• Market Crumbs

Beer Industry Has A Problem


Image via Belinda Fewings on Unsplash

The beer industry in the U.S. is in an interesting position. According to The Brewers Association, overall beer sales volume and production volume each declined by 1.6% in the U.S. in 2019. Craft beer, which now accounts for a 13.6% share of the overall U.S. beer market, saw sales volume and production volume each grow by 3.6% in 2019.


Despite total beer consumption having declined for six-consecutive years in the U.S., the number of breweries across the U.S. continues to soar. The total number of breweries jumped to 8,386 last year, an 8.9% increase from 2018. For comparison, in 2009, the total number of breweries in the U.S. was just 1,653.


With less than 7% of the total breweries in the U.S. classified as "large or non-craft," an overwhelming majority of breweries are small businesses. Despite differences in size, many breweries are now facing the same problem as a result of COVID-19.


With bars and restaurants closed, sporting events and concerts cancelled, and popular drinking holiday St. Patrick's Day having gone largely uncelebrated, millions of gallons of beer are sitting and soon to go stale.


The National Beer Wholesalers Association (NBWA) estimates 10 million gallons of beer, equivalent to about 1 million kegs, went abandoned in venues across the country in March alone. The NBWA says even more beer is sitting abandoned in distribution facilities, in transit and in breweries.


"This was the absolute worst time for this to happen for draft beer," NBWA CEO Craig Purser said. "We have never ever seen an interruption like this where everything freezes in place."


Brewers are now trying to get the kegs returned so they can refill them with fresh beer in anticipation of lockdowns ending. The problem is that such a high quantity of unused beer cannot be dumped due to environmental restrictions. Furthermore, accessing these venues to get the kegs and then transporting them is also an issue.


"This is a hot potato because none of our businesses are set up to return massive amounts of beer," marketing head for MicroStar Logistics, the largest keg-logistics company in the U.S., Dan Vorlage said. "It takes three times as many trucks to transport full kegs than empty ones."


MicroStar Logistics says it plans to treat the beer with defoamer and balance the pH before sending it to water authorities to test and treat it so it can be dumped.


Another issue that is emerging, which isn't surprising given the parabolic increase in small, independent brewers, is many may not even survive to see their breweries open again. Brewers and keg owners are rushing to get their kegs back, which can cost up to $120, in case the breweries proceed to bankruptcy.


"We’re afraid lots of places will close and won’t be able to open back up—they’re on very thin margins," Brewers Association CEO Bob Pease said.


While no one knows when life will return to normal—and subsequently to the level of beer consumption that was seen just a few months ago, the beer industry is just another example of an industry that has been turned upside down by the coronavirus and appears to come out looking drastically different.


Leftover Crumbs

  • He doesn't sound optimistic. White House economic advisor Kevin Hassett painted a grim picture of unemployment and GDP, saying COVID-19 has caused "the biggest negative shock that our economy I think has ever seen." "We see an unemployment rate that approaches rates we saw during the Great Depression," Hassett said. "You’re going to see numbers as bad as we’ve ever seen," Hassett said. "GDP growth in second quarter is going to be negative. Wall Street estimates are negative 20%, 30%. We’ve done something unprecedented, stopped everything, output [has] gone to zero."

  • GM is looking to save cash. General Motors is suspending its quarterly dividend and share buybacks in an attempt to preserve cash. GM also extended a $3.6 billion credit facility to April 2022 to improve its liquidity position. "We continue to enhance our liquidity to help navigate the uncertainties in the global market created by this pandemic," GM CFO Dhivya Suryadevara said. "Fortifying our cash position and strengthening our balance sheet will position the company to create value for all our stakeholders through this cycle."

  • They're trading cigars for vapes. Imperial Brands is exiting the cigar business to focus on vaping via a $1.33 billion sale of some of its assets that will enable the company to repay debt. The private sale includes a 50% stake in Cuba’s official exporter Habanos, which includes the rights to sell popular cigar brands such as Cohiba, Montecristo and Romeo y Julieta in 150 countries. "This disposal reinforces our strategic ambition of becoming a leaner and more agile organization," Imperial's joint interim CEOs said.

  • Cyber affairs spike. Ashley Madison says it has seen a spike in new members since COVID-19 has forced people to remain sheltered in place. The website says it has seen 17,000 new users per day compared to the average of 15,500 new users per day in 2019. "We’ve spoken to members, and they’re saying they’re using the site as a release valve for the tension that’s built up at home during the pandemic," Ashley Madison chief strategy officer Paul Keable said. "They’re looking to have needs met that aren’t being met at home."

  • iPhone production delayed. Production for the new iPhone is reportedly being pushed back "about a month," according to the WSJ. The report said Apple is planning to release four new phones later this year, ranging in size from a 5.4-inch screen to a 6.7-inch screen. The report also said Apple plans on cutting the number of units it will produce in the second half of the year by 20%.