As the coronavirus pandemic wreaks havoc on American businesses, it’s exposing a brutal reality about who is protected in this economic system and who’s not. While big corporations are tightening their belts with the aim of emerging even stronger than before, small businesses across the country are facing bankruptcy.
The alcohol industry is no different.
As many as 7.5 million American small businesses are likely to have closed before the crisis is over, according to a report by The Main Street America Group. In alcohol, that means small, local craft breweries and distilleries.
With the exception of a few brands that were well-positioned for the conditions of a global pandemic, most are taking a big hit and seeing reliable industry trends upended as consumers adjust to the crisis. While big conglomerates will likely be able to weather the storm and make the strategic shifts necessary to stay profitable until things go back to a relative normal, many smaller breweries, distilleries and wineries are unlikely to survive.
“It is the small, fledgling startup brands that have been at the heart and soul of the business; [those] are the ones that are showing the most vulnerability,” said wine and spirits consultant Arthur Shapiro, adding, “It’s a pity. Those are the products that someone has taken a risk on. You build a distillery to start working and all of a sudden, the bottom falls out.”
The shift to big brands
As shutdowns have led to a near complete shift to off-premise drinking, it all comes down to availability and distribution, Shapiro said. Homebound pandemic drinkers aren’t thinking about sampling the latest release or tasting new collaborations—they’re limiting shopping trips, consolidating where possible and ordering booze online.
Because big players have access to more grocery shelves and ecommerce platforms, consumers are buying more of those big, classic brands, benefiting conglomerates like Molson Coors, AB InBev, The Boston Beer Company, Diageo and Pernod Ricard over smaller breweries and distilleries.
“The losers are the craft beer and craft spirits people. Those are products that are very difficult to get online or through ecommerce.”
Arthur Shapiro, wine and spirits consultant
A month ago, Anheuser-Busch chief marketing officer Marcel Marcondes told nitronet that people were “going back to the brands that they know, to the brands that they trust, to the brands that they know they can rely on, to the brands that they know that will deliver.” At Molson Coors, communications director Adam Collins noted that Miller Lite, Coors Light, Blue Moon and Keystone Light “are all doing particularly well.”
Lesya Lysyj, CMO, The Boston Beer Company, made a similar observation. “People are kind of going to their comfort brands,” she said. And as a result, “we’ve seen a resurgence of people coming back into Sam Adams and Angry Orchard.”
Even though consumers are shifting back to brands they know, revenues are still down at AB InBev and Molson Coors, which saw Q1 revenue drops of 5.8% and 8.7%, respectively.
The loss of tasting rooms
Over the past decade, the number of breweries in the U.S. has quintupled, according to the Brewers Association, with the vast majority of that growth in microbreweries and brewpubs. Craft spirits are also gaining momentum, with nearly a 20% increase in producers between 2014 and 2018.
These smaller, younger businesses rely heavily on direct sales in their tap and tasting rooms. The on-site experience allows breweries and distilleries to make money through beverage, merchandise and food sales with a low overhead cost.
“Kegging and serving directly represents the cheapest, easiest way [to serve beer],” said Matt Simpson, owner of beer industry consultancy The Beer Sommelier. “It also represents a great, efficient way for many breweries to increase their profit margins by simply adding this kind of space.”
Even before the pandemic, the proliferation of breweries was making it hard for new or small producers to reach consumers outside of tasting rooms. “Tap handle space or off-premise cooler space, shelf space, has been an absolute minimum,” Simpson said. For smaller breweries and distilleries, that competition only reinforced the importance of tasting rooms.