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Earlier this week, we looked at the pivotal change in beer buying: with the loss of on-premise and taproom options, the simplicity and efficiency of larger breweries in major retail outlets is winning. Companies that have seen volumes decline for years are resurgent with shoppers flocking to major grocery stores for bi-weekly, pantry-stocking trips thanks to lower prices and larger packages.
One-off trips to the store are in decline, according to IRI, and even as states flirt with aspects of reopening, Americans’ psychological response to returning to “life as normal” is expected to dampen economic recovery. The nonpartisan Congressional Budget Office expects official unemployment numbers to reach a high of 16% this summer and stay in double-digits into 2021.
The financial realities of beer drinkers (and cannabis users) have shifted spending, expectations, and shopping behaviors. This has left out a large segment of breweries for which most sales outlets already didn’t exist. And while national and large regional brands dominate the retail market right now, it’s not all bad news for smaller, local craft brands, too. Those who have pivoted planning and packaging as draft options disappeared have found a cushion to soften COVID-19’s blow—for now.
"We lost about 60% of our business, but I was thinking we'd lose 75%," says Rob Lightner, co-founder of California's East Brother Beer, who've lost about 50% of their dollar sales without an open taproom. "Curbside pickup and delivery have been steady and there's a soft benefit when you feel like, 'oh my god, there are people driving out to pick up our beer who feel an ownership and affinity for their local businesses.’"
For many companies who relied on robust taproom sales, there’s now an understanding that avenue isn’t likely to return any time soon, even after shelter and stay-at-home orders are lifted. In the case of East Brother, that’s expedited off-premise planning. In the coming weeks, they’ll kickoff new partnerships with regional and national chain grocery stores in the Bay Area, shipping hundreds of cases to places where they’ll have shelf space for the first time. East Brother is also rolling out its first-ever promotional pricing plan.
"Promotions are a very normal thing and something we had talked about with our distributors,” Lightner says, “but we expedited that because we need volume and it'll result in volume.”
Even in an odd time, there are still aspects of business as usual, and it's creating cash flow now, and new relationships and opportunities for whatever the post-COVID beer-drinking world looks like. That kind of attention has resulted in about 2,000 direct-to-consumer deliveries over six weeks for New York City’s Torch & Crown Brewing, which rapidly sped up plans for those sales because of the coronavirus, and sees this experience as key to expanding this route to customers in the future. About a third of customers buy again, with 20% placing at least two more orders. Building affinity with drinkers now at a time of distress is seen as an avenue to needed support when interactions (and purchases) can regularly take place outside the home.
Not far away in Branford, Connecticut, Stony Creek Brewery has had such demand for their Cranky series of IPAs (a Session, regular, and Double IPA), they shifted production of Cranky IPA and Big Cranky DIPA to a contract agreement at Two Roads Brewing Co. The pair make up about 60% of volume and the brewery which has a distribution footprint of New England, Upstate NY, and Long Island.
Stony Creek had difficulty keeping up with orders for the IPAs last year, and with increased demand for packaged beer because of COVID-19, Dave Herrington III, general manager and CFO at Stony Creek, says brewing the two beers elsewhere was necessary. It’ll help his team meet projected demand and open up capacity for an ongoing series of one-off IPAs. "The strategy we have is pretty simple," Herrington says, "customer obsession." Even at a time when large breweries are seeing flagships finally rebound, the nimbleness of craft's smaller businesses can still hold sway with a core audience.
"The one-off IPA’s are effective on multiple levels—not only are they high priced, high margin, and sell out quickly, but we pretty much give our brewer’s free range over the recipe and the design which boosts morale," Herrington adds.
Then there are examples like West Sixth Brewing in Lexington, Kentucky, offering CSA-style boxes for $35 (small) or $50 (large) that include a mix of 12oz six-packs, 19.2oz stovepipe cans, and merchandise. The large order comes with a one-off, crowlered beer. Kelly Hieronymus, marketing and creative director, says the offering could stay beyond COVID restrictions with around 15% of buyers repeat customers. Portland, Oregon's Von Ebert Brewing is following similar steps as Stony Creek, ramping up packaged production. They're using mobile canning once a week instead of once a month, and packaging higher volumes while offering deals like “$2.50 Can Day” on Tuesdays to encourage sales.
Dominick Iaderaia, director of food and beverage for Von Ebert, says that the increased effort will need to continue, especially since those sales will remain important as fewer people choose to dine out after any stay-at-home restrictions are lifted. There's also an unpleasant reality for what happens to interest in draft beer: "Cans will help fill that gap and we're even considering selling cans for on-premise consumption," he says. "Customers may be more comfortable with that than beer served in glassware."
Emerging consumer behaviors of ordering online, drinking at home, and bulk-buying show promise beyond the country’s biggest brands, which could be a sign that despite a dire state for many of the smallest breweries, there are still instances of smaller craft gaining loyalty and repeated purchases from fans, allowing them to simplify their portfolios, workstreams, and build their brands in new ways.
In normal times, IRI data represents the largest swath and average set of consumers, and right now it can’t be taken for granted that it represents an even larger collection of Americans moving purchases away from taprooms and on-premise to chain retail. But there’s still an unmeasurable layer of the market coming to life.
"When everything first happened, for a short time we were saying 'this will pass in four weeks,' then it was 'this will pass in six weeks,' and clearly none of that is going to happen now," Lightner says. "The reality is that taproom and draft business is not going to come back for some period of time and we don't know how long. So now it's about addressing and supplementing those losses as best we can and staying optimistic."
Of course, continued optimism will depend on how the country's economic recovery goes. A COVID-19 vaccine for emergency use isn't expected until early 2021, and the White House has said that social distancing practices will probably last through the summer, even as states try to reopen. As job loses mount, decisions with beer would presumably mimic those with cannabis as decisions are split on spending depending on your income level.
According to IRI, all households have spent more on food and beverage products, but "upper income" households (above $80,000 annually) have shown more dramatic increases than "lower" (less than $40,000).
Similarly, private label food and beverage products have increased share among all households, but these lower-cost, grocery store-branded goods have grown dramatically with lower-income households.
For now, at least, all this points at continued difficulty for most craft brewers with so much financial uncertainty yet to come. Sales trends have not been kind to the majority of these businesses, many who could be closed by the time social distancing orders really start to get relaxed. This is exacerbated by continued grocery store spending, which is creating a stark difference between the haves and have nots of distribution and shelf placement. Additionally, about three-quarters of younger Americans (21-44) who have long been a prime source of customers for taproom-focused and smaller brewers say "would still try to stay home as much as possible" even if all COVID-19 restrictions were lifted.
So what does this mean for what breweries could do to navigate this kind of status quo? In the coming weeks, we’ll look at where and how sales opportunities could grow outside grocery, and broader ideas of how recessions impact beer during and after economic decline.
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