How Can Your Craft Brewery Respond to Inflation?

Mixed economic signs

With a mix of unusual signals assessing the state of the economy, small brewers, along with nearly every other industry within the U.S. and abroad, face an uncertain and unique situation. At the top of this list is the impact of inflation and how long we can expect inflationary pressures to remain.

The annual US inflation rate dropped from 7.1% in November to 6.5% in December 2022, the lowest since October 2021. Kiplinger predicts the yearly rate to drop to 3.2% by year end 2023. While this is moving in the right direction, this prediction is still above the Federal Reserve’s 2 - 2.5% target, which means we shouldn’t expect the Fed to lower interest rates this year.

Meanwhile, the labor market remained strong through year end 2022, although hiring has started to slow down amid concerns of a potential recession and rising interest rates. Despite recent news stories of big tech companies announcing massive layoffs, this shouldn’t be the norm in 2023. Most of the massive layoffs to-date are with companies who saw larger than average growth during the COVID-19 pandemic. Most employers seem hesitant to let employees go after experiencing the pains of a worker shortage the previous two years.

The stock market saw its worst annual performance since 2008 with the S&P finishing 2022 down nearly 20%. Investors showed concerns of rising interest rates and high inflation, and this is expected to continue in this first quarter of 2023.

All of this suggests continued interest rate increases in 2023.

The state of the craft beer industry

According to the Brewers Association, 2022 was a much better year for craft brewers than 2021, but recovery was varied. Overall volume sales increased by 1% over 2021, led by in-brewery sales. However, draft sales still lagged behind pre-COVID numbers and distributed sales, increasingly competitive and challenging, remained slow. In retail, competition for shelf space continued as other ready to drink (RTD) alcohol choices emerged.

Low supplies and high prices of barley, hops, aluminum cans, and carbon dioxide, along with rising energy costs, created production challenges and lower profit margins for brewers, but year-end saw signs of improvement. The Brewers Association predicts a rocky supply chain in 2023 but that average prices should fall from the peaks in 2022.

Industry leaders are working to impact legislation in several areas: advocating for direct to consumer (DTC) shipping, against lowering taxes on RTD canned cocktails (retail shelf competition), and to remove the Section 232 tariffs on aluminum, originally put in place by the Trump administration, of which 92% goes to 3rd party aluminum industry companies.

While uncertainties abound, one thing is certain - demand for craft brews is strong. James Beeson, Just Drinks’s deputy editor, suggests:

"'Affordable luxury' may well be the beer industry buzzword of the year. Most of the analysts I speak to concur that – in a recessionary environment where lavish overseas holidays and fine dining are out of the question – consumers will still want to treat themselves and enjoy a beer on a Friday night.

While we may not see demand dwindle, therefore, we could see the impact of the cost of living crisis in different ways, such as a shift from on to off-premise consumption, and consumers shopping around based on offers and occasion. Mr. Smith might choose to enjoy a premium craft beer with his takeaway on a Friday night, but is happy enough with a multipack of cans and a supermarket pizza during the week. Light beer’s resurgence in the US is evidence to this point." –James Beeson, Deputy Editor, Just Drinks

Customers are also looking for options that are lighter, lower ABV, and more health-conscious, including alcohol-free beers and even organic and gluten-free drinks, Beverage Dynamics reports, which present as threats or even opportunities for brewers!

In their 2022 report, the Brewers Association predicts:

"2023 will be a reset for many brewers as the maturing craft industry continues to grow more competitive, facing both internal business pressures and, externally, the continued growth of new beverage alcohol competitors. While these challenges are daunting, craft brewers are known for their innovation and flexibility, and will need both as they evolve to meet the next generation of beer lovers with new beers and new occasions." –"Year in Beer 2022" Report, Brewers Association

How to respond

Unfortunately, there is no quick fix; but there are actions and approaches to consider that can cut costs, save you money, and help your margins.

Some craft brewers have successfully diversified their offerings, adding other, non-beer and/or non-alcoholic products. Others have trimmed the number of beers they brew, particularly those that require ingredients that are expensive and have been made more expensive by shipping costs like grain and hops from overseas. Some brewers have switched to brewing and packaging beers with nitrogen rather than carbon dioxide given the shortage and higher prices for CO2.

Some have diversified what they do, providing brewing, production, and packaging services for other brands to make use of idle time, space, and equipment at their facility, while expanding production capacity for organizations that have not or cannot yet afford to make the capital investments necessary to expand production on their own. In some cases, a more radical approach has meant collaborating closely, sharing space and equipment, or even going the acquisition/merger route to weather current challenging conditions.

Consumers have grown used to package sales, picking up and taking their favorite brews home, and in many places, changes to laws mean that ordering beer and spirits for delivery is now legal. Whether that means marketing through national or local services or offering delivery services directly, this new sales channel is worth exploring.

Many have gone back to their roots, focusing on the most profitable part of their business, the taproom. Building community awareness and relationships through events and grassroots marketing efforts, offering unique products and experiences, emphasizing lighter, healthier products, and focusing on sustainability can attract and draw in new customers.

With some projecting a continued economic slowdown and potential recession as we enter 2023, it may take many months, even years to get a handle on inflation and settle into a more “normal” economy. There have been a number of highly optimistic projections about craft beer sales in 2023, based on some reliable foundational data; but with so many indicators varying so wildly from past situations, it’s a challenge to look into the future and know what to expect.

Optimize your packaging

Did you know can carriers are generally the third highest cost per can?

Roberts PolyPro can save you up to 25 percent on your can carriers. Our team is happy to work with you to analyze what you’re spending today with your current can carrier vendor and review options that can reduce your spending as much as 25 percent – that’s $0.03 to $0.05 per four pack or six pack.

Our carefully and efficiently engineered products use less material, which translates into a better cost per case for you and a better retail cost per case for your customers. We ship our can handles packed efficiently in nested stacks, saving you freight and storage space and costs as well.

Based on feedback from our customers – and from craft brew consumers – we designed our HDPE plastic Craft-Pak carriers to perform well and be 100% recyclable while lowering costs, improving your operations, and meeting your consumers’ expectations. Our open can ring design uses 30 percent less plastic than other can carriers. They allow easy removal of each can, avoid mold and mildew build-up, and can be applied manually, semi-automatically, and fully automatically using our inline can carrier applicators. They are available in nearly any color and in all popular sizes.

Download our guide to can carrier cost savings today to learn more on how your brewery can save by choosing Roberts PolyPro as your can carrier solution.