Brewers: Planning for 2022 poses issue; will it resemble pre-pandemic?

FORT COLLINS — Brewers in Northern Colorado face an interesting dilemma: How does a small operation budget and plan for 2022 when the past two years have been anything but business as usual for the industry?

Brewery operators shared notes on their operations at a BizWest Northern Colorado CEO Roundtable, one of a series of events sponsored by accounting firm Plante Moran, law firm Berg Hill Greenleaf Ruscitti, and Elevations Credit Union.

2022 expectations

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Horse & Dragon Brewing Co. will likely blend the financial performance for 2019, 2020 and 2021 when planning its 2022 financial plan, even though performance during those earlier years varies significantly. Tim Cochran, a co-founder of the Fort Collins brewery, said blending the years may provide some insight, because 2019 was a relatively normal year, 2020 required focus on packaged sales and 2021 is seeing a return to the tap room.

“Cost increases are definitely ahead of inflation across the board,” he said of the expense side of the ledger. “We get pushback heavy if we do any price increases,” he continued, but the operation may need to consider raising prices.

Josh Grenz, CEO of Verboten Brewing in Loveland, said, “2021 looks awesome [in comparison to 2020].” Verboten added a distributor to its business plan in late 2020 so that it could deliver packaged beer to a wider market in the state when it couldn’t have as many people in its tap room. For 2022, “we’ll simplify things. We did a lot in 2021 with the distributor, with labeling. We want to make sure we take care of our people, make sure they’re happy.” 

New Belgium Brewing Co. responded to the pandemic by discontinuing 11 packaged beers in order to put focus on the best sellers. “A national campaign can only support a handful of beers. We can support more in local areas [like Colorado] but not nationally,” said CEO Steve Fechheimer.

Unlike the more local brewers, New Belgium grew in 2020 and is growing in 2021. “We’ve had a few things break in ways that have helped us in the past couple of years. We’re not selling as much on-premise this year as we did in 2019. We’re super close but not quite there,” he said. The company’s experience varies significantly by city, depending on local market conditions and pandemic precautions.

Like most brewers, Odell Brewing Co. in Fort Collins had to shift its sales mix during the past couple of years because of the pandemic. Before COVID, its package/draft ratio was about 60/40, said CEO Eric Smith. It went to 85/15 during COVID. Draft is coming back, but “we’re anticipating more uncertainty in 2022. Taverns with “20 handles [for draft brands] may only be using 10. We’re not back to 100% on the draft side.” 

“It takes more labor to run the packaging line than our kegging line. That’s why [producing] fewer brands has been better overall.”

Smith continued that bars and restaurants are being cautious. “A lot of bars order quarter barrels instead of half barrels. Now Larimer is going back to mask mandates. Bars don’t want to get caught again.”

Laird Mulderink, general manager of the new Sweetwater Brewing Co. that is taking over the space previously occupied by Red Truck Brewing Co. in Fort Collins, is busy converting the predecessor brewery to the Sweetwater experience. He said the brewery will reopen its tap room in December or January. The company will have a different product mix than what existed previously at Red Truck so it will be testing the market with innovations.

Innovation

Wayne Hunter, co-owner of Super Market Liquors, while not a brewer, has had a front row seat to view the trends in the brewing and liquor business. Unlike breweries, most of which saw a decline in business in 2020, Hunter said liquor store revenue “exploded” in 2020 as people bought beer and liquor to consume at home.

He said the liquor retailer discovered that it could produce higher sales in fewer hours, thus permitting it to cut staffing costs. He encouraged tap rooms to consider shortening open hours because patrons will adapt.

“The consumer has adjusted and is more understanding about labor issues,” he said.

The product mix for liquor stores has changed, too, with malt-based products gaining popularity as producers seek to avoid distillation taxes. 

“Everybody at this table [of beer brewers] jokes about seltzer, but [quantity and variety of] seltzers have outgrown the liquor store’s ability to carry them all.”

Cochran said innovation in the microbrewing industry is always important but limiting brands may be the future. He suggested having six core brands, three seasonal varieties and maybe one “as a one-off.” Horse & Dragon won’t put all its products into packages “but when we do it will be something special.” 

Frezi Bouckaert, co-owner of Purpose Brewing, said brewing is like “a pendulum. Everyone always goes to extremes, but it swings back.” 

Grenz said he hopes that the era of the sweet beer is coming to an end. He isn’t sure what’s coming next. Verboten has added ales and pilsners to its mix. It was among a few microbreweries to offer a seltzer, which it added as a lower-calorie, gluten-free alternative for some customers.

Laird said Sweetwater, an Atlanta-based company, is known as “an IPA factory,” but it has introduced a hard seltzer, a hard lemonade and has a sweet tea coming out. 

Still, “every time the rubber band snaps, it always comes back to pilsners and lagers.

Fechheimer outlined the New Belgium process for introducing new products. As a national brewer, what it distributes has to be supported by customer demand. “Tap rooms are a place to sample varieties, to test things,” he said. Then, the most popular brands go into variety packs for retail sale and, if they perform there, may go national as a stand-alone brand like Fat Tire.

“Come to one of our tap rooms if you want to see what we’re working on.”

Hunter said the beer industry will be competing in the coming months with canned cocktails. “We thought seltzer was big but it pales in comparison to the canned cocktail. I was amazed that we could sell a four-pack of 11-ounce cocktails for $18,” he said. Canned cocktails are coming in a variety of sizes and packages with single-serve bottles and four-pack cans popular.

Fechheimer concurred that other alcohol products will provide stiffer competition. He said “seltzers and canned cocktails are taking space in the cold box, leaving less space for beers.”

Supply chain

All the brewers complained of headaches caused by supply chain issues that can change from week to week.

“It’s one thing after the next,” said Grenz. “First it’s aluminum. Then malt from Europe, or cleaners for the brewery,” he said. “Everything takes a little bit longer. We have to plan six months in advance, which is a long time in a small brewery.”

Supply chain issues have meant that breweries such as Horse & Dragon have had to rent additional space nearby in order to store cans or raw materials. 

“We’re trying to think of alternatives before we need to use them in case there’s a need to change,” Cochran said.

Bouckaert said her brewery hasn’t had too much difficulty with supply chain issues, because it has greater flexibility on when it does its brewing. But it has had issues getting marketing materials such as branded T-shirts.

Hunter said small brewers aren’t alone. “The national guys are having issues, too,” noting that local liquor stores can’t always get products in the sizes that they’d like. A supplier might say “we have it, but we can’t get it to you [because of trucker shortages.]

Mulderink, who is trying to add production lines to the new Sweetwater facility, said he’s facing the same issue as auto manufacturers: a chip shortage. When adding new equipment, he’s had to wait two or three months to get parts for new production lines.

Prices 

Supply chain issues, inflation and changes in product mix have resulted in increased costs, not all of which can be added to the prices charged to customers, the brewers agreed. 

“We’ve had to absorb some costs,” Mulderink said. He said consumers seem to be willing to pay higher prices, especially when the package quantity may have changed, making the new price point less noticeable. 

Odell has raised some prices, but retailers have absorbed some of that because of the competition between grocers, liquor stores and other retailers. “New products tend to be priced higher; that’s a test for us to see whether people are willing to pay it,” Smith said. Still, the $9.99 and $10.99 per six pack is still the sweet spot, he said.

While the overall inflation rate in the U.S. is running 5.5% or more so far this year, the brewers said cost increases for them may be significantly more.

Labor supply

Some of the cost increases for brewers is coming from pay rates for workers. Like almost every other industry sector, brewers are facing competition from other employers willing to pay more. 

Grenz said staff members at small breweries tend to be close knit. “We’re a family at that size.”

Yet, a lot of people are switching jobs, changing careers. “That’s why we want to focus on core staff and keep them happy.” 

New Belgium employs about 800 workers nationally, about half of them in Colorado. “Our turnover has been consistent at 7-8%, so that means we’re still hiring a lot of people in any given year,” Fechheimer said. 

Odell hired more people in 2021 than it does in most years because it opened a tap room in Denver and a wine tasting facility in Fort Collins. “There are a lot of good jobs out there and if people want to move they can,” Smith said. 

Sponsor representatives at the roundtable were Darin Attebury, Northern Colorado market president for Elevations Credit Union; Ashley Cawthorn, marketing director for Berg Hill Greenleaf Ruscitti law firm; and Chris Otto and Sean Nohavec representing Plante Moran.

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