Since last March there hasn’t been much good news to celebrate, so I can understand why many people have been happily trumpeting the success of brewers during the coronavirus pandemic.
The only problem with that story is that it’s just not true. Believe me, I’d love for the drinks industry to be booming, except, sadly, it’s not.
Think about it: how can beer sales be up when almost every place that sells beer by the pint is closed or only running at 25 percent capacity? No packed bars. No packed stadiums. No packed concert arenas. No packed race tracks. Given all the challenges of 2020, it boggles the mind that people could believe that somehow brands were raking it in or even doing OK.
To understand why this myth persists, it helps to realize that the beer business has two main parts when it comes to putting drinks in your hands. There’s the “on-premise” side where you buy a drink and consume it at the bar, restaurant, sports arena, brewery taproom, and so on. And then there’s the “off-premise” side, where you buy cans or bottles for home consumption, including liquor stores, groceries, convenience stores, and pharmacies.
All those happy news stories full of winks and grins about how much we’re drinking during the coronavirus pandemic are based on the off-premise side. Sales numbers for off-premise are easier to track and because these numbers are so precise and so readily available, reporters sometimes make the mistake of assuming they represent total beer sales. But they do not cover on-premise establishments, which is a big part of total sales and have basically disappeared since March. Even with the pantry loading that occurred in the spring, store sales aren't enough to offset the loss of on-premise.
Before the pandemic, according to Bob Pease, the president and CEO of the Brewers Association, around 20 percent of overall beer sales were on-premise and about 45 percent of craft beer sales were on-premise. “And more importantly, the majority of small brewers get the majority of their revenue directly at the brewery,” says Pease.
But this shift in sales hasn’t been easy for the larger brands, either. “It’s been the most challenging year in our 40 years of operation,” said Jeff White, CEO of Sierra Nevada Brewing. “We lost nearly 20 percent of our business overnight. And our taprooms, tasting rooms, tours and gift shops have all been closed since March. The bulk of our business is in packaged beer, and we’ve seen increased demand for brands like our Pale Ale and Torpedo. That said, the gains in packaged beer certainly don’t make up for the loss of on-premise sales and the salaries of hundreds of our employees in food and beverage, guest experience and events.”
Even a large and more mainstream brewer like East Coast powerhouse Yuengling took a hit from the loss of draft. “The entire beer industry is experiencing an impact on their on-premise sales, which constitutes approximately 30 percent of our business at Yuengling,” said Wendy Yuengling, chief administrative officer at the family-owned brewery.
So you have to look at the overall sales picture to figure out what’s going on. The Beer Institute, the national trade association for the brewing industry, just released a report that does just that and the numbers are truly frightening.
“Although millions of Americans continue to enjoy beer responsibly every day, because of the COVID-19 pandemic the beer industry has seen a dramatic decline both in sales and jobs that rely on our nation’s most popular alcohol beverage,” said Jim McGreevy, president and CEO of the Beer Institute. “We hope policymakers consider that our nation’s brewers and beer importers are having to make difficult decisions to adjust for the impact of the COVID-19 pandemic.”
Here are some of those numbers, rounded to reflect ongoing change: 2,800 brewery jobs have been lost and 1,400 beer distribution jobs have been lost. One bright spot is off-premise, which actually added 12,000 jobs. That sounds good until you see the jobs lost in the on-premise sector. Those 12,000 beer store jobs are blotted out by the 324,000 jobs lost in all the places shut down by government mandates.
If the shutdown continues through March 2021, an estimated additional 200,000 jobs in brewing, distribution, and sales will disappear, along with 200,000 more positions in the suppliers and other tangential businesses.
The Beer Institute’s McGreevy is trying to limit catastrophic damage by staving off government action stemming from a misunderstanding of the industry’s current status. “Members of Congress should pass legislation to ensure our nation’s beer industry does not face a $154 million annual tax increase next year,” he said. “And state legislatures should not raise taxes on the beer industry to resolve budget shortfalls. These tax increases will only result in additional job losses for our nation’s brewers and beer importers and the millions of American jobs that depend on them.”
There’s also been a huge hit to suppliers to the industry—ingredients, packaging, promotional materials—to the tune of almost 66,000 jobs. One of those industry suppliers is Microstar Logistics, a Denver-based company that has grown enormously by leasing and moving kegs for brewers. It owns almost 5 million kegs and you can see Microstar kegs in almost every bar’s cold room. That is, you could have until COVID-19 hit.
“We went to zero revenue in March and April,” said Microstar vice president of marketing Dan Vorlage. “I’ll tell you the truth. We laid off about half the company. We weren’t able to absorb it all, but we made investments in our business and kept our [remaining] employees busy.”
Microstar and its competitors also had to deal with the more than a million kegs of beer that bars were unable to sell. Most of the busiest bars in the country were shut down just before St. Patrick’s Day, one of the biggest beer sales days on their calendar, and their keg rooms were full with no chance in sight of ever being tapped.
Some bars were able to sell some of that beer in to-go packages like growlers (jugs) and crowlers (large cans, filled and sealed at the bar). Some beer was “decanted” and distilled for hand sanitizer or whiskey. Neither option was legal everywhere, though, and the total was a drop in the bucket overall.
Various breweries worked out buyback or discount plans. “We credited distributors for every keg they had go out of stock during the COVID shutdowns, provided they were in turn providing credits to on-premise retailers,” Sierra’s Jeff White noted. “This was important to us to encourage support for retailers to help rebuild the on-premise.”
That was a big loss to the brewers and there was still all that beer to get rid of, which is no easy task, since it has to be treated before it can be dumped down the drain.
So, if you can’t sell beer in kegs, but people still want it, you’ve got to package it in cans. “There is still wide consumer interest in purchasing beer, it’s just a matter of the consumers adapting to where they can make that transaction,” says Wendy Yuengling. So brewers do what they have to in order to get beer on the shelves but thanks to a can shortage there’s less profit on each one sold. These added costs, of course, also cut into any benefit from selling cans off-premise.
Let’s look around the corner at after the coronavirus pandemic is finished. I promise you this will come to some kind of end. We don’t know when, or what it will look like, but at some point we’ll get back to normal. No surprise: it might be a different normal and some of your favorite breweries and bars might not be part of it.
The Brewers Association’s Pease gives a sober assessment. “With on-premise sales still well below previous trends, and the PPP providing only eight weeks of support for a challenge that is lasting far longer, many small brewers are facing an existential event as we enter the fall and winter, where sales typically drop and outdoor seating is less available.”
Sierra Nevada’s Jeff White is also forecasting a very different landscape. “It will certainly be quite some time—well into next year—before the vast majority of the population is comfortable returning to old routines,” he said. “Unfortunately, the retail landscape–bars, restaurants and many brewpubs and small breweries—will not be able to survive the loss of business for that long, and so the options will unfortunately diminish as a result.”
Wendy Yuengling did have a reassuring message. “It seems like every generation in our Yuengling family has faced a unique challenge—whether it’s the Great Depression, world wars, or even Prohibition—but that with each hardship we are able to adapt, persevere, survive, and prosper. For my sisters and I, that spirit and perseverance greatly impacts how we tackle difficult times. The pandemic is a reminder for us to take challenges head on, while also focusing on what matters most: our Yuengling employee family, loyal consumers and the key communities that are affected by the pandemic.”
And Microstar’s Vorlage was strongly upbeat. “We’re bullish,” he said, “on our brewery customers, on beer and on consumers. People are social animals. Right after the Spanish Flu, we rolled into the Roaring ’20s! People need a third place, they need a place to drink. Sometimes you don’t appreciate that until it’s gone. Draft is the signature of that, the economics of draft beer are great for all three tiers. It’s the most sustainable way to get beer to consumers. As hard as it’s been for us and our customers, we’re about as excited to come out of this as we can be.”