Once thriving craft beer industry dealt crippling blow by coronavirus

With brewpubs and taprooms shuttered and consumers less willing to experiment, thousands of brewers could go out of business or experience major changes to their operations.

or the Blue Mountain Brewery in central Virginia, the spring season usually finds the sprawling 11-acre complex in the shadows of Appalachia’s Blue Ridge Mountains packed with visitors sampling a flight of beer under umbrellas, playing Frisbee or cornhole on the grass lawn and sitting down at one of its 650-seats munching on its popular local bratwurst pizza with a glass of its signature Dark Hollow bourbon barrel stout.

This year, the 13-year-old brewery, which typically generates weekly sales of $150,000 around this time from nearly 10,000 visitors, is posting sales closer to $25,000. The property’s landscape, usually beat up from wear and tear of people running around, looks more like a Southern Living cover, with a perfectly manicured lawn and its knockout roses undisturbed, Taylor Smack, who co-founded Blue Mountain Brewery, told Food Dive. The brewery reopened May 15 to outdoor seating with spaced out tables and staff adorning face coverings. Guests are asked to remain seated once they arrive and indoor seating remains prohibited.

With customer traffic and revenue plunging, Blue Mountain has curtailed spending and canceled plans to expand its kitchen.The brewery also was going to build a BBQ-themed restaurant at its much larger Blue Mountain Barrel House production-focused facility 25 miles away, which is currently served only by a food truck. Smack halted construction in mid-March two weeks before it was slated to begin.?

After the closure of its main restaurant responsible for the majority of the company’s revenue, Blue Mountain turned to other options for revenue, including curbside pickup and delivery of its food and brews, as well as an online bulk grocery store with bacon, chicken breast, toilet paper and beer.

“Dead honest, a great week doing this is less than 15% of the revenue we would get in our normal operations,” Smack said. “It just doesn’t keep the lights on, man. We’ve been through a lot, a whole, whole lot previously, but this caps it so far.”

As the coronavirus leaves its mark on virtually all facets of the U.S. economy, few businesses are feeling its impact more than craft beer. The once flourishing industry built its image and growth on new trendy, cleverly named products consumers can leisurely try at more than 8,000 breweries scattered throughout the country or purchase at stores, restaurants, bars and other establishments.

With these operations shuttered or buying patterns in traditional retail channels disrupted because of the virus, craft breweries have watched revenue dry up, forcing many owners to jettison thousands of employees and leaving once-thriving operations uncertain how long they can remain in business the longer the pandemic drags on.  

“We’ve never faced anything like this. This is unprecedented. Absolutely unprecedented,” Charlie Storey, president at Harpoon Brewery, a craft operation making beer in Boston since 1986. “We’re doing everything we can to ride out the storm.” Revenue is down about 30% at Harpoon compared to before the pandemic, he said.

For brewers, especially smaller ones, there are not a lot of changes they can make to increase the market for their beer or connect with consumers in their community during the current crisis, analysts said.

Brewers so far have turned to many of the same practices to generate revenue, including e-commerce, food and growlers to-go, setting up mini-grocery stores to sell food items along with beer and leaning on merchandise and gift card sales — practices that collectively generate only a small fraction of what they made before.  

“They have some options but these are all stopgaps,” Bart Watson, chief economist with the Brewers Association, the trade group that represents the craft beer industry, told Food Dive. “At the end of the day, many of these breweries were built around brewing beer and then selling it directly at the brewery. There’s only so much you can do to pivot.”

This hasn’t stop craft brewers from trying.

Blue Mountain Brewery started a series of pop-up events where it allows consumers to order its brews online and pick it up at a selected date, time and place in Virginia. Brewery employees show up, pop open the back of its the beer truck, put up a tent and start unloading products that are only a few days old. Blue Mountain also has a food truck near its second brewery that delivers beer to people within a 15-mile radius. 

Storey said Harpoon, which has closed two taprooms except for curbside pickup and delivery, is doing everything it can to try to replicate the discovery and experimentation of craft. A five-mile road race it sponsors in May to raise money for ALS over the last 20 years is being held virtually; runners can chart their own course and gather online later for a toast. It also started an initiative where consumers can purchase beer to-go that they can drink during a live tour of the brewery on Instagram.

“It hasn’t even come close to offsetting the loss of business, the loss of revenue we’ve had from the on-premise closure,” Storey said.

Defining characteristics of craft

Nathan Greene, an analyst at the Beverage Marketing Corporation, said the craft beer industry was poised for another strong year in 2020 with new openings projected to increase 3% to 4% and sales across the segment expected to surge to another record, topping $29.3 billion posted last year. Craft makes up more than 25% of the $116 billion U.S. beer market, according to the Brewers Association.

But the spread of coronavirus has upended the once-thriving industry. Greene estimated up to 30% of craft brewers, or about a third of the 8,275 in existence in 2019, could go out of business or experience a major change to their operations, such as a closing of a taproom or turning exclusively to retail for their only source of revenue.

“There’s likely going to be a number of breweries, that is a sizable percentage of the total amount, that isn’t going to make it through,” Greene said. 

Most craft brewers, the majority of which are small and produce 1,000 barrels or less a day, generally don’t have a lot of cash on hand and often have higher debt levels because of the brewing equipment they had to purchase, Watson said. 

“There’s a real chance that if they can’t get back to some semblance of normal sales this summer that they just don’t have enough cash to withstand this,” he said.

Analysts said losing craft brewers risks stripping from the space the very characteristics that have come to define the sector and contribute to its robust growth during the last decade: its willingness to experiment and introduce new and never-heard-of-before brews.

“Obviously, we have to do everything we can to keep people safe. But to think about the risks that we can lose the people who are able to be super creative, that are pushing the boundaries of beer, that are blending things in new ways and aging things in new ways,” Jenny Zegler, associate director of food and drink at Mintel, told Food Dive. “It really kind of breaks my heart to think that that could be something we’re losing.” 

The current environment is not conducive for consumers attracted to brewpubs and taprooms for their relaxing, family friendly atmosphere where people can casually sample beers to see what they like and would purchase later on at stores, bars or restaurants.

With many of these establishments closed to their traditional way of doing business, analysts said craft brewers who depended on on-premise sales for the lion’s share of their revenue are the ones that are most at risk — especially the longer states require these businesses to remain closed to customers.

Craft brewers get about 45% of their sales on premise and 55% offsite compared to 80% and 20% across the beer industry as a whole, according to Watson. Other brewers susceptible to the current downturn include those that lack a top-tier following in their own region or are highly leveraged and spent a lot of capital to grow their business in recent years.

“One of the cruel ironies of all this is the conventional wisdom in craft breweries in the last couple of years has been that selling beer and package distribution is really hard, really competitive and so focusing on your taproom or brewpub was the smart thing,” he said. “Obviously, those investments are the ones that are getting hit the hardest.”

At Russian River in California, Natalie Cilurzo, co-owner and president, said the brewer was careful not to be too dependent on its own brewpubs, with sales split roughly between their onsite establishments and wholesale shipments. Now, beer production is down about 30%, with sales coming online, a steady takeout business and at retail outlets in California, Oregon, Colorado and Pennsylvania. Russian River has furloughed 70% of its 204-person workforce and reduced hours for another 12%.

“Bottled sales are up, which is kind of been our saving grace,” Cilurzo said. “We’re definitely relying on wholesale distribution and online beer sales to keep our business afloat.

Russian River is no stranger to disruptions on its business from disasters outside of its control. In 2017, and again last year, the brewery was on the outskirts of wildfires that were spreading across California. The blaze in 2019 came about a mile from its new dream 195-seat brewpub in Windsor, located 100 miles west of Sacramento, resulting in a week-long evacuation and power outage. 

“When you have a little more experience of going into crisis mode, and having to kind of pivot very quickly and make decisions on the fly, it really helps to have that experience. And I think that having had some of that experience already under our belt gave us an advantage,” Cilurzo said. Still, she added, “Comparing [the coronavirus] to that is really different because the fires you had more confidence that things were going to be over and that you’re going to be okay, and that your business is going to survive.”

Challenges in retail

Craft brewers have attracted consumers to the category and polished their image by deepening their ties within the community through the sponsorship of sporting events, samplings, beer festivals and other gatherings where people can meet, have fun and drink beer. With these events canceled or moved online, it’s harder for craft brewers to connect and build their brands. 

The closure of off-premise establishments such as restaurants and bars has knocked off another meaningful revenue stream and way to create awareness for their brand. Even as retail becomes a bigger part of sales, supermarkets, convenience shops and liquor stores are besieged with their own challenges that has trickled down to craft during the outbreak. Shoppers, Greene said, are showing less of a willingness to linger or scan shelves for a new beer to try.

And as more Americans lose their jobs or work fewer hours, they will have less money to spend. These challenges could prompt consumers to switch to mainstream brews like Miller Lite or Coors Light, mid-tiered premium brands such as Corona and familiar crafts including Sam Adams or Sierra Nevada.

“It’s almost a complete 180 to what made a craft brand have an opportunity for success previously. Before it was like whoever was paving the most new and unexpected path and attracting those people seeking variety,” Greene said. “And now as people seem to be shifting toward more brands they know or brands that they’re very loyal to, you’re more likely to see long-term brands or brands with really, really distinct and developed followings seem to be doing the best.”

Greene said even before the coronavirus, retailers were dropping some craft brands that weren’t as profitable while cutting back on shelf space devoted to the space. But the segment was able to continue prospering as taprooms, which came with higher margins, represented 15% of total craft beer volume compared to 7% in 2015.

Craft’s challenges on the shelf appear to have picked up momentum during the virus outbreak, with smaller brewers responsible for much of the decline. During the six-week period ended April 11, Nielsen said there were about 1,900 fewer beer, flavored malt beverages and cider items for sale across the category. The top 20 craft companies ranked by total dollar sales in Nielsen off-premise channels, sold only 28 fewer items compared to last year while the remaining players had a decline of 1,621 offerings, a drop of nearly 12%.

“The decline in number of items selling places even more pressure on small to medium-sized craft brewers that are already facing enormous challenges with the shuttering of taprooms, bars and restaurants,” Danelle Kosmal, vice president of beverage alcohol at Nielsen, said in a statement. 

Ripe for disruption

The craft space has become highly competitive following several years of torrid growth that has seen the number of brewers in the space increase to 8,275 in 2019, a nearly 417% jump from 1,600 operations in existence during 2009. The market saturation has been exasperated by consumers curtailing their alcohol consumption, switching to low- or no-alcohol beers or low-calorie brews, with others abandoning the space altogether by turning to more trendy drinks like hard seltzer. 

“The bubble was there. A lot people were already saying that maybe, especially in the U.S., that craft beer has gotten a little bit too big,” Zegler at Mintel said. “I think it’s undoubtedly going to change. … The pressures were there before the world turned upside down with this pandemic.”

A survey of craft breweries in early April by the Brewers Association showed the industry itself was not optimistic about its own future the longer the pandemic drags on. It found an estimated 12% of the 525 respondents as of April 9 said they could survive between one and four weeks, while another 46% predicted they could last between a month and three months.

Overall, sales were down at least 23%, with the biggest drop coming in onsite revenue where most breweries experienced declines topping 70%. Faced with little to no revenue, those brewers surveyed said they have furloughed and/or laid off nearly all of their staff. The craft industry employed 161,000 workers full-time and part-time workers before the coronavirus. 

The Brewers Association also has succumbed to the challenges facing its members. The association laid off 23% of its staff in late April “in order to maintain the long-term viability of the” organization.

Even as consumers quarantine at home, people are craving the chance to rekindle a connection with their community or do what they can to save local businesses that may be in dire straights. Those who follow the alcohol space said beer drinkers could be willing to support a local brewer they have an affinity for, but if an area is saturated with multiple craft players, lower-tier operators risk losing out to a business with a more loyal following.?

After the coronavirus has abated, craft breweries are expected to continue utilizing some of the new practices they’ve incorporated into their businesses. Russian River plans to put more emphasis on takeout at both of its breweries, and it could consider occasional shipments of its beer ordered online. Harpoon will continue looking for novel ways to recreate the craft experience virtually away from its brewery; the beers tied to the online happy hour tour and tasting could become a permanent part of its future.  

“Given our focus on the sociability of beer it’s going to require that we take new approaches to bring that to life,” Storey said. “What will change for us is how we bring our brands to life without the opportunity to put a lot of people together.”

But at the end of the day, what craft brewers ultimately decide to do may hinge on how they’re most comfortable selling beer. Watson at the Brewers Association said some brewers will emerge from the coronavirus looking to diversify the ways in which they sell beer while others will view online sales or other approaches they adopted during the pandemic as temporary and “go back to doing what they did before because that’s what works for them and that’s how they built their business.”

Blue Mountain, Harpoon and Russian River are among the craft brewers who said that despite the obstacles they are facing now, they’re confident they’ll be able to successfully emerge from the pandemic with their businesses intact. Cilurzo said Russian River has benefited because she and her husband have largely eschewed investors or board members who could pressure them financially during the downturn. 

“We’re a lot more nimble that way so the only pressure being put on us is by ourselves, and the world clearly. We’re set up. We’re going to make it through this,” Cilurzo said. “In a year, if we have this conversion, I don’t know what our business might look like. It might look really different.”