It’s going to be a ‘make-or-break’ year for struggling craft brewers

CNN

By Alicia Wallace, CNN Business

For many of the nation’s small and independent brewers, this year will prove to be a true test of their staying power.

Early data for 2022 shows that brewery closures are on the rise and some sales have been spotty, said Bart Watson, senior economist for the Brewers Association, craft beer’s largest trade organization.

The pandemic and its ongoing effects, as well as the war in Ukraine, continue to drag down smaller brewers, who are battling climbing costs, rising rents, and seemingly interminable supply chain challenges, Watson said.

“2022 is going to be a make-or-break year for many breweries,” he said earlier this month while delivering the results of the association’s state-of-the-industry report.

During the first three months of 2022, at least 53 craft breweries shut their doors, up from 42 closures in the first quarter of last year. That still leaves some 9,100 breweries in operation, but more closures are expected.

After being hit hard in 2020, the US craft beer industry started bouncing back last year. But this year, the outlook has grown hazier.

“We still had the government raining down helicopter money [in 2021],” Watson told CNN Business, referring to the Restaurant Revitalization Fund, a federal pandemic relief program offering aid to struggling restaurants, bars, breweries, wineries and similar businesses. “The [breweries] are going to have to stand on their own [now].”

The craft beer business was already experiencing some choppiness before the pandemic: In 2019, there were a record 300-plus closures, a reckoning after thousands of breweries had opened up in just a few short years.

“We may see increased closings, but it’s not going to be a huge bubble burst,” Watson said of this year’s projections. “We were already moving toward a more mature place.”

However, the current economic outlook — and the war in Ukraine, which has played havoc with crucial commodities like wheat and barley — “could accelerate that,” he said.

That could mean an increase in consolidation and in brewers paring down, rethinking or shuttering operations, he said.

‘Not clear sailing’

In North Texas, the Lone Star State has seen popular breweries close their doors in recent weeks, including Legal Draft Beer and Armadillo Ale Works, the Dallas Morning News and Denton Record-Chronicle first reported.

“Poor sales led to the accumulation of expenses and debt and although government assistance helped keep us afloat, we were unable to fully recover,” Armadillo Brewing Company officials said in a Facebook post on March 27.

Texas brewers faced some unique challenges early on in the pandemic because they were initially classified as bars, which were targeted for shutdowns as part of Gov. Greg Abbott’s Covid-19 measures, said Charles Vallhonrat, executive director of the Texas Craft Brewers Guild.

“Now we face a lot of the challenges a lot of hospitality groups face with supply chain issues and staffing — keeping staff on board, being able to run at capacity, ” he said.

The supply chain constraints span a number of products breweries rely on, with aluminum for cans and can availability as the biggest issue, Vallhonrat said. But it also extends to shipping costs, delivery timelines for equipment and even the branded glasses sold in brewery gift shops, he said.

It all adds up, especially if brewers are already on shaky ground, in debt or in a tenuous leasing situation.

“Things have to click for the brewery to be bringing in the revenue with visitors, with events,” he said. “One hiccup, one bad delivery, one missed equipment, one bad batch, and you can be at risk. People are getting by, but it’s not clear sailing right now.”

Changes are brewing

This past weekend marked the final day of operation for Second Street Brewery at its namesake original location off 2nd Street in Santa Fe, New Mexico. Second Street had operated there for more than 25 years, but the lease renewal terms — including higher rent — were not favorable enough, said Rod Tweet, Second Street’s president and brewmaster.

With two other taproom restaurants in the Southwestern arts hub, the company is “doing pretty solid business” and both breweries are “very busy,” Tweet told CNN Business. “We’re in pretty good health on the whole, but we pay attention to what’s going on around us, too.”

The company’s restaurant footprint was a little too big for post-Covid times, he said. Not to mention the extent to which the lingering, cascading economic pressures have created an uncertain business climate.

This now includes the ripple effects of the Russia-Ukraine conflict on the price and availability of oil, food, lumber and other materials. The global crisis could put additional price and demand pressures on items used by brewers, such as wooden pallets and malted barley, Watson said.

“It’s a good time to be super careful and super strategic because we’re facing rising prices in pretty much everything,” said Second Street’s Tweet. “We’re trying to think of where we want to be five years from now.”

Beer as a path toward economic renewal

Despite uncertainty, optimism is brewing in places like Kansas City, Missouri.

That’s where local musician Kemet Coleman is teaming up with craft brewers Woodie Bonds and Elliott Ivory to open Vine Street Brewing in the city’s historic Jazz District. When Vine Street makes its debut in September — an opening date already pushed back because of supply chain and construction delays — it will be Kansas City’s first Black-owned brewery.

Coleman was inspired to start a brewery after getting a job at Kansas City’s venerable Boulevard Brewing nearly 10 years ago. He had also learned about the history of brewing in parts of Africa and the roles of Black women and female slaves in America’s early beer industry. Coleman said he sees the potential in not only introducing craft beer to new consumers and educating them about the different styles of beer, but also in economic renewal.

Breweries are “great community builders,” he said, noting that in downtown Kansas City he’s seen breweries emerge and development follow. Vine Street hopes to serve as a community gathering place and offer historical tours and host local musicians and events.

In the Jazz District, “some of our most important milestones and moments and spaces have either been demolished or haven’t really been taken care of,” he said. “So I see beer in general, but also this brewery specifically, as a way to help bring back a community to not former glory but to a new place that everybody would enjoy and would be proud to boast about.”

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