Like many businesses, New York’s Other Half Brewing was forced to adjust at the onset of the pandemic. “Our taproom workers have shifted from behind the bar to running product out to people’s cars for curbside pickup and making home deliveries,” says Andrew Burman, co-founder of the Brooklyn-based company. “And our bartenders are making pallets for grocery stores.” The changes in staff responsibilities began at the start of the pandemic and continue today, according to Burman. “We decided we couldn’t be timid,” he explains. “We had to change our model and pivot.”
Other Half is far from the only craft brewery that has been dramatically impacted by the Covid-19 pandemic. Indeed, many breweries—particularly those that rely on a taproom model with little retail distribution—have been crippled. Bart Watson, chief economist at the Brewers Association, estimates that craft beer volume dropped 9% last year, a performance that was much worse than that of overall beer, which dropped 3% (excluding FMBs) . As a result, craft’s share of the beer pie dropped to approximately 12% in 2020, from 14% in the year prior. Craft beer’s underperformance is largely due to the fact that sales skew more toward the on-premise, including draft, than overall beer.
Mark King, CEO of Cleveland, Ohio’s Great Lakes Brewing, says that in addition to lost on-premise sales, craft beer has been hampered by many consumers’ shift to off-premise purchases, including greater demand for multipacks, packages that many small breweries don’t have the capability to produce. Moreover, the hard seltzer boom has been “bad timing” for craft beer marketers, King says, as “those products have taken share of shelf.”
Surprisingly, however, there have been far fewer brewery closings due to the pandemic than expected. Watson estimates 300 brewery closings last year, about the same as in 2019. Large infusions from the Paycheck Protection Program (PPP) helped craft breweries pay their bills, Watson notes, while extreme cost cutting, including staff layoffs, have helped keep the companies afloat. “But we’re not out of the woods yet,” he says. “It’s still not a healthy business environment. The first six months of 2021 will be critical.” And while Watson expects craft beer volume will increase this year, it’s not likely to top that of 2019. That may have to wait until 2022, he says.
The success of craft beer over the course of the last few decades has been greatly tied to the on-premise experience. The brewery taproom model has emerged as a popular one for local operators, while for retailers, craft beer on tap dramatically over-indexes that of overall beer. According to Watson, prior to Covid-19, the on-premise channel accounted for about 20% of total beer sales; for craft beer, as much as 45% was sold on-premise. So with on-premise beer sales projected to have declined by as much as 50% in 2020, craft brewers were disproportionately affected. “We lost draft orders entirely for months,” notes Leah Wong Ashburn, president and CEO of Highland Brewing in Asheville, North Carolina. The brewery also lost sales at its taproom, which finally reopened in March after a year-long shutdown.
On-premise retailers who emphasize craft beer at their venues have also been hindered; many have cut back on draft offerings. At Ohio’s Winking Lizard chain, co-owner John Lane says draft options were slashed from 33 brands pre-Covid-19 to 23 when units reopened last May. Currently the restaurants offer 28 draft brews, priced at $5-$6 a 16-ounce pour. Similarly, Molly Gunn, co-owner of Atlanta’s Porter Beer Bar, notes that draft lines have been reduced from 50 to 38 choices, priced at $6-$13 a pour. Still, both she and Lane say draft beer remains appealing to on-premise consumers. “People want what they can’t get at retail,” Lane says.
The sting of lost on-premise sales will remain with craft beer for some time, brewers say. “The on-premise recovery will take years,” notes Chris Brown, vice president of sales at Great Lakes. “There will be less opportunity with fewer draft handles.” Ashburn is concerned about the lost sampling opportunities. “We don’t yet know how much the sampling loss will translate into a lack of trial purchases in the off-premise,” she says.
Off-premise sales of craft beer, meanwhile, rallied during the pandemic, and likely increased at a double-digit rate last year. Breweries like Highland moved quickly last year to emphasize retail sales. “Fortunately, we had already invested heavily in packaged beer,” explains Ashburn. “When we had to close our taproom in March, we put all our energy into supporting our off-premise accounts with fresh beer, filling orders, and restocking shelves.” She adds that while the increased off-premise sales didn’t erase the hit the brewery took from lost draft and taproom sales, “it certainly helped keep us afloat.”
California’s Barons Market, a nine-store supermarket chain, benefited from the shift toward off-premise beer buying. According to wine and beer director Jeff Slankard, craft beer sales surged 30% at the chain last year. “A lot of small breweries began canning,” he explains, allowing Barons to offer products previously unavailable to them. “We squeezed more beer into existing space.” Craft brews at the stores are typically priced starting at $8 a 6-pack of 12-ounce cans of Mother Earth’s Tierra Madre Mexican-style lager, up to $23 for a 4-pack of 16-ounce cans of North Park Simple Division Double IPA.
Marie Greguska, owner of Discount Liquor in Milwaukee, where 6-packs of craft beer are priced at $8-$15, says that early on in the pandemic craft brewers couldn’t compete with consumer demand for large multi-packs, such as 30-packs. “But as time went on, craft beer came back,” she says. Among the craft brews to perform well at Discount Liquors were nationally distributed crafts like Sierra Nevada pale ale and Fat Tire amber ale.
Sierra Nevada Brewing Co. and Fat Tire producer New Belgium Brewing Co. did indeed fare well last year. According to Sierra Nevada chief commercial officer Joe Whitney, total depletions for the California-based brewery jumped 6% last year, driven by a strong off-premise performance for its flagship brand and the surging Hazy Little Thing IPA label. “We saw spikes in all off-premise channels, but grocery was the big winner,” Whitney says. At New Belgium, public relations director Leah Pilcer notes that the Colorado brewery quickly shifted to packaged beer production at the start of the pandemic. “Between the start of and end of March 2020, our orders for packaged beer jumped by nearly 5 million beers,” she says. Overall volume surged 12% last year, she says, driven by the Voodoo Ranger IPA line.
Other breweries have been less fortunate. With on-premise sales traditionally accounting for 35% of its business, Great Lakes’ volume dropped 15% last year, according to King. And the company only started to can its products recently. As a result, the brewery reduced staff among “campus employees,” he says, such as those who worked in its brewpub, gift shop, and events department.
Wilmington, Delaware-based Iron Hill Brewery, meanwhile, has long operated a network of brewery restaurants along the East Coast. “Like the entire restaurant industry, the pandemic has been devastating for us,” says co-founder Mark Edelson, who notes that before the pandemic, 95% of the company’s sales were on-premise. “We had to become a takeout concept in just 48 hours. There were significant staff reductions.” But by early this year, most of the 19 locations were operating at 50% capacity and some of the furloughed employees had returned. The opening of a production facility in Exton, Pennsylvania in late 2020, complete with canning capabilities, allowed Iron Hill to begin retail sales. A taphouse at the site opened early this year.
Despite the hurdles of the pandemic, executives at Iron Hill and Great Lakes, along with other craft breweries, are optimistic about a post-pandemic craft beer market. But they concede that the events of last year have heavily altered the craft beer landscape. “The pandemic has forever changed the way that breweries within the craft beer industry will think through their portfolio lineup, product packaging, distribution partnerships, and on- and off-premise plans,” says Pilcer. Other Half’s Burman adds, “Certain things about craft beer have been forever changed.” Services like curbside pickup and home delivery “won’t go away,” he says, nor will grocery sales. Among retailers, Winking Lizard’s Lane is concerned that craft beer innovation will slow. “People have gone back to tried and true beers,” he explains.
While the craft beer segment overall emerged from 2020 banged and bruised, brewers say a recovery is on the way. To prepare, Pilcer advises that retailers “make building key relationships with key partners a top priority.” Great Lakes’ King adds, “Craft beer has benefited on- and off-premise retailers for three decades now, providing them with trade-up opportunities, and for on-premise retailers, a very profitable draft business.”
Iron Hill’s Edelson believes that craft beer will fare well this year and beyond. “The fact that craft beer was only down 9% last year is amazing, when you compare it to other businesses,” he says. Following years and years of strong growth, “it took a pandemic for the numbers to turn negative.”