The Biggest Challenges Facing Craft Brewers Right Now

For the past two years, I’ve written this column about the beer industry nearly every week. I have a national scope and do not have a private jet, so I do a lot of what media insiders refer to as “desk reporting.” Most people describe this as “making phone calls.” Whatever you call it, it gets at the central tension of Hop Take: accurately contextualizing and editorializing about what’s afoot at the nation’s ~10,000 breweries without actually having my feet on the polished-cement floor of each and every one of ‘em at all times.

Week in and out, I rely on reporting from the trade from Brewbound, Beer Business Daily, and Beer Marketer’s Insights, scan data from NielsenIQ and Circana (and sometimes BeerBoard, too, for those sweet, sweet draft #insights), and long-running and ongoing text conversations with industry insiders from around the country to help me decide what to write the next Hop Take about, and how to frame it. I think it mostly works, but it’s not a perfect system.

So today, I’m taking a break from the beat and turning this column over to its subjects, in their own words. Hop Take asked four brewery owner-operators from around the country to weigh in about the biggest challenge facing their respective businesses. Here is what they said.

Backfilling openings on both sides of the stick

Our brewery recently lost a valued team member to a different company in a different industry. He started as a DSD driver when he was young and single and finished his time here as a family man who led our canning and packaging operations. It’s a tough role to backfill and prompted me to think about consumers’ changing life stages and the impact on craft beer engagement.

Over the past decade, the craft beer industry has undergone a major shift. The once young, socially active crowd has moved into new life stages. Many are now parents, spending weekends at kids’ soccer games with less time and, perhaps, disposable income to do craft beer stuff. This shift from a carefree, social lifestyle to one centered around new responsibility has affected the profound engagement that once defined craft beer culture and fueled our growth. We now face the challenge of finding a “backfill” of fans.

Retaining the engagement of our core fans is as challenging as replacing our valued employee. In both cases, habits and expectations changed over time while our proposition has remained relatively unchanged. Rather than lamenting “the old days,” we’re focused on adapting and redefining how our brewery fosters deep and long-lasting connections.

George Esquivel, co-founder of Four Corners Brewing Co. in Dallas

Liability insurance premiums and long hours

I’m not sure there is one single challenge facing COAST right now, more an amalgam of continued operational concerns. Like everyone, costs of all things remain a top worry. We only use quality ingredients, whether that be organic malts for our beer or just “real” food in our taproom so costs are already higher and continue to increase.

However, liability insurance premiums might be making those other costs look like mere pennies. Our policy is uncoincidentally up for renewal right now and I am holding my breath waiting on new quotes. We have had some local establishments here in Charleston close recently because their premiums were seeing increases of $50,000–$70,000 (no, these are not typos). An increase of this size would be reason for an almost immediate shutdown. Heck, even just a doubling of premium would directly affect our bottom line and the price of your favorite pint. There you have it — a quick peek into just one of the daily worries of a small brewery and business owner.

Actually, I would be remiss if I didn’t mention perhaps the toughest one and the hardest to change: time — we work too damn much!

Jaime Tenny, co-founder of COAST Brewing Co. in North Charleston, S.C.

Expanding? In this economy?

The biggest challenge facing Montclair Brewery right now is funding for our growth. There comes a point in time when you have to decide whether to stay small and limited or to grow based on opportunities.

We decided to grow, and that meant acquiring a larger space, which we’ve done, but the cost of building out a new brewery is no small change. Learning how to grow and build out a new location while simultaneously managing the current location is a balancing act.

Looking for non-traditional places and ways to raise funds can be overwhelming as well. Sometimes we question our direction, wondering, for example, what if the opportunities that were initially present go away? The overall uncertainty is innate to business, but at times it would be great to have some certainty. Therefore, being a recipient of the National Black Brewers Association (NB2A) Equipment Grant is a huge help with our expansion goals. The canning line and accessories donated by Optimism Brewing are now one less thing that we have to lose sleep over.

Denise Ford Sawadogo, co-owner of Montclair Brewery in Montclair, N.J.

The downstream effects of middle-tier consolidation

Right now my biggest challenge is using less than 200 words to describe our biggest challenge in the current environment.

My second biggest challenge, which is shared by just about everyone in the regional brewery tier, falls into the category of “access to market” in the wake of the way the pandemic has changed the dynamics of the middle tier. Trying to grow market share is harder than ever with large, consolidated distributors prioritizing entrenching the status quo of the large, established brands in their portfolios over growing revenue through brand-building and supporting emerging and dynamic suppliers. Many of these wholesalers discovered a higher-margin business model by forgoing servicing the independent on-premise accounts (arguably the most important channel for craft and brand awareness in general) in favor of dropping pallets at large-footprint off-premise retailers. This decision to entrench the chosen champions of their portfolio results in minimizing purchasing and presentation of products from the longer tail, which is where most regional craft breweries live.

There’s a convenient data record of this change of focus. The Beer Purchasers Index reports from pre- and post-2020 show craft purchasing intent in the BPI is lower than, and does not correlate with, the actual sales trends for craft over those periods — meaning those distributors began choosing to under-purchase craft. It’s also important to note that suppliers that aren’t in these portfolios can nonetheless be affected by them, most obviously in cases where the large distributors are also the category managers at the larger retailers and have outsized and powerful influence on how that retailer operates.

Breweries that are part of the long tail are then faced with purchasing policies that seek to minimize on-hand inventory and leave little or no room for actual sales growth. These breweries have few good options — trying to leave can not only be difficult and potentially expensive but leaving presupposes there is a viable alternative to go to, which is definitely not a given.

The solution is to have more distributors entering the market to service this tier, but that evolution is challenged by the barriers those distributors would face in trying to assemble a portfolio of suppliers who have to transition from distributor relationships that demand 2016-era “brand rights” payouts and are otherwise content to watch those brands die in their portfolio than have to compete with them in the market. This barrier to entry for a new distributor is why it isn’t happening.

There are fewer distributors than ever now, and that results in fewer suppliers getting focus and attention in the middle tier. It also means there is a historic lack of competition among them and little incentive to see anything change. In this context, the regional breweries that are dependent on a willingness in their distributor partners to embrace brand-building and their shared financial incentives are met with unprecedented inertia in getting access to market.

Kevin McGee, president and chief executive of Anderson Valley Brewing Co. in Boonville, Calif.

🤯 Hop-ocalypse Then*

Tectonic shifts continue apace in the National Football League’s advertising landscape, where games are now airing weekly with nary a beer commercial to be seen thanks to restrictions imposed by Thursday Night Football streaming partner Amazon Prime. Is this a tactic to destroy the Budweiser Clydesdales’ livelihoods so they’re forced into grueling gigs at one of Amazon’s St. Louis warehouses? Hmm! — Originally published September 29, 2022 here at Hop Take

*This section looks a little different than normal because your humble Hop Take editor has stepped away from headquarters on his long-belated honeymoon. Instead of Hop-ocalypse Now, focusing on the news of the day, enjoy Hop-ocalypse Then, an original item from roughly the same time two years ago — his first few weeks on the column. We’ll return to normal programming (including “Ups” and “Downs”) when Dave returns to the desk on Oct. 11.

The article The Biggest Challenges Facing Craft Brewers Right Now appeared first on VinePair.