The COVID-19 pandemic battered and bruised the local craft brewing industry, but indications are that the remaining breweries are poised for solid growth.
Sales of draft beer at brewpubs, taprooms and restaurants were decimated by the pandemic. Nationally, draft dropped from 81.5% of craft beer sales in February 2020 to about 14.1% of sales two months later, according to a January 2022 report from the Brewers Association, a trade association comprised of nearly 6,000 U.S. breweries, along with beer wholesalers and retailers. The situation was even more dire in Colorado, where draft beer dropped from 84.9% of sales in February 2020 to 6.3% of sales that April.
“Think about how much beer breweries sell through concert venues, restaurants, taprooms, sporting events. When all of that shuts down, it’s a huge, huge decline,” said Henry Wood, vice president of sales and marketing at Boulder’s Upslope Brewing Co.
“The impact (of the pandemic) was huge,” said Tom Horst, founder and brewmaster at Crystal Springs Brewing Company in Louisville. “We went into the pandemic with some cash on hand and came out of it with no cash on hand and debt.”
When the taproom at Boulder’s Sanitas Brewing Co. closed in 2020, overall sales dropped 90% vs. the previous year, said Michael Memsic, co-founder and CEO.
Local breweries responded to the drop in draft sales by focusing on canned beer.
“We did a lot of to-go, take-out and delivery sales,” Wood said. “We saw our can sales at grocery stores and clubs like Costco go up quite dramatically.”
Reassigning taproom employees to different duties supporting retail sales allowed Upslope to avoid layoffs.
Sanitas also saw an uptick in take-out and store sales, but the impact was not huge, Memsic said.
Crystal Springs’ sales of canned beer went up considerably during that time, Horst said, even though the company faced an additional challenge — Horst was hospitalized for 24 days after his taproom closed.
“Both my wife and I were in the hospital. I was in the ICU with no connection with the outside,” he recalled, “so our employees set up curbside sales and deliveries, set up schedules for everybody. They just worked their butts off.”
Government financial aid was vital to the survival of many local breweries.
“We were very aggressive on making sure that we learned about all the opportunities from the city, county, state and feds,” Memsic said. “We got all of our ducks lined up, and we made sure we could execute all of those opportunities so that we could continue to survive.”
“The PPP (federal Paycheck Protection Program) loans helped a lot,” Horst said.
The tremendous financial pressures brought on by the pandemic compelled some brewers to reassess operational issues that had not been dealt with during good times.
Crystal Springs had not been able to keep up with demand for several years, Horst said, but last year, he fixed that problem by buying the equipment to more than double his production capacity.
“Having those shutdowns is devastating, but it’s really good for QC (quality control),” Sanitas’ Memsic said. “It was an opportunity for us to say, ‘We need to brew better beer consistently,’ and today we brew the best beer we’ve ever brewed.”
The result has been record sales, Memsic said. “We’re the strongest we’ve ever been. We’re setting records consistently. Our ‘best month ever’ has happened numerous times in the last 12 months.”
Upslope has been growing sales outside Colorado for several years, with its beer now sold in 10 states. However, the additional costs associated with supporting retail sales outside the Rocky Mountain region mean lower profit margins, Wood said, so the company has become less interested in pursuing sales in more distant states.
Everyday challenges for brewers
While most local craft breweries survived the pandemic, they continue to face increasing costs and supply-chain disruptions that impact both production and distribution, problems that were highlighted in a March 2022 Brewers Association report:
◘ The availability and cost of aluminum cans is a challenge due to several factors, including the closure of several mills that create the aluminum sheet used to produce cans; declining production capacity, especially in China; increased demand; and historic high prices for aluminum.
◘ The supply of barley is expected to be impacted by the Russia-Ukraine war, because Russia is the second-highest and Ukraine is the fourth-highest global producer. While American breweries have traditionally used little Ukrainian or Russian barley, the war is expected to affect prices as breweries around the world compete for the grain. Also, drought continues in the major growing regions of North America, potentially affecting this year’s harvest.
◘ A significant shortage of truck drivers and increased competition to secure loads is seriously impacting brewers across the country. It is increasingly difficult to count on shipments arriving on schedule.
Crystal Springs has traditionally had one price increase for barley annually, but the company has already seen two price increases in 2022, with another coming soon, Horst said. He has responded by buying larger quantities of barley to secure a discounted price. Upslope has a multi-year contract for barley that protects the brewery from cost increases, Henry said, noting that other larger craft breweries would likely have similar arrangements.
Crystal Springs’ biggest challenge has been finding packaging materials to support their wholesale business, Horst said.
“We’ve been able to find a truckload of cans here and there that somebody was going to buy but then they didn’t buy,” he explained. “We’ve been around long enough that we’ve got quite a few contacts, so we put the word out that we needed cans and so far we’ve been able to stay ahead of the game.”
Such production and distribution challenges are nothing new for craft brewers, Henry said.
“Craft brewing is not for the faint of heart,” he joked.
One distinctive upside for the industry is that local craft brewers know each other and are very supportive of each other. “What they say about small breweries is true — we help each other out a lot,” Horst said.
The Boulder area’s longstanding “buy local” philosophy also bodes well for the future of the area’s craft brewers, Horst said.
“We hear all the time, ‘I’d rather come in and spend 12 bucks for a six-pack from you than get a $9 six-pack from Budweiser,’” he said.
Given all the financial challenges they face daily, one would expect local craft brewers to be very nervous about predictions that the U.S. could be entering a recession. Luckily, if a recession occurred, it would likely have less of an impact than the brewers’ current supply-chain challenges, said Bart Watson, chief economist for the Brewers Association.
“Historically, we can see that recessions don’t do a ton to overall beer sales,” Watson said. “Beer is not fully recession proof, but I would describe it as ‘recession resistant.’ In past recessions, we haven’t seen too much trading down within the beer market, so people aren’t necessarily giving up their favorite brand to buy cheaper stuff.”
The customer base for craft brewers also insulates them better than some other sectors of the economy, Watson said. “Recessions don’t hit everyone in the U.S. the same, and craft brewers tend to have a customer base that’s perhaps slightly less affected by recessions and craft breweries also tend to be located in areas that perhaps are a little bit better primed to weather recessions.”
Difficulties balanced by fun
Despite its many headaches, brewing craft beer is a lot of fun, all the interviewed brewers said, especially when it comes to creating new flavors.
Horst was challenged by his team to create a new beer every week to be debuted on “Thirsty Thursdays.” Flavor suggestions come from customers, employees and research. Horst recalled recreating a bock beer he learned about from a Daily Camera article printed in 1905.
“We’ve created some beers that have become very popular,” he said. “Blood orange was one of our Thirsty Thursday releases. It just took off, and now it’s our No. 1 selling beer and won a gold medal at the Great American Beer Festival last year.”
Sanitas likes to do four to six collaborations per year that challenge them from a brewing perspective and also expand their community connections, Memsic said. Sanitas collaborated with Boulder’s DV8 Distillery, which Memsic described as an “LGBTQ-centered spirits company,” to create a tea- and lemon-infused sour beer called Earl’s Out for this year’s Pride Month.
“We took it to some events and put it in our tap room and people loved it, so we’re making more,” he said.
Upslope has a new product development committee that fields recommendations from across their organization, Wood said, describing the process as “a beautiful kind of frustrating wrestling match.”
“Upslope is very well known for its lagers and pilsners,” he said, and this year released a series of international versions.
“We currently have a Japanese-style lager that has more rice in the body that lightens it up. That has been a huge hit, and you will see that going full-time in 2023,” he said.
Beer lovers from the Boulder area who venture out to other Colorado communities will likely find great-tasting beers across the state, Horst predicted.
“I would guess that it would be almost impossible to go into almost any brewery along the Front Range and not have a good beer,” he said.