, deliveries of growlers and cans are taking 2-3 times longer than normal (with supplier websites warning that product availability is subject to change at any time). Breweries worry that, if packaging suppliers are unable to increase supply, beer will have no path to market and will spoil. Based on this fear, some breweries are making beer that takes longer to produce, such as lagers, pilsners, sours, and other barrel-aged beers. Still, there is a threat that lots of beer will spoil.

Overhead is a huge liability in the current market. Breweries, large and small, are reducing costs by only keeping on production members. Some have been able to reassign customer-facing staff (e.g., bartenders and waiters) to warehouse roles. Other breweries are reducing production or shutting down restaurant operations to reduce costs. The message is to stay lean during these times to make it out the other side.

Wren House Brewing is from Phoenix, AZ and, in the wake of government restrictions, switched to curbside and delivery sales. They’re one of the lucky ones with increased sales. With low overhead and a strong demand for beer, they’ve pivoted their customer-facing employees to the warehouse. They’re partnering with local businesses, like Noble Bread and Gadzooks, for beer/food specials.

Craft breweries support more than their owners and employees. They support musicians, artists, distributors, malt farmers, other small businesses, and so many more. Wren House has been a huge supporter of the growing malt industry in Arizona and for movements toward greater sustainability. Big aLICe Brewing incorporates ingredients from other Queens businesses, like the coffee beans from Native Coffee Roasters. They’re also planning to collaborate with a local catering company, Newman’s Kitchen, to do food/beer home deliveries. Helton has its own Tribe that brings together exercise enthusiasts and great beer lovers.

It makes sense that, during these times, craft breweries would receive community support right back. Big aLICe has noticed that grocery stores, which had not ordered beer from them for over a year, started ordering again because consumers want local options available. Shift Caffeine began donating 25% of its sales to help assist Helton’s furloughed employees. Wren House has been “receiving 10 messages a day from people asking how they can buy gift cards or how they can tip our employees.” Fifth Hammer has been receiving a lot of walk-in customers, especially those from their Long Island City community. With this kind of support, when normalcy returns, you’ll still have your favorite place to enjoy great beer with awesome people.

The craft brewery movement isn’t going anywhere. Yes, breweries will close, and some already have, like other businesses. The craft brew world is filled with extremely passionate individuals. I’ve seen their ability to face adverse situations, take a step back, analyze, and then do everything in their power to turn them to a positive. These passionate entrepreneurs, mixed with your help, provide us the best shot to continue enjoying our favorite meeting place.

In the wake of this pandemic, craft breweries have implemented pre-order, walk-up, and take-away beer models. They also are now doing straight-to-your-home delivery services. You can learn more about the explosion in online brew sales in my article titled, Online Alcohol Sales in the Age of the Coronavirus.

Craft Brew: With Our Powers Combined

March 17, 2020 by kkast

The craft brewery industry is in transition. Big companies, like AB InBev and MillerCoors (called Big Beer), are starting craft beer-like equivalents or buying craft breweries. This includes Blue Point Brewing Company and Wicked Weed Brewing. Craft brewery growth has also begun to slow as the market matures. Other craft alcohol industry participants, like distilleries, are becoming a new economic trend. Additional competitors have taken market share from craft beer, like hard seltzers. Craft beer’s answer: cooperation through consolidation.

The last 10 years has seen explosive growth in U.S. craft breweries and the industry nationwide. In 2008, there were 1,500 craft breweries in operation. Today, there are over 7,000. In some cities, like Asheville and San Diego, there’s one on every corner. This growth has taken the country from beer infancy to a world leader.

The annual volume of beer produced by craft breweries has also skyrocketed from 8.5 million barrels to 25.9 million between 2009 and 2018. According to the Brewer’s Association, craft brewery sales represented 13.2% of the 2018 U.S. market by volume. Even though Big Beer spend billions on advertising annually, craft beer continues to take market share. To be clear, Big Beer still holds a great majority of the U.S. beer market share.

Veza Sur Brewing Co.’s taproom and brewery located in Miami, FL.

In adapting to the craft movement, Big Beer changed strategy by purchasing craft breweries. They’ve bought the likes of Goose Island Beer Company and Platform Beer Co. They’re also starting up offshoot breweries, like Veza Sur. Private equity and other players are creating a conglomeration of breweries to compete. This includes CANarchy and Constellation Brands, the latter of which purchased Ballast Point at a $1 billion price tag. That’s some expensive brew.

When large companies buy craft breweries, the community feels the loss. There’s an episode of The Sour Hour, when Jay Goodwin, co-founder of The Rare Barrel, discusses the news of Wicked Weed’s sale to AB InBev. It sounded like he lost a good friend. Breweries like Wicked Weed see teaming with Big Beer as an opportunity. Co-founder of Wicked Weed, Walt Dickinson, stated at the time of his brewery’s buy-out, “As a brewer, giving our team more resources to continue innovating our portfolio and the ability to reach more craft drinkers, allows us to keep putting the beer and the people first.”

The struggle between Big Beer and Craft Beer often seems like a David vs. Goliath scenario.

In recent years, the craft beer industry growth has dropped. That is partly because an industry does not simply continue growing at the explosive rate craft beer has grown over the last 10 years. The market eventually says enough is enough, requiring greater quality among the enhanced competition. This point was highlighted by Bart Watson, the chief economist for the Brewers Association, who stated that, “The beer landscape is facing new realities with category competition, societal shifts, and other variables in play. There are still pockets of opportunity both in terms of geography and business model, but brewers need to be vigilant about quality, differentiation, and customer service.” Great breweries hustling to make even better beer? Sounds good to me.

In the face of competition, some craft breweries try to make a name for themselves with outlandish beer concepts. Do you want a a Bloody Mary Ale and Steak and Onion Kolsch? Craft is finding other ways to compete.

Consolidation offers benefits that help craft breweries remain competitive in the increasingly crowded market by offering the possibility of reduced distribution, advertisement, management, and other costs to assist in manufacturing, management, and growth.

Craft breweries have begun joining forces through mergers. There are advantages to this route, including cost savings, scalability, and reducing competition. Examples of this buy-out trend include: in Wisconsin, the Wisconsin Brewing Company acquired Lake Louie Brewery; in Indianapolis, New Day Craft, a meadmaker and cidery, was purchased by Fountain Square Brew Co.; and, in Washington, Hidden Mother Brewing merged with Idaho’s Selkirk Abbey. The merger often leaves the purchased brewery/meadery/cidery with control over operations. This allows the entity autonomy over the process that led to their success. These merged entities can afford what they couldn’t on their own, such as greater distribution channels and internal controls.

One of the original craft beer companies, Boston Beer Co., bought out Dogfish Head Craft Brewery in May 2019 for a value of approximately $300 million. $127 million worth of stock in Boston Beer went to Dogfish Head’s founders, Sam and Maria Calagione, while the remaining $173 million in cash went to remaining shareholders.

As part of this trend, earlier this year, Boston Beer Co. purchased Dogfish Head Craft Brewery for a deal valued at $300 million. The founders of Dogfish Head released a statement as part of the acquisition, which reads in part: “More than a dozen of our peers have sold to international conglomerates, others have come together through platforms bringing a handful of craft breweries together in roll-up. While neither of those strategies appealed to us, we did realize that Dogfish Head would be a strong company with the support of our friends at Boston Beer, and vice-versa.” Boston Beer and Dogfish have characterized the transaction as a merger, but others are not buying it, considering that the Calagiones received their profit in the form of stock in Boston Beer. In any event, this trend isn’t going anywhere.

Barring unforeseen circumstances, good beer in the U.S. is here to stay. We are at a cross-roads though. Craft beer’s maturation has led to the paths we see craft breweries taking today. I’m hopeful that the changing market will serve to further enhance U.S. beer. The changes, hopefully, don’t change too much of what makes the industry so special: the inclusive and “we’re all in this together” type culture. Time will tell.

The craft brewery market is maturing. What is growing rapidly now? Well, beyond hard seltzer’s meteoric rise, craft distilleries are opening up left and right. Check out the story behind it in my article The Art of Boom: Distilleries.

Big aLICe Brewing: Brews with Co-founder Kyle Hurst

February 17, 2020 by brewsquire

It was a beautiful Tuesday in Long Island City (LIC), walking down 43rd Road toward Big aLICe Brewing Company. You kind of need to know where you’re going or you might walk right by it. That isn’t a problem for this popular spot in the brewery hotbed that is LIC. People find their way to the brewery from opening to close. I was going to interview Kyle Hurst, a co-founder of Big aLICe, for an upcoming Queens Chamber of Commerce event. This article is not about that event. It’s about my awesome experience.

Our meeting was set for 4 pm, but I showed up a bit early, well before opening time. I gave a knock on the door and, to my luck, Big aLICe employees were hard at work. They were brewing up a new staple to their beer lineup, the BQX, a hazy IPA named after the proposed street-car line between Queens and Brooklyn. The whole Big aLICe team was super welcoming. That includes the head brewer, Jon, the assistant brewer, Dominic, and the taproom manager, Orlando. They were all also forgiving of my nerdy and novice brewing questions.

Donuts to be incorporated into a brew… Homer Simpson would be proud.

It wasn’t long before Kyle showed up. He was on a supplies run for donuts that were to be incorporated into an upcoming batch of beer. We sat down at the bar of the taproom, each grabbed a beer and the conversation ensued. Even though I’m an amateur interviewer, Kyle was very easy to talk to. It’s his mid-western demeanor, as he is originally from Wisconsin, that puts others at ease. We chatted about the brewery industry, Big aLICe’s beginnings, and the brewery’s future.

The story of Big aLICe starts in 1998 with a 5-gallon homebrewing kit that Kyle received from his wife for Father’s Day. She didn’t know the fire that this gift would ignite. From the start, Kyle used a diverse set of ingredients in his beer recipes. This was due to his curiosity and also because homebrew supply shops were scarce at the time. He made due with what he had. This creative spirit lives on through Big aLICe, where the brewery serves up beers like a Sweet Potato Farmhouse Saison. You’ll often see new styles and twists on traditional styles on tap each week/month.

Christopher and a Walk-In Fridge, get it? Type of humor that supports a great work environment.

Big aLICe was named after the Ravenswood Generating Station that has become known as “Big Allis”. The brewery, wanting to associate with LIC, decided on the name Big aLICe. The name isn’t where local ends. Big aLICe’s mission is to support other local small businesses whenever possible. This includes sourcing beer ingredients from Queens businesses, like the honey from Wilk Apiary, jalapenos peppers from Hell Gate Farm, and coffee beans from Native Coffee Roasters. In addition to supporting the local community, Big aLICe end up with truly unique beers by doing this.

The brewery opened in 2013, starting out with making beer only for subscribers. Shortly after opening, based on overwhelming demand, Big aLICe increased its production capacity. They opened the current LIC taproom. Since then, the brewery has received a number of awards. This includes a 2019 gold medal in the National Honey Beers Beer Competition and a silver medal in the 2018 New York State Craft Beer Competition. Based on a growing reputation, Big aLICe recently added another taproom in Industry City, Brooklyn. It uses that space as a barrel-aging facility.

A photo of the Industry City location (photo from Big aLICe’s website) — View from the taproom in Big aLICe’s barrel-aging expansion to Industry, Brooklyn.

You’d think it might be time to take a rest, no? Well, Kyle has no plans of slowing down and has big ideas and ambitions for the future of his business. It’s invigorating to speak with people like that, a little like how I feel after listening to Eye of the Tiger . Know what I mean?

2 hours of conversation passed by in a blink of an eye, and I felt like I knew Kyle very well by the end of it. He is how I view many people in the industry: open, welcoming, and genuine. It’s what makes the industry great. Where competitors in other industries often seek to undermine each other, Kyle sticks to the mantra, “A rising tide lifts all ships”. In that vein, he walked me throughout the brewery, the front and back, and explained the purpose of each location and gadget in masterful detail. I can’t wait for my next visit.

Wanna here more passion? Check out the article How Craft Beer Ignited Passion: My Start-Up, which discusses my journey to craft beer. It started with a beautiful woman I’m now lucky to call my wife.