Pressures on craft brewing industry change strategies

BOULDER — Inflationary pressures, supply-chain disruptions, consolidation by bigger companies and shifting consumer tastes are all buffeting the craft brewing industry. The craft brewers that survived the COVID-19 pandemic are going to have to continue to adapt to an uncertain future. 

“Cans are hard to get, distribution books are full, and the big players are elbowing others out of the marketplace,” said Chad Melis, founder of Turn It Up Media, a marketing and branding company that works with brewers and distillers.

That was the message Tuesday at BizWest’s CEO Roundtable on brewing The roundtable was held at the offices of sponsor Berg Hill Greenleaf Ruscitti and sponsored by Bank of Colorado and Plante Moran. Sponsor attendees included Aaron Spear of Bank of Colorado and Ashley Cawthorn of Berg Hill Greenleaf Ruscitti. 

Michael Memsic, owner of Sanitas Brewing Co., said less access to capital has somewhat slowed consolidation in the brewing industry.

“Money is different now,” Memsic said. “We had that big influx of PPP cash, but we’ve also seen the industry drastically slow down. Access to capital is different. I’m not hearing about people doing big deals right now. It’s pretty calm.”

Even so, the consolidation that has already occurred is making the competition tighter because bigger players in the industry are clogging up supply and distribution channels. 

Aluminum has been short since early in the pandemic, and recent events are only exacerbating that. Two of Europe’s biggest aluminum producers are Russia and Ukraine. The ongoing war between those countries has made it even harder to get aluminum. Even before that, major aluminum can producers such as Westminster-based Ball Corp. (NYSE: BALL) had already begun cutting off some of its smaller customers before the war further threw a wrench in things. Small breweries that haven’t been cut off have seen aluminum price hikes. 

“I just think, because the industry has matured, competition has gotten a lot thicker,” said Jeffrey Green, owner of Very Nice Brewing Co. in Nederland. “It just feels like the attitude is more that it’s a zero-sum game now. This is still a great industry to work in as far as people helping each other out, but at the same time people are more secretive about their recipes and distribution.”

This dynamic has led some brewers to reexamine whether their distribution model made sense. Some have pulled back and are focusing more on maximizing in-house sales.

“We were one of the first to pull back from distribution,” said Nick Wilson, general manager for Twisted Pine Brewing. “We were taking a big loss on distribution.”

Jeff Giffith, Twisted Pines’ head brewer, added that the company has moved away from table service in its taproom in favor of bar service, something that has worked well. 

Nick Tedeschi, head brewer at The Post Brewing Co., said the same: His company was distributing beer over a wide network but decided to pull back because of cost. 

“We decided to keep things in-house,” Tedeschi said. “We kind of shrunk down a bit.”

Other factors are also clogging up distribution channels. The rapid decline in the hard seltzer market — it’s fallen 5% this year after nearly 12% growth in 2021 — is harming the craft-beer industry. Unsold seltzer inventories are clogging up shelf and warehouse space, limiting the amount of beer that sellers and distributors can buy.

“The stressful thing is movement from the shelves,” said James Williams, CEO of New Planet Beer.

Another factor is that consolidation has not been limited to craft brewing. Small, independent liquor stores are also going out of business or being snapped up by bigger players. That is also having an impact on the ability of craft brewers to get their beer out to customers.

“The independent liquor stores created craft brewing in Colorado,” said Bob Baile, owner of Twisted Pine. “I’ll do whatever I can to help them out.”

Consumer behavior is also changing in a way that is making brewers have to adapt for the future. In-house beer sales shot back up again after the pandemic, but have started to level off. 

“It’s nice people are back sitting on our patios enjoying our beers,” said Davin Helden, owner of Liquid Mechanics Brewing Co. in Lafayette. “I feel like that initial post-pandemic rush is going away. Maybe people are worried about a recession. We have about the same amount of traffic in our taproom, but our spend per person is down.”

A lot of factors are playing into that. Leslie Kaczeus, CEO of Bootstrap Brewing Co. in Longmont, cited the sobriety and wellness movements that are becoming more popular. 

“Are people just not drinking as much?” Kaczeus asked.

Consumers are also drinking different beers when they do come in. After years of India Pale Ales and sours dominating the craft beer market, people are shifting away from those to simpler beers such as lagers. 

“We have a very popular herbal beer with no hops,” Green said. “It goes crazy because there is a fatigue for IPAs and sours. IPA is still king, but there is that opportunity to try something different. Once our tastes start to change, the customer is usually a few months behind that.”

Chris Marchio, founder and head brewer of Knotted Root Brewing Co. in Nederland, concurred.

“IPAs and sours are starting to become overstaturated,” Marchio said. “And the ingredients are more expensive.”

That last point is key. IPAs, especially ones with higher alcohol content, are expensive to produce. They also usually cost more for the consumer. Multiple brewers said they notice customers who order those more expensive, higher-alcohol beers tend to order only one drink per visit, whereas consumers who buy lighter, less expensive, less alcoholic beers are more likely to buy multiple beers when they come in. 

Could this lead to a move away from the experimental craft brewing of the past decade, toward a more old-school, simpler brewing approach? It’s too soon to definitively tell, but something is definitely changing.

“It’s hard to put my finger on it,” Helden said. “I’ve got a weird feeling about stuff in the craft beer world in terms of what consumers are looking for. Maybe the masses are sick of craft beer and hazy IPAs and pastry stouts. Maybe they just want a PBR.”

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