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Amid COVID, craft brewers see the can half-full

In 2011, there were 126 breweries in Colorado. That number swelled to 425 in 2019. Then the industry hit its first rough patch in a decade.

In the era of COVID-19, the taproom-centric model favored by startup breweries suddenly looked impractical. “There’s a lot of breweries out there that never imagined they would put their beer into cans and are now resorting to doing so,” says Shawnee Adelson, executive director of the Colorado Brewers Guild.

Many brewers were left scrambling for packaging options, leading to a domino effect. Mobile canning services were overwhelmed, then orders for canning equipment increased, and then cans—stretched thin by a global move to cans for many more beverages—became hard to find.

As for the breweries, it was all about building a model resilient enough to survive a slow winter. While closures were up by more than 50% in 2020, Adelson says the number of new breweries opening in Colorado in 2020 was “relatively flat.”

In Arvada, LUKI Brewery was an exception to the rule. After a career in engineering and contract manufacturing, Jeff Smith founded the circus-themed brewery where he now serves as ringmaster. He planned to open LUKI in May 2020, but the arrival of COVID-19 pushed it to July.

Smith didn’t veer from his original taproom model. “Even with the pandemic raging, we don’t want to be on tap at bars, we don’t want to be on shelves at King Soopers,” he says.

He decided not to hire a head brewer right away and started brewing himself. He installed firepits and outdoor seating instead of buying barstools. “We put so much money into it, we had to keep pushing forward,” he says. “We said, ‘Let’s try to get this open and just do it ourselves.’”

The strategy worked. LUKI operated in the black for its first six months, which Smith sees as a good omen for the post-pandemic era. “We have no idea what it could really look like,” he says. “That’s what’s exciting for us.”

Dave Thibodeau, president and co-founder of Durango-based Ska Brewing, says the stay-at-home order closed the company’s new Ska Street Brewstillery in Boulder on its opening night. “We were open for one hour and 11 minutes,” he laughs.

At Ska’s home base, it’s been busier and easier to manage. “It’s really different in the mountain towns,” Thibodeau says. “Nobody in Boulder’s going anywhere, but in Durango we have tourists, and it’s ski season.”

Not that the pandemic didn’t have an impact on the 25-year-old brewery in 2020, he adds. “Everybody took a huge hit in April, including us.”

But Ska kept brewing and found a market thirsty for canned beer, which made up about half of all sales before the pandemic. “We started making those gains, and then there was a shortage of can manufacturing,” Thibodeau says. “That was a punch in the gut.”

The brewery rolled with it by repurposing old cans with new labels. “It’s been really difficult logistically, but we’re burning through a lot of stuff that was destined to be recycled and now it’s being used,” Thibodeau says, noting that Ska ended 2020 “about even” with initial projections.

Thibodeau says closures could well increase in 2021, led by bigger names. “We’re going to see a few established breweries that have been around the block or two closing in the next wave,” he predicts.

Beer in 2021 and beyond

Don’t panic–beer and the brewing industry will live on. Beer has survived many incredible challenges and it’ll survive this pandemic, too. That said, breweries that want to not only survive but to thrive on the other side will need to change and adapt.

2021 may or may not mark the end of the pandemic, but it will certainly bring additional twists and turns for breweries as they weather the current crisis and position for growth in the coming years.

As 2020 finally nears its end, here are some items to watch in 2021.

Reconfiguring On-Premise Sales

There is no denying COVID-19’s impact on on-premise sales for the alcohol beverage industry. Suppliers, including breweries, felt the impact even to their on-premise accounts. Before COVID-19 began to spread, the taproom/beer garden concept was invaluable to any new or mature brewery. It was the brewer’s interpretation of the weekend bar. However, when shutdowns began to cascade through urban and rural areas, the ability to congregate was removed.

As a result, many in the industry began to incorporate creative ways to get more product out the door. We saw an increase of larger purchases, but over infrequent time periods. Draft beer converted to bottles and cans. Breweries gained the (temporary) ability to sell its beer in to-go containers straight from the tap. We saw on-premise retailers incorporate some element of food to meet the exceptions of the governor’s executive orders to allow food service with a side of alcoholic beverage. Breweries also followed suit in incorporating a fast-casual concept, one that is likely to remain once the COVID-19 crisis is in the rearview mirror.

The rules and regulations are bound to continue changing throughout 2021 and it is important for breweries to keep close tabs on these changes.

Packaging (But Don’t Lose Track of the Beer Garden Concept–It’ll Return)

COVID-19 exposed the pressure points in the package-to-draft split for breweries. Across the board, the draft model has suffered, with a lopsided emphasis on brewers’ packaging lines. However, not all breweries had an emphasis on packaging and their distribution channels, and that was okay – so long as brewers were intentional about their own models. The industrywide impact refocused brewery owners to the business basics: managing cash flow, analyzing and leveraging profit margins, and focusing on product-to-consumer flow.

Consumers’ home bars have taken up both refrigerator and wall space, in place of bringing a casual four- or six-pack to a friend’s house. As such, it is likely that lower ABV sessionable beers will continue, and the volume each consumer drinks at home is likely less.

Increasing Direct Access to Consumers in Creative Ways

Demand for consumer consumption has increased – not necessarily in volume, but in how the product reaches the consumer. Because brewery taprooms and on-premise retailers were heavily impacted during the COVID-19 pandemic, consumers looked to deliveries and greater access in grocery stores. It is safe to assume that in 2021, the way in which consumers get their beer will continue to evolve.

Prior to 2020, the grocery store footprint wasn’t on the radar of some breweries – they were too small, it didn’t align with their sales strategy or business philosophy, or they didn’t have the appropriate distribution relationship to adequately stock product to the grocery store demand. While many brewers may continue to avoid the grocery or convenience store space, some have considered other ways to provide their product to consumers. A strategy that has gained increased attention is the direct delivery of beer to consumers out of state. For breweries that deliver beer in state, it goes without saying that it is very important to understand and comply with all of the applicable rules and regulations. For breweries that are considering direct-to-consumer delivery out of state, it is even more important to hit the brakes and speak with a professional. The network of laws and regulations related to out-of-state direct delivery of alcoholic beverages is inconsistent and complex and the costs associated with violations can be high.

Continue to Harvest Relationships (Drinks Will Be Necessary on the Other Side)

COVID-19 has exposed the vulnerabilities and the resourcefulness in relationships. This extends to supplier relationships – hop market, malt market, aluminum and bottle manufacturer, and the relationship with your distributor. It also has stress-tested brewers’ relationship with their landlords and banks.

Beginning now and into early 2021, many distributors will meet with their brewers to discuss their annual business/distribution plans and look to historical (i.e., 2020) figures. It would be a shortsighted approach for either the brewer or distributor to rely heavily on 2020’s data figures as an outlier.

For breweries that have not already done so, now is the time to closely evaluate your relationships and shore up weaknesses wherever possible. This process could include entering new relationships, exiting current relationships or a combination of the two.

Effectively Utilizing Tech

Digital commerce will likely continue the trends seen in 2020. From the revival of QR codes to pre-order options to order beer through your platform, customers have become comfortable with purchasing and having product delivered within 24-48 hours. Moreover, COVID-19 has forced those less tech-savvy to quickly adapt to technology, while the generations that automatically gravitate toward tech interfaces and easy U/X comfortably shifted to online buying.

As these trends continue, brewers should evaluate their technology and the means of using it more effectively to drive sales. In doing so, it is equally important to ensure that the use of such technology complies with all applicable regulations – going beyond the obvious, such regulations would include protecting the privacy of customer information and ensuring that your website complies with ADA requirements.

One thing we can absolutely predict is that 2021 will also contain many twists and turns. As everyone knows, vaccines are coming and we appear to be closer to the end of the pandemic than the beginning. On one hand, the rollout of vaccines should be a boost to business and hopefully allow people to socialize more – but still in a safe way.

On the other hand, the distribution of vaccines is bound to be uneven and lead to frustration as we see localized outbreaks, which may prompt governing authorities to periodically tighten restrictions on businesses. Notwithstanding the uncertainty that 2021 is bound to contain, one of the strengths of the brewing industry has always been the ability to adapt and be creative.

As the clouds continue to part in 2021, it will be very important for breweries to lean heavily on these strengths.

Craig Knobbe 01 Craig J. Knobbe, partner, is an attorney in Denver-based law firm Moye White LLP’s Brewing & Distilling team. He can be reached at [email protected].

Jessica Hunter Jessica R. Hunter, associate, is an attorney in Denver-based law firm Moye White LLP’s Brewing & Distilling team. She can be reached at [email protected].

Mesa County breweries start to reopen and recover

Among the many industries that call Colorado home, micro and craft breweries comprise one of the largest. The state boasts over 420 breweries with an economic impact reaching over $3.3 billion, making Colorado’s beer industry the first in the country in terms of economic impact per capita. Hit hard by the sweeping coronavirus pandemic, Colorado breweries, particularly those in rural counties such as Mesa County, are now facing a difficult rebound as they begin to re-open. 

The impact on Mesa County breweries

Mesa County was one of the first to begin preparations for reopening businesses in late-April. However, breweries, wineries and distilleries were excluded from its initial public health variance, approved on April 28, which enabled certain businesses, based on license type, to re-open. While the country has since allowed breweries to reopen under a new variance, approved on May 22, brewery to-go sales plummeted nearly 50% during the three-week period they were excluded. This was on top of the decrease in sales during March and April.  Now, the county’s breweries are beginning the process of reopening and recovering from the challenges of the past few months. 

Copper Club Brewery 2
Patrons enjoy a beer on the Copper Club Brewing’s patio. Image courtesy of Copper Club Brewing.

Copper Club Brewing Co. in Fruita, even though they were already positioned for to-go, takeout and delivery sales, has struggled through the past months. “Most businesses in Downtown Fruita are really hurting because spring is one of our main tourist seasons due to our world class mountain biking trails,” says Michele Collins, owner and founder of Copper Club Brewing. “Our sales plummeted 60% from March 17 through April. Then, once the restaurants opened in May, sales dropped more, about 75% from usual.”

Monumental Beer Works, a new brewery in Grand Junction faced its own set of challenges. The brewery was scheduled to have its grand opening March 19, two days after the state’s stay-at-home went into effect. “As a brand-new brewery, COVID-19 had a huge impact on our opening,” says Brian Fischer, co-owner of Monumental Beer Works. The brewery had to lay off its staff before their first shifts, build and implement a to-go distribution model, and buy cans, growlers and supplies to meet the to-go demand. 

Now, as the variance allows the two businesses to re-open, the brewery owners face new challenges in adjusting to the new normal. 

Being able to open at 50% capacity under the new variance has helped tremendously, Collins says. However, the excitement of reopening and making money comes with a fear of getting overwhelmed by tourists. “The Mesa County COVID-19 numbers have stayed low and we take this very seriously, so we want to keep things mellow,” she says. “I would rather have folks wait to visit once this blows over so Mesa County can keep our infection numbers low and to keep our recreation areas protected.”

“We were able to open last Saturday and it has been fantastic,” Fischer says. “We’re excited to finally be able to share our space with the community and get some financial stability. The fact that we were excluded [from the April 28 variance] was pretty horrifying. I want to make sure that people are aware of the risks that breweries, manufacturers, have had to go through and to make sure that our voices are heard.” Currently, Fischer and his staff are figuring out how to manage its capacity with the indoor and outdoor space that Monumental has. 

Breweries statewide

In other areas of the state, all breweries are beginning to re-open. “We wanted to make sure that the guidelines were license neutral to allow for all businesses (including breweries) to reopen when it was safe,” says Shawnee Adelson, executive director of the Colorado Brewers Guild (CBG). “We saw in Mesa County the impact of basing the reopening on license type.” 

And the new Colorado Department of Public Health and Environment guidelines do allow for this. Under the recently released guidelines for restaurants and food services, breweries are able to reopen as long as they adhere to the guidelines and “ensure access to food for on-premise consumption.” According to Adelson, breweries can leverage their existing relationships with food trucks and neighboring restaurants to meet these new rules. 

As the breweries reopen, CBG is reminding Coloradans of the importance of our beer industry to the state’s communities. CBG and the Left Hand Brewing Foundation recently announced the Colorado Strong Pale Ale, a benefit beer made with Colorado ingredients and brewed by a number of local, independent breweries. 20% of the sales made from the beer will be donated to the Colorado Strong Fund, which provides assistance to healthcare, hospitality, service industry and gig economy workers across the state.