Last week, the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB) gave beer distributors greater flexibility to move product as they face skyrocketing demand for canned and bottled beer. Distributors can now move excess packaged beer from one retailer to another whose supplies are low, an unusual change to federal consignment sales laws. Shoppers filling their pantries and replacing on-premise drinking with at-home consumption have created a level of purchasing some beer distributors and retailers have put on par with the 4th of July, typically the #1 or #2 beer-buying holiday of the year.
“I’m expecting to see some pantry-loading, which just means people going and stocking up on products they expect and need in general,” Michael Uhrich, founder and chief economist at Seventh Point Analytic, said on a recent GBH podcast as he broke down changes in retail. “That includes beer for people that want to make sure they have beer on-hand throughout this epidemic when they’re facing potential lockdown in their homes.”
In Washington State, where COVID-19 was first identified in late January, beer sales volume in chain stores tracked by market research firm IRI was up 1.9% the last week of February and 3.9% the first week of March compared to the year before. That’s well above national sales rates for the same period.
This may look like a run on beer, but the industry says it’s ready to meet the new demand. Only packaging breweries, however, are poised to do so. That’s troubling to the craft beer industry overall, as 40% of Brewers Association-defined craft brewery sales come from draft production. This may go without saying these days, but it’s also unclear how long the current state of demand will last.
WHY IT MATTERS
For years, the American brewing industry has cautioned against a rush to packaging and distribution. With competition for shelf space at an all-time high and margins on draft and “own-premise” taproom sales much higher than those for packaged beer, breweries have increasingly concentrated on draft sales. If taprooms and brewpubs are forced to close, and now-shuttered bars aren’t buying kegs, the opportunities for craft have suddenly reversed course: breweries focused on grocery store distribution now have a significant advantage.
New Belgium Brewing, for example, says off-premise sales are up 30.9% year-over-year through March 17, an acceleration from even a week prior when the growth rate (at March 10) was 24.2%. As it turns out, the Fourth of July comparison proves correct; total U.S. beer sales in IRI-tracked stores for the week of March 15 about $857 million, toward the lower end of where the summer holiday typically lands ($800 million to $1 billion). Flavored malt beverages, which include hard seltzer, accounted for about $110 million of that figure.
“With mass amounts of on-premise closing down, we see people stocking pantries. And beer is part of that supply chain,” says Lester Jones, chief economist at the National Beer Wholesalers Association, a trade group that represents beer distributors.
He notes that in most areas, beer distributors also move soda, bottled water, juices, teas, and other non-alcoholic beverages that are also in high demand during a public-health emergency.
Jones anticipates an increase in demand for cans, bottles, and related packaging in the beer industry as breweries lose on-premise sales. Not only are bars and restaurants not selling through inventory when they’re closed or nearly empty of customers, but beer that breweries have ready to package, and which was destined for kegs, now has to be diverted to cans or bottles.
“I appreciate the call for people to buy a gift card and pick up a growler of beer to-go, but for a brewery that needs to have a sustained cash flow, getting it to the retail side of the business is the difference between short-term success and closing your doors,” Jones says. “There’s going to be a rush in the supply chain to get more cans and bottles so they can recoup something in the off-premise for beer that’s already made.”
Blue Label Packaging Company in Lancaster, Ohio, has seen its orders for beer labels increase 10% the week of March 17 versus the week prior. That includes a handful of new brewery clients who contacted Blue Label indicating they’ll be packaging for the first time to sell crowlers or cans for carry-out.
Arryved, a company that offers point-of-sale software for the craft beverage industry, polled its clients and found that as a result of the COVID-19 outbreak, 75% are offering curbside sales. But 20% of those clients don’t have crowler packaging, and half don’t package in 12oz bottles or cans.
To assist small breweries without packaging capabilities, Codi Manufacturing Inc. in Golden, Colorado, is offering its mobile canning services for free. Codi sales manager Andrew Ferguson says there was so much interest within eight hours of announcing the initiative, the company’s three mobile canners were completely booked for nearly two weeks. Codi has coordinated with Ball, CanSource, and Pak-Tec to expedite deliveries of cans, lids, and multipack holders. (CanSource said in an email to its clients that despite “firm control of our can supply chain,” clients might experience slight delays in can delivery resulting from high demand.)
Codi also worked with the Brewers Association’s federal affairs officer, the craft liaison for the TTB, and U.S. Tape & Label to quickly design generic beer labels—with space to digitally print a brewery name, beer style, and ABV—to help speed up the canning process for breweries who normally don’t package.
Blue Label president Andrew Boyd says March 15 seemed to mark the tipping point in breweries’ desire to move to packaging, though he can’t say whether the increased interest will be sustained long-term.
“It was almost the toilet paper effect, like ‘Do I need to stock up?’” Boyd says.
Boyd says there won’t be any shortage of labels or shrink-wrap packaging, adding that his suppliers have said there won’t be disruptions in delivering materials. Most of the materials Blue Label uses are made in the U.S., and the items that are made overseas haven’t been held up in transport.
On a less positive note, he says that increased business from breweries looking to ramp up packaging has been offset by breweries who have stopped selling beer entirely within the last week or two.
“It’s almost a wash because a lot of our smaller customers are having to close their doors,” Boyd says.
