The supply chain’s latest casualty? Your Favorite Beer Six-Pack | Business
BROOKS JOHNSON Minneapolis Star Tribune
The cost of making beer is skyrocketing. The price to buy it is catching up.
So far, brewers have largely absorbed inflated spending on their ingredients, including barley, aluminum cans, cardboard and trucking.
But with high costs lingering longer than many had hoped, brewers are being forced to make the inevitable decision: raise their beer prices.
“Something has to give,” said Bart Watson, chief economist at the National Brewers Association.
As bars closed and consumers took home more drinks during the pandemic, liquor store sales increased 25% from 2019 to 2021, according to federal data. Breweries, distilleries and wineries have started producing more retail products to meet home consumption demand.
Here’s the problem: there weren’t enough aluminum cans and glass bottles to pack that extra volume of drinks, so the prices for the packs skyrocketed. Aluminum can suppliers began to favor their larger customers, who could afford to place larger and more expensive orders.
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“It’s been stressful for our business to have so much of our business in cans, and that’s led to a lot of these supply chain issues,” said Tom Whisenand, general manager of Indeed Brewing in Minneapolis. . “We recently increased prices to help deal with this, but the increases are not enough to cover the cost increases we are seeing.”
Prices for many essentials of making and selling beer have risen over the past two years as a global supply chain struggles to untangle itself from the shopping spree of the end of the pandemic. Many brewers cite trucking and labor costs — and the increased time needed to obtain supplies and ingredients — as their biggest increases.
Even the world’s largest beer makers pass on their higher costs to consumers. AB InBev (Budweiser), Molson Coors and Constellation Brands (Corona) told investors they had raised prices and would continue to do so.
Heineken told investors this month that the price increases it needs to push through are high enough to make consumers buy less of its beer.
“As we continue to take these fairly assertive price increases…the big question indeed is whether disposable incomes will be hit to the point of dampening overall consumer spending and spending on beer as well,” the chief executive said. by Heineken, Dolf Van Den Brink. .
Price increases for beer, wine and spirits are just beginning, said Scott Scanlon, beverage expert and vice president of Chicago-based market research firm IRI.
“We’re going to see a lot of manufacturers take price (increases),” Scanlon said. “It will only increase, probably more than it has.”
So far, he said, consumers have understood this. Just as higher grocery bills are offset by fewer dining out, a bigger bill at liquor stores is eaten up by a lack of travel and entertainment spending.
Even if some of those expenses come back and other bills go up, Scanlon expects liquor sales to hold up.
“It’s that affordable indulgence,” he said. “It’s the product that people won’t want to give up.”
Bartenders at home
The aluminum shortage and drought-hit barley crop last year — when the United States recorded one of its lowest barley crops in more than a century — gave brewers some of the biggest cuts in the supply chain. But all alcohol categories face cost pressures.
“I don’t think you’ll talk to anyone in alcohol who isn’t disappointed with their glass supply,” said Andy England, general manager of Minnesota’s largest distillery, Phillips. “And there’s always a random ingredient, when everything else is figured out, that keeps us from growing any further.”
The widespread reliance on “just-in-time” manufacturing has crumbled under the weight of huge consumer demand triggered by soaring consumer spending following the initial pandemic lockdowns and layoffs in 2020. This system just in time was designed to reduce costs for everyone by having ingredients and packaging supplies delivered only as they were needed.
“COVID has just destroyed the models that people have built,” England said. “Manufacturers say I have to order more of everything because I’m worried about shortages, and all of a sudden the suppliers can’t supply enough.”
Last fall, the Brewers Association wrote to the Federal Trade Commission about the shortage of aluminum cans, which is expected to last until 2024, when new production capacity can finally catch up.
“Craft brewers have and will continue to have a harder time competing with larger brewers who are not facing similar shortages and price increases for aluminum cans,” wrote association president Bob Pease. . “When a product becomes unavailable, the impact can last long after supply returns,” as retailers and restaurants fill shelves and taps with other products.
Many craft brewers, especially those without long-term contracts that provide a level of cost stability, should follow the lead of the big brewers in raising prices, if they haven’t already.
The alternative would be to reduce profit margins, to which many craft brewers would respond: what profit margin?
“There really isn’t a profit margin to speak of,” said Dave Hoops, owner of Hoops Brewing in Duluth. “I think it’s about staying afloat, staying level, fighting a million things…and keeping the beer relevant.”
Accept higher prices
The psychology of inflation can help dull the pain of price hikes, Scanlon said. Higher prices for pints at restaurants and a faster rise in the price of other groceries can make that extra dollar or two for a six-pack or bottle of vodka less of a shock.
“Consumers can be like, ‘The price of this product that I really like isn’t going up that much,'” he said.
The Brewers Association is bracing for another year of high costs for barley, aluminum cans and freight.
Meanwhile, Indeed Brewing’s Whisenand said there was only limited wiggle room to control other costs, which led to the recent price hike.
“We have to increase our costs to be competitive in order to be a quality employer and to have quality beer,” he said, but at the same time: “Breweries believe very strongly that beer should be , in a way, affordable – one of the best affordable luxuries in the world.”