Industry Insights from the National Beer Wholesalers Association

In a year where nothing has gone unaffected by COVID-19, it should come as no surprise that the beer industry has taken some substantial blows. Among each tier, tears were shed as staff was downsized and shops shuttered.

Seemingly naive talk of bubbles bursting and David vs. Goliath battles have been eclipsed in the shadow of a worldwide pandemic, forcing tough decisions and harsh realities for businesses – adapt or die. Many rolled over quickly. Some put up a hell of a fight. Still others have evolved, and a rare few have managed to not only survive but thrive.

With Industry Insights from the National Beer Wholesalers Association, The Beer Connoisseur peers through the haze to make sense of a wild year.

The Damage from Above
The numbers don’t look great. The NBWA, along with the Beer Institute, Brewers Association and the American Beverage Licensees published a report stating more than 651,000 U.S. beer industry jobs will have been lost by the end of the year due to pandemic fallout.

Among the jobs lost, retail-related beer jobs will have been hit hardest – with over 400,000 job losses projected. This will come as no surprise, given the myriad challenges facing bars and restaurants. However, no arm of the industry has been spared. Over 3,600 brewing jobs and 1,800 distribution jobs are predicted to have fallen by the wayside at year’s end. The report also forecasts losses of more than $22 billion in retail beer sales. Ouch.

To add insult to injury, the perishable nature of beer meant a huge amount of product was wasted – a national tragedy in its own right. Craig Purser, president and CEO of the National Beer Wholesalers Association remarked:

“The abrupt forced shutdown of bars, restaurants, hotels, arenas and more during the busy spring season left at least $1 billion of perishable draft beer stranded in the marketplace and unable to be sold.”

As one of the biggest beer drinking months of the year, March was a particularly terrible time for the beer industry to be forced into shutdown, and millions of gallons of draft beer were lost, despite the best efforts of brewers and the NBWA to help reposition perishable inventory. However, losses due to unpredictable circumstances were but one of many financial hurdles the industry had to overcome, as Purser notes:  

“In addition to this significant financial loss, beer distributors have seen their operating costs skyrocket as they have made substantial investments to keep their workforce and customers safe during this global health crisis.”

Those investments could include COVID-19 testing kits, temperature check devices, personal protective equipment like gloves and masks for employees along with additional cleaning supplies. Even for breweries, where cleanliness has always been essential, the standard for what is clean has skyrocketed, and with it, so have the maintenance costs. Many businesses have also chosen to provide masks to forgetful customers, rather than risk having to turn them away, or risk scaring off others. Hand sanitizer has to be plentiful, too.

Then, there are changes to infrastructure – protective barriers being the most universal change. Signage as well, informing patrons of safety procedures, or simply that the business is still open, are also common expenses. All of which hamper the bottom line.

“The beer industry will continue to face difficult headwinds as we navigate this crisis that is still unfolding,” Purser stated.

Not Thriving, But Surviving
There’s no sense in sugarcoating it – a large amount of breweries are not going to survive the pandemic. A survey from the Texas Craft Brewers Guild found that 2 out of 3 brewery owners in the state do not expect their business to survive until the end of 2021.

Considering the amount of variables at play, there is no simple answer to surviving this period of crisis. Needless to say, now is not the time to consider expansion, but rather to consolidate and focus on what works. To this end, Purser stresses the constant that has always gotten beer makers and purveyors through the lean times – community.

“As I have said, there is nothing traditional about 2020, but one thing that never changes is our industry’s strength when we work together,” Purser said.

Collaboration and community engagement will be key determinants in the fight to survive as a business in 2020. Businesses should be asking themselves how they can involve themselves in the community that supports them, how they can work with other business owners to pool resources and drive traffic to one another, and perhaps most importantly – how they can utilize this period of uncertainty to their advantage.

Agility and the ability to experiment are the greatest strengths of the small brewer. The businesses that can find upsides to this massive downturn – ways to innovate, coming up with new product lines and creating in-roads to customers – will be the ones that live to see the light of day.

Are Americans Drinking More, Or Less, During the Pandemic?
2020 has given drinkers all the reason they need to pick up a bottle, but there have been conflicting reports on whether or not Americans are drinking more or less. So how is the industry faring on those terms?

An oft-cited study from RAND Corporation, published by the Journal of the American Medical Association, led to a blanket statement that the pandemic was driving Americans to drink more. But it’s not that simple. In general, Americans drank more frequently during lockdown, but were drinking a bit less on average per drinking session, and typically not to a point of excess.

In regards to the report, Lester Jones, chief economist for the NBWA noted, “People can’t draw conclusions from random anecdotes. We need to look at the data in aggregate.”

As of October 2020, Jones cited numbers that U.S. beer sales declined 2.7% from 2019 to 2020. The year started on a high note, with beer sales up 2.1% in January before dropping a precipitous 8.9% in April and a further 16.1% in May. The drop leveled out in June and began slowly climbing throughout July and August, all of which provides hope for the future.

Jones noted that the numbers didn’t account for “the massive quantities of returns and refunds required by rapid shutdowns of on-premises bars, restaurants, concert venues, festivals and the like,” and that other notable periods of history, such as the 9/11 terrorist attacks, failed to significantly affect alcohol consumption in the long-term.

“There is a very slow and predictable change in total demand over time subject to demographics and market dynamics,” stated Jones. It appears that the demand for craft beer is still there – the challenge is meeting demand from both a production and distribution standpoint.

Drinking Differently in 2020
While COVID-19 hasn’t drastically affected American drinking sensibility, it has certainly affected how we purchase and consume our beer, and how it is sold. The taproom-centered business model that has spurred most small brewery growth over the last few years has been directly challenged by the pandemic, leaving those businesses scrambling to adapt.

One less traditional path to distribution for small brewers is to partner with a beer shipping service, like Tavour. Well-positioned to thrive in the time of coronavirus, Tavour has the ability to ship beer in 25 states, giving brewers a much-needed lifeline direct to the consumer, and an avenue to offload excess capacity that would otherwise expire. Business has tripled for the company since March, with over 90 new breweries signing on to have their products made available through its service.

With its non-contact business model, Tavour is paving the way for the post-COVID beer market, but there are still plenty of challenges to overcome. Perhaps the biggest hurdle for the company is legislation – an issue affecting the industry as a whole. State laws dictate the legality of interstate beer shipping, and each state has its own interpretation of the matter. Some outlaw the shipping of alcohol entirely, while others leave it up to localities to decide. Still other states – 26, in fact – allow only wine to be shipped.

The reason for the disparity is largely that of focused lobbying effort on the part of the wine industry. Winemakers are concentrated on the West Coast but have to meet demand around the country. Combined with the high-margin, niche nature of many wines, the issue of shipping legality was forced by necessity long before craft beer began running into similar issues. And when the lobbying arm of craft beer did begin to make headway into legislature, it simply had other, more immediate fish to fry – taprooms, growler sales and high-ABV brews, all of which also varied by state.

If there’s a positive to be found for craft brewers, it is that the pandemic has helped force some key legislative issues that need to be addressed, shipping foremost among them. In May, California Congresswoman Jackie Speier introduced a bill (HR 2517) which would allow the U.S. Postal Service to ship alcoholic beverages to legal adults as long as state law allows it.

To-go sales – the other major lifeline for small brewers – have also been brought to the attention of legislators. While many states still languish in craft beer sale purgatory, others are progressing. In October, Ohio passed House Bill 669, effective immediately, allowing “bars, restaurants, small breweries, micro-distilleries and wineries to sell up to three drinks per meal in covered cups – or alcoholic beverages such as wine in their original, sealed containers – for customers to drink away from the premises.”

Provided the drinks are ordered with a meal, the bill allows services like Doordash and GrubHub to deliver the alcohol – another positive move towards nationwide acceptance of beer delivery and commerce.

Then there’s taxes. The 2017 Craft Beverage Modernization and Tax Reform Act, which provides federal excise tax relief for breweries producing fewer than 2 million barrels annually, is set to expire, meaning breweries could be paying double in excise tax for 2021 if the legislation isn’t made permanent. This would be the final nail in the coffin for many brewers.

No Can Do: Nationwide Can Shortage
As if things weren’t tough enough, increased demand and decreased supply has made for a can shortage, and small brewers have to wait in line behind Coke, Pepsi, AB InBev and many more large companies who get first dibs on orders.

According to Ball Corp., the world’s largest can manufacturer, the U.S. market is short about 10 billion cans for 2020. What began as a positive, environmentally-conscious shift towards packaging in cans has been brought to a point of crisis as hard seltzer, sparkling water and sodas all exploded in popularity, while at the same time draft beer sales disappeared, requiring more product to be canned.

“The lockdown in March took the keg part out of distribution,” Jones said. “That’s 1 in 10 beers. Brewers naturally found themselves turning to cans, which put pressure on the marketplace.”

Brewers are having to get creative – either importing cans from outside the U.S., buying up unused cans from misprints, package redesigns or other brewers’ seasonals that didn’t sell and “resleeving” them, or simply resorting to glass bottles, the former standard for craft beer, which has fallen out of style in recent years.

Even CO2 is hard to come by these days. Production of the gas dropped 20% in April, and just like with can acquisition, small brewers were some of the first to feel the pressure from a lack of readily available CO2.

Image Courtesy Flickr/Allagash Brewing Co.

A Rebuilding Year
2020 represented uncharted waters for the world, and how businesses fared often had as much to do with luck as it did with sound business decisions. While it was generally not a winning year for the industry, hope springs eternal. For one, struggle can lead to unification. With help from organizations like the NBWA, beer distributors and brewery workers pulled together to weather the storm, and were deemed “essential” on state and national levels.

Further, according to the NBWA’s October 2020 Beer Purchasers’ Index (BPI), which forecasts beer demand for distributors, the numbers are showing signs of hope. “This month’s reading remains significantly above historical trends as increased packaged beer sales in off-premises channels continue to ‘fill-in’ for lost on-premises and draft beer sales,” said Jones.

“The gap between October 2020 and October 2019 is much smaller than we have seen since May.” Jones attributed the positive signs to distributors’ “aggressive stance in their ordering to minimize out-of-stocks, compensate for lost draft beer volumes and continued on-premise closures.”

Successful business models were challenged, and many breweries were forced to pivot overnight, shifting their entire business models from draft to cans. The struggle brought innovation and creativity to an industry that was beginning to look a bit complacent. Craft beer was born struggling – a small fish in a big pond – and 2020 has been a return to its underdog roots.

“This has been a challenging year for every industry, including ours,” Purser said. “But one thing is certain – the beer distribution industry worked together to support each other, our workforce and the communities where we live and operate.”

In other words: We’re all in this together.

The National Beer Wholesalers Association (NBWA) represents America’s 3,000 independent beer distributors with operations in every state, congressional district and media market across the country. Licensed at the federal and state levels, beer distributors get bottles, cans, cases and kegs from a brewer or importer to stores, restaurants and other licensed retail accounts through a transparent and accountable regulatory system. Distributors build brands of all sizes – from familiar domestic beers to new startup labels and imports from around the world – and generate enormous consumer choice while supporting 142,000 quality jobs in their home communities. Beer distributors work locally to keep communities safe by sponsoring programs to promote responsible consumption, combat drunk driving and work to eliminate underage drinking.