Nice Package: Craft Beer and the Container Industry

Feature by | May 2011 | Issue #52

In 2002, Dale Katechis began receiving strange faxes at the offices of Oskar Blues Brewing Company in Lyons, Colo. “It looked like one of those low-interest mortgage faxes that came across. It said, ‘Can your microbrew beer!’ And we just laughed and threw it away, but the faxes kept coming up.”

A couple months later, one of those faxes was followed up by a phone call from the company, Cask Brewing Systems out of Calgary, Canada. As Katechis learned that cans could be better for beer, were more environmentally friendly and were more portable for the customer, he warmed up to the idea. “Once we realized it wasn’t a gimmick, it was truly a better package, that’s where we got excited, because we knew we had the opportunity to do something no one else was doing at the time,” Katechis says.

Switching from the once-ubiquitous brown bottles to cans may have been novel nine years ago, but today, it’s just one way craft brewers are reexamining their relationship with the container industry in hopes of shaving costs and putting better beer on the shelves. As recently as the 1950s, the US beer market was dominated by refillable bottles. Customers paid a bottle deposit upon purchase; they could redeem it after returning the bottles to a retailer or redemption center; then the bottles were returned to the breweries, where they were washed and refilled.

In the US, with the advent of cans and recyclable bottles, refillables faded out. But according to Susan Collins, executive director of the California-based Container Recycling Institute, they’re still the norm in many other countries—Central and South America, Africa, Europe. “It’s kind of happening everywhere but here,” she says.

In Ontario, for example, refillables are an industry standard. With the province’s 2007 “Bag It Back” regulation, consumers pay a 10- to 20-cent deposit on refillable bottles and then redeem them—and at an impressive rate. In 2010, Ontario boasted a 92-percent bottle recycling rate, and 62 percent of that came from refillables. Most breweries in the program use the same industry-standard bottle, a brown 341mL longneck, which simplifies the otherwise costly sorting process. These standard bottles can also be made in bulk by container manufacturers—another cost saver.

But brewers can also opt to purchase different bottles and still participate in the program, like Mill Street Brewery does. “[Bag It Back] is a very environmentally friendly program. It saves a lot of money. The problem is if you’re trying to differentiate yourself in the marketplace, everyone’s got the same bottle,” says Steve Abrams, co-founder of the Toronto company. “We opted not to do that.”

Abrams says the cost is significantly higher, since they had to get the bottles custom made, and the brewery also pays a sorting fee. “We felt it was worth it, because they really stand out.” He says the return rate on their bottles is 60 percent.

Part of the reason Ontario’s program has been so successful (and, maybe, why it wouldn’t work in the US) is the structure of their beer retail system, which some Canadians call a monopoly. The Beer Store, an inventively named retail chain co-owned by A-B InBev, Molson Coors Brewing Company and Sapporo Holdings, accounts for about 80 percent of the beer sales in Ontario, and they were selected by the province’s liquor board to spearhead a significant expansion of the existing Bag It Back program. However, in most Beer Stores, customers order from a menu, and some craft brewers say the format favors large companies. In stores where customers choose from coolers, the size of a brewery determines how much shelf space it gets, again putting craft brewers at a disadvantage.

“There is a group that wants to dismantle The Beer Store and take it down,” says Abrams, “but as soon as they do that, it’ll become a free-for-all, it’ll be like the States, and it would probably kill that [refillable] program.”

In the United States, refillables have been in decline as non-refillable glass and cans have gained popularity. The difference is historical—post-Prohibition distribution laws in the US would never allow for a Beer Store model here—and has become cultural, with the US generally considered more of a throw-away culture. Collins says it’s also market driven.

“It has to do with business practices here,” she explains. “There are some people who say the one-way containers were a way for the larger companies to consolidate their market, because it’s a business model that works for larger companies better than it does for smaller ones.”

In 1947, refillable bottles made up 86 percent of the beer market. Now, only one regional brewer remains in the US that uses refillables. Straub Brewery has been brewing beer in rural Pennsylvania for 139 years, making it one of the country’s oldest breweries. The company has stayed in the Straub family for five generations. They still brew their beer at or under the 4.1-percent ABV that was mandated after Prohibition was repealed. And they still use 16-ounce and 12-ounce returnable bottles.

“It’s a smaller carbon footprint. It’s part of our heritage. It’s a very popular package,” says Vince Assetta, general manager at Straub. But their reusable model, which has worked for more than a century, is seeing a slow-down. In 2010, Straub announced they were running out of bottles.

“We believe we were losing packages because of the popularity of homebrewing,” Assetta says. “Essentially, for a $1.50 deposit, a homebrewer could get 24 heavy-duty bottles. … Also, I think it was maybe just recycling. Maybe people were throwing them away because it’s such a minimal deposit.”

Fellow Pennsylvania brewer Yuengling discontinued their returnable bottles last fall, and gave their left-over empties to Straub. According to Assetta, this saved the program; to make a production run economical for their glass-manufacturing company, Owens-Illinois, they would have had to order three years’ worth of bottles at once, and Straub couldn’t afford that, having just purchased a batch in 2008. The refillable model, when it works, can save money, but it requires an initial investment; refillable containers cost more than twice as much as normal non-refillables.

“There was some talk about some craft breweries wanting to try the package, and maybe getting together with us to share the production run,” says Assetta. Collectively buying in bulk isn’t unheard of for craft brewers; this is essentially how microbreweries made the foray into cans in recent years.

If refillables were to return to the US beverage market, craft breweries (which have already revived another antiquated refillable container … the growler) would be an ideal steward of the system. In order to have a successful refillable system, you need a closed loop; because there’s no nationwide refillable recycling system, a regional model is more realistic for recovering enough glass to reap the potential cost savings of refillable bottles.

A regional model has served Straub for more than a century. The brewery produces 45,000 barrels, 95 percent of which is distributed in Pennsylvania, mostly in the western portion of the state where the brewery resides. As more and more craft breweries scale back distribution and refocus on their local communities, refillables may become an increasingly viable option.

Oregon could be the first testing ground for the system. A 2009 study by Kim Holmes, a consultant at 4R Sustainability, argued that the state could take advantage of its high recycling rate and its denizens’ loyalty to craft beer to implement a refillable recycling system among Oregonian craft breweries. “You could market a uniquely refillable bottle,” Holmes says. “That would not only help in creating brand loyalty and making people feel good about buying the product, it would also make it very distinctive when they go to return the bottle.”

And with the Oregon Beverage Recycling Cooperative looking to implement recycling depots across the state and possibly phase out reverse vending machines—which crush the bottles immediately—she says the state could be ripe for a refillable bottle system. Ten states have a deposit on recyclable containers; the system is the successor of the refillable model in the US. It’s difficult to gauge how bottle and can deposits affect breweries’ bottom lines, since most “bottle bills”—laws requiring a deposit on recyclable containers—were passed in the late 1970s and early 1980s, just before or in tandem with the rise of craft brewing. But Hawaii might be the perfect test case—their bottle bill was passed in 2002.

Kona Brewing Company, founded in 1995, witnessed the state’s changeover from a recycling fee to a bottle deposit. Mattson Davis, president of Kona, says he was glad to see the deposit charged as a tax, rather than as a hidden recycling fee (a method that was recently introduced in Delaware, too). While the deposit was absorbed by the distributor, the brewer had to compensate for the recycling fee, Davis says.

“If we were shooting for a price of $8.99, we had to consider the recycling fee in our pricing. When the bottle bill came around, that 36 cents became something that the retailer added on,” he explains. Since Hawaii passed the bottle bill, the recycling rate has shot up to 79 percent, well above the national average of 35 percent. Those bottles are crushed into cullet, the recycled material used to produce bottles. Owens-Illinois—the bottle provider for both Kona and Straub, and one of the major bottle manufacturers—claims that 80 percent of the cullet the company uses comes from the country’s 10 states with bottle deposits.

But it’s impossible to tell whether high recycling rates reduce the cost of bottles for craft brewers in states with bottle deposits. There are too many variables at play—the going rate of materials, length of contract, local bottle-return rates—according to Scott McCarty, spokesman for the Ball Corporation, one of the country’s leading can manufacturers. Cans, like refillables, also require a large initial investment. Ball will often sell cans at a better price to companies that buy them in larger batches, a practice that once excluded craft brewers.

“There was a point at which, if you made fewer cans, you didn’t make any money on that,” says McCarty. “There were times when we would say we wouldn’t be able to help people, and we would steer them toward smaller can companies who could do smaller runs. As our industry has consolidated, there are fewer and fewer of those smaller companies.”

But that has changed since Cask Brewing Systems, a developer and supplier in Alberta, Canada, began purchasing cans from Ball, acting as their distributor to the craft brewing industry and thereby enabling brewers to buy small batches of cans. Cask first created a “micro-canning system” when retailers that brewed small-batch beer according to customers’ specifications (known in Canada as “U Brews”) wanted to start canning.

“Then breweries came knocking, and that’s when the lightbulb went on and it occurred to us that maybe craft breweries would be interested in canning their beer as well,” says Jamie Gordon, a technical sales rep for Cask.

Oskar Blues was Cask’s first American customer to take the leap. “The can is what really intrigued us and set us apart, and became the soul of the company,” says Katechis, who had never intended to distribute beyond the brewpub. Now, Oskar Blues beer, which is sold exclusively in cans, moves 60,000 barrels of beer in 18 states per year.

Over the past nine years, Cask has helped over 147 small brewers in the US and Canada incorporate cans into their distribution. “And that will be different next week. We’re going at the rate of two or three breweries a week. It’s pretty healthy,” says Gordon by phone, while en route to install another micro-canning system.

Cans have many advantages over bottles. They’re lighter in weight, which makes them more versatile for the customer, and reduces the carbon footprint (and cost) of transporting them. They’re also good for the beer, since their dissolved oxygen levels are lower than bottles’, and their opaqueness protects beer from light (although they’re more sensitive to temperature changes). And with no labeling or capping machines, they’re also less expensive to produce; Gordon estimates they save brewers as much as $4 per case in packaging costs.

The problem was one of perception. “When we first started, craft beer companies were reticent to put their beer in a can because the reputation of the package was that only cheap beer came in a can,” says Gordon. “What changed that perception was for small breweries to start putting good beer in cans, and that was a process. … Now, everyone’s jumping onboard.”

Microbreweries are known for innovating the liquid inside their bottles and cans. But as they adapt to the changes in their industry and learn to use them to their advantage, they’ll continue to shape craft beer drinkers’ perceptions of not only their own industry, but of containers as well.