The Alarming Truth About Local Beer Production

Awesome video, however nothing made me more jealous than seeing an entire 'bitters' section of beers at their grocery store

I know in my experience, the brewery I frequent weekly I don't do for the owners(given previous experiences I've shared before on here), but the brewers, bartenders and other staff, whom I've raved to about beers that were my favorites(and have not come back yet), supported at local fests and grown to know on a more familiar level.

I wish I could see how it helps those individuals, as they do not sell to-go at my closest location, but I'll keep frequenting and hope for the best.

 

Financial strength vs. size. The question every brewer asked themselves around March 15th, 2020 is the same question they should be asking themselves today; What does the balance sheet look like? How much beer do I need to sell to maintain a sustainable business? Most regional breweries are likely to shrink in the upcoming years, mine included. Some smaller taproom-only breweries will as well. We will definitely see some larger breweries, regional breweries, and even some small breweries go under. Most, like Anchor, people that know will not be surprised. But there will be a ton that do come as a surprise and that comes down to those pertinent first two questions.

There have been so many incredible price increases it's hard to count them all now. Beer prices are going to continue to go up. Wages in breweries will continue to rise as a percentage of COGS. But if balance sheets look good now, and a brewery can continue to produce enough products that people want to buy, I truly believe they will be fine.

 

Upward price pressure comes from many directions. But I suspect that the biggest factor for a great majority of brewers is the packaging component. Cans are the current market leader in the US, and likely the most expensive delivery method. Also pushing prices upward is the proliferation of one-offs and small runs. Commodity costs (malt, hops, etc.) are a factor, but likely not a deal breaker. Another issue that is difficult to handle is the proliferation of breweries. When sales volume doesn't meet expectation, or drops, the fixed overhead doesn't change much, and the business falters.

 

Jack, thanks for posting. As always.

I'll be honest, it's not you, but

"The Alarming Truth About Local Beer Production; Why we NEED to Care!" is a really easy way for me to ignore the click bait.

"Is this THE END OF CRAFT BEER?"

Horrors.
These YouTubers can fuck off. I believe nothing of what they have to report. Nothing. Zip.

Also, GET OFF MY LAWN!

Rant over.
I truly hope craft beer survives this latest episode of falling sky.
Cheers.

 

There's a lot of factors in play. Running a startup brewery is difficult in the best of times, there's a whole load of highly successful ones that came to the brink many times as they were building their business into a sustainable place. Now add inflation, supply chain issues, a war that has knock on effects with global oil and grain production, a vast over expansion for the years leading up to covid, consumer tastes trending towards cocktails, consumers having a tiktock level attention span when it comes to releases. Easy stuff, right?

Support the breweries you want to survive. Hopefully your local is included there.

 

His number one complaint is high malt prices, which he attributes to Russia’s invasion of Ukraine. I’m sure it’s affected prices globally, but I’d suspect that’s hit European brewers harder than U.S. brewers.

As an aside, most of of the core challenges he’s describing are only going to become, on average, harder and harder each year due to climate change: grain shortages and price fluctuations; rising energy costs; refugee crises; supply chain disruptions; changing consumer priorities; not to mention insurance prices.

 

Ability to pay your debt is absolutely a life/death issue for business. If revenue minus cost is generating barely enough cash to pay outstanding loans, that's a deadly serious situation. Even if loans were taken out in a time of lower rates, not all or even many businesses build up a big cash stockpile to pay off all their loans on the due date — many have to roll over their loans, so the rates will reset. I also would guess that relatively few breweries, especially newer ones, have long-term loans.

 

I doubt there is some typical duration across all industries, and I don't know about brewing, but there are so many variables, cash flow history, whether the loans is secured against equipment or property ... others may know (although those that know may not want to say)

 

I remember back in 2013-2016 being actively courted by banks offering me pretty much whatever I wanted. I had offers that amounted to 5x of our annual gross profit (not net, gross). This kind of debt would have allowed us to build a 50,000 sf facility with a capacity of over 100,000 bbls/year easily. But to service the payments on that debt, we would have had no choice but to grow by a rate of 30% for several years. At the time, we were growing by 40%, so why not? If we had not reached 50,000 bbls/year in short order, we would have been put in a position where we either would have had to sell the company, or we would have gone bankrupt.

Without throwing any one brewer under the bus, many brewers made that bet. And with the growth of 2013-2016, who could blame them? A lot of brewers got drunk on success and I feel for them. I am just glad I had some financially conservative voices in my ear and I didn't take that bet. Sure, maybe we'll be stuck under 25,000 bbls for who knows how long. But if we can keep on keeping on, we're fine. If we had to shrink by 20%, that would suck, but we would survive. Many brewers have no such freedom.

I would predict we will see a ramping up of fire sales and closures as the banks begin to lose patience, but I've been wrong many many times, so who knows.