How Covid is Changing Beer
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I have a friend who works in the tech industry. His company inhabited a nice building with coffee pots, cubicles, and conference rooms. When the pandemic struck, they moved online and quickly discovered the arrangement was a wholly adequate way to run things. The owners let the lease go on the office and will continue online going forward. Not every company can shift entirely virtual, but the 12-18 months this disruption will cause has demonstrated just how seamless remote working can be. This is a watershed change. For decades workers have implored bosses to let them work from home, but the tyranny of in-person culture defeated new tech that makes remote working a breeze. I mean, it’s not like Zoom was born in March. It took a massive, sustained shock to change work culture. But now that the culture has changed, it’s hard to imagine it snapping back to the old ways after the pandemic subsides.
What about the culture of beer?
Covid’s had a profound affect on the way we consume it, and that has led to different patterns in production and sales. If we imagine a world, and this now seems like the best-case scenario, in which we can return to normal life next summer, how will the experience have changed beer permanently?
The Draft Crunch
The loss of draft sales was the most immediate and obvious change. With the periodic closure of bars, restaurants, breweries, and event venues, draft sales plummeted. They bounced back a bit over the summer, but will almost certainly collapse again over the winter. This phenomenon hit breweries of all sizes, even those that specialize in 24-packs. Big breweries have been able to recoup some lost draft barrelage by increased package sales, but even they are still down overall. For small breweries heavily invested in draft, the consequences have been more dire. For them, losing draft isn’t just a matter of volume, but revenue. On-site sales, even when they are a substantial minority of overall sales, can bolster the bottom line mightily because of the much larger margins.
Brewers Association economist Bart Watson recently discussed this trend as he presented findings of a survey of member breweries over their critical summer Q3 performance.
“The short summary of July-September is that small brewers saw better sales than Q2, but levels that still fall far short of 2019. We can see this pattern (improvement to levels that still lag last year) in nearly every data set.
“Taproom consumption down. To-go sales way up. Bar and restaurant business way down. Store sales way up. Event business way down. Overall, revenues are up, but profits are down due to the reduction in consumption at the taproom and onsite and offsite events.”
He added that onsite sales for Q3 were down 25% as were brewpub food sales, even while off-premise sales were up 42%. And again, these were summer trends, when the virus was spreading more slowly and people could drink outside. It will get worse over Q4 and especially dark, wintry Q1 2021. These realities set up the environment in which breweries must operate through at least the first half of next year.
Destination Drinking
Even as growth in the craft segment (in which the overwhelming majority of American breweries operate) declined in recent years, one spot shine brightly: taproom sales. People loved to go to their local breweries, buy a pint or three, and take a four-pack on their way out. The business model for on-premise sales featured a never-ending parade of new beers, many of them quirky and experimental, along with high-end specialty releases. Customers could find much of this beer only at the brewery, and that became part of the fun. Covid has scrambled that equation.
For one, big tentpole events had to be scrapped. For example:
“Once every year, thousands of people flock to Munster, Ind., eager to get their hands on 3 Floyds Brewing’s newest Dark Lord beer—that is, once every normal year. This year, COVID-19 caused the brewery to cancel Dark Lord Day, the festival surrounding the annual release of the imperial stout. The beer went on sale on 3 Floyd’s website yesterday instead.”
Showcase events aren’t entirely about the beer. People show up because the event is infused with the fun of rarity, community, and in-group recognition. Dark Lord Day is unusually popular, but special-release events have become a staple for breweries releasing expensive, time-consuming beers. In the absence of the community and the joy bragging rights offer, how well will $25 beers sell? Moreover, without the boost these high-profile, high-prestige beers provide, what happens to the brands of the breweries making them?
For that matter, what happens to breweries that built businesses around butts sitting on taproom stools? Most US breweries sell very little beer, but build successful businesses around high-profit on-premise sales. Some do it by appealing to super fans, others by becoming the neighborhood local. These models work because volumes are low. The tens of thousands of beers those 8,000 breweries make each year can’t all find their way to grocery shelves and restaurant taps. They depend on people coming to them.
Hopworks’ North Portland outpost closed in the Spring and never opened again.
One way breweries have maximized the taproom model is to open multiple locations—and this, too has had its challenges. Here in Portland, Hopworks recently announced they wouldn’t be re-upping the lease on their North Williams location. Mikkeller also just announced the closure of their location at Citi Field in New York City. With no customers and expensive rents, these outlets just don’t pencil out during a pandemic.
The biggest open question in beer is what happens after the pandemic. Do people go back to breweries? And if so, do they go back to all of them, and as often? What becomes of the taproom trend? Over the course of the 20th century, draft consumption shrank to nearly nothing before rebounding a bit in recent years. Will post-Covid consumers return to taprooms and pubs—and if so, in greater or lesser numbers?
Focusing on a Few Labels
For the better part of a decade, breweries thrived on variety. It’s a safe bet that the median number of beers made by American breweries numbered a few dozen. What happens, however, when the channels to sell that variety collapse? Focus. Michael Bonner, writing in MassLive, offers Clown Shoes as a great case study.
The pandemic took Clown Shoes' strength - limited-edition special releases - and made it a weakness. Wholesalers balked at the idea of new brews and opted for more stable long-standing brand names that they knew could sell. Rather than continuing down a path that built the brewery, it pivoted to focus on its core brews.
The brewery pared its line down and expanded its distribution footprint, focusing on core brands like Space Cake. Those shifts have led to overall growth, even while draft sales and variety are way down. Harpoon, one of the country’s largest breweries, owns Clown Shoes, and has the power to push its distribution out. Yet even many smaller breweries have had to focus as their draft options dwindle. They no longer have taprooms with dozens of handles, and trying to package such a wide range for delivery or curbside sales doesn’t make sense.
I suspect Covid just hastened a change that had to happen, anyway. Offering variety is fun for brewers and customers, but it leads to brand diffusion and a loss of focus. In a country with so many breweries, differentiation is already a tall order. And when every brewery offers several similar lines—hoppy ales, lagers, barrel-aged beers, sours—it’s hard to break through. Covid seems to be forcing some focus and attention to core brands and strategies. While I’m guessing, I’ll add a further suspicion here. Style diversity will take a hit. Breweries have been able to make unpopular beers because at a taproom, they eventually sell. With focus comes a narrowing, and that could be bad for those saison, brown ale, and schwarzbier fans out there.
Beer will be insulated in some ways from the worst ravages of Covid. It’s been around at least 10,000 years and will be around a few more. But along the way, major events like wars and famines have sent beer drinking and beer styles in different directions. The year plus (and please, God, let it be no worse than that) disruption of Covid will certainly leave a mark. Some of the contours of a future state are beginning to appear, though more, I suspect, remain hidden.