San Diego Union-Tribune (Sunday)
PIVOT TO PACKAGING
Skyrocketing demand, including increased use by breweries, has created a nationwide can shortage expected to last into next year
LOAt San Diego’s Societe Brewing Co., Doug Constantiner tinkered with a gamma ray scanner that measures fill levels in printed cans lurching their way along the craft beer maker’s new packaging line.
Societe previously shunned putting its craft beer in cans. It focused instead on selling draft in its taproom and kegs to hundreds of restaurants and bars in the region, where the quality of its beer could be tightly controlled.
But late last year with support of a new board chairman, Societe decided to invest in a high-quality canning line to diversify and grow. The timing turned out to be fortunate. “We got the canning line up and running Feb. 27,” said Constantiner, chief executive and co-founder of Societe. “Cans were only around 10 percent of our volume going into the shutdown, and what we did was — as hard as we could — we pivoted to cans.”
Societe isn’t alone. In the aftermath of the pandemic, craft breweries across the country have shifted to packaging — canning and sometimes bottling their beers — as keg and taproom sales plunged amid COVID-19 restrictions.
Since mid-march, Societe has seen a tenfold increase in its output of canned beer. Retailers including Costco, Bevmo, Trader Joe’s, Ralph’s and Total Wine in San Diego and Orange counties now carry its beers, with more on the way. It’s on pace to increase beer production to 7,000 barrels this year, up from 4,000 last year.
“Our mindset since day one of the shutdown was let’s build everything as if (COVID) isn’t going away,” said Constantiner. “This may be around until 2022 before the world gets a handle on this.”
Without doubt, San Diego’s 150 or so craft breweries have been hit hard by the pandemic. Most sell the bulk of their beer on-premises or
“Cans were only around 10 percent of our volume going into the shutdown, and what we did was — as hard as we could — we pivoted to cans.” Doug Constantiner • Co-founder and CEO of Societe Brewing Co.
to local eateries, which have been crippled first by shutdowns and now by lingering occupancy limits.
Many craft breweries offer growlers or crowlers on site, large, single bottles or cans for customers to take home. But growlers alone can’t make up for the lost draft volume from hobbled taprooms.
So, more craft brewers are turning to canning lines. They’re either investing tens of thousands of dollars to buy their own equipment or outsourcing production to mobile canning contractors.
Cans allow craft beer makers to sell six-packs to go from their tasting rooms or online. They open up the potential to breweries to get their beers on shelves at independent liquor stores, specialty groceries and beverage chains such as Bevmo.
And cans create a new avenue to serve restaurant clients. While eateries and bars no longer need as much draft beer in kegs because of occupancy limits, they are allowed to sell canned beverages to go with takeout food orders.
While canning has provided somewhat of a lifeline to craft breweries during COVID, the pivot is not ideal. Materials, equipment and labor costs are higher with canning, resulting in significantly lower profit margins.
“What goes into packaged beer is much more costly, so you have to do much higher volume,” said Virginia Morrison of San Diego’s Second Chance Beer Co., which has been canning since 2017. “We are working our way to getting there.”
The latest hurdle facing craft breweries is a nationwide can shortage driven by skyrocketing demand not only from the craft beer industry but also from mainstream beer, soda and seltzer brands. Some are calling it the “can-demic.”
Ball Corp., North America’s largest can maker, estimates demand will outpace supply by as much as 10 billion cans this year in North America.
A Credit Suisse analyst reported that “for the most part” the can industry in North America is sold out for the next 24 to 36 months.
“There is just not enough manufacturing capacity in the country for cans,” said Bart Watson, chief economist for the Brewers Association, an industry trade group based in Colorado. “This is not unique to craft beer or even beer overall.”
Because of the shortage, Watson said it will be “very difficult” for small breweries to pivot to canned beer if they don’t already work with a can supplier. “What we have seen is a 10 to 15 percent increase in demand for aluminum cans when capacity was already pretty tight,” he said. “The major can manufacturers are all building facilities right now, but most of them aren’t going to come online until the second half of 2021, so this will be a challenge for a while.”
Although supply is tight, aluminum can makers are living up to allocation commitments they’ve made to wholesalers/brokers such as Mobile West Canning in San Diego, said owner Matt Woempner.
“We have cans in our warehouse, and we have been able to supply our customers with those cans,” he said.
In addition to supplying cans, Mobile West has been providing contract canning services in San Diego since 2013, kicking off initially canning programs for Stone, Green Flash, Belching Beaver, Lost Abbey and others before these breweries invested in their own canning lines.
With COVID, there was “definitely an uptick in breweries that did not can before but are canning now,” said Woempner. “They’ve had to pivot from a brew pub model to more of a production brewery model.”
Just a few years ago, canned beer was synonymous with cheap beer. But that stigma is largely gone, particularly with millennials.
Unlike bottles, cans prevent “light strike,” which can give hoppy bottled beers a skunk flavor. They’re also sealed better than bottles, making cans less susceptible to dissolved oxygen, another flavor killer.
And cans are lighter, easier to ship and better for recycling, according to brewers.
Booze Brothers Brewery in Vista installed a canning line three years ago. Prior to the pandemic, it packaged about 35 percent of its beer.
But with COVID, about 80 percent of its production is now packaged, said Kris Anacleto, a partner in Booze Brothers.
“We have seen a surge in canning use since the pandemic started, and that really is where our business has pivoted to,” he said. “Ideally, tasting rooms build back up because you make more of a margin there. But if this is the way the new world is going to start working, then OK. How do I get on board without sacrificing my business?”
For the most part, only the largest craft breweries get stocked at national chain supermarkets. But independent liquor stores and specialty beverage and grocery chains have been receptive to giving smaller breweries a chance, said Anacleto.
Before COVID, local liquor stores might give a craft brewery four shelf placements, he said. “Now they are selling beer so fast that they were taking everything we could give them.”
Booze Brothers is on track to make 1,700 barrels of beer this year, which is up from last year, said Anacleto.
Nationwide, however, the volume of craft beer produced so far in 2020 is estimated to be down 8 percent to 9 percent year over year, according to the Brewers Association.
“We have been measuring this market for 30 or 40 years, and this is the first time that craft breweries are ever going to be down in production,” said Watson, the association’s chief economist. “The smallest breweries are getting hit the hardest, and they are also getting hit in revenue and profit,” said Watson.
But bigger breweries also are feeling pain. At San Diego’s Karl Strauss, 93 percent of its draft beer business “vaporized” when the pandemic started, said Chad Heath, vice president of sales and marketing.
“It went away so fast. It was just unbelievable,” he said.
Karl Strauss is an onpremises heavy brand, operating 10 brew pubs in Southern California, said Heath. With the pandemic, it has cranked up production on its bottling and canning lines.
Karl Strauss also operates a boutique distribution arm not only for its own beers but also for other San Diego craft brands, including Black Plague Brewing, Duck Foot Brewing, Bitter Brothers Brewery and Booze Brothers.
Before the pandemic, Karl Strauss’ distribution arm was strongest in supplying kegs to restaurants and bars. But over the past few months, it’s shifted focus toward getting cans and bottles on retail store shelves in Southern California and elsewhere statewide.
“It’s worked,” said Heath. “We have grown some of these brands (significantly) over the past few months because we’re adding in more points of distribution. That has helped some of these brands really just trying to stay alive.”
Heath thinks customers will return to bars and restaurants eventually. But it may take a while, and draft beer distribution won’t be the same.
“Are we going to see 30 percent of bars go out of business? Are we going to see 50 percent go out of business? We work with Disney. They are a huge revenue source for us. I don’t see them opening anytime soon.”
That’s why San Diego’s breweries — while hoping that customers return to taprooms and bars POSTCOVID — are betting that canned craft beer will remain a significant piece of their strategy going forward.
“I think it is going to stick,” said Heath. “People are realizing they can get a really good experience buying packaged beer and taking it to go.”
“Are we going to see 30 percent of bars go out of business? Are we going to see 50 percent go out of business?” Chad Heath • Karl Strauss VP of sales and marketing
mike.freeman@sduniontribune.com Twitter: @Techdiego
(760) 529-4973