Craft brewers, like many other businesses, are facing renewed challenges as a result of COVID-19. Alcohol sales are up, so how can this be a difficult environment? What options do craft brewers have?
While retail sales of craft beer in 2019 accounted for 25% of the $116 billion U.S. beer market, according to the Brewers Association, most have been forced to downsize through the pandemic. Highly reliant on on-premises sales, craft brewers saw revenues drop in the spring as a result of government-ordered closures in response to the COVID-19 pandemic. Idled like many other businesses reliant on in-person purchases, many availed themselves of PPP funding, and the relaxed physical distancing protocols over the summer allowed for modest re-openings. Fortunately, the new stimulus package passed in December permanently extends a break on federal excise tax on small craft brewers.
Owners, nonetheless, are faced with some hard choices. In a market that grew rapidly, there were 8,275 craft breweries in 2019, an increase of 13% from the prior year. One of the few positive trends for the industry is the general increase in alcohol consumption. Unfortunately, profits are down for craft brewers because canning lines are expensive and the margins are less than tap and keg sales.
Some may be forced to wind down. “It strikes me that closings have to go up this year since so many breweries have been hit so hard,” said Bart Wilson, Chief Economist of the Brewer’s Association, in an interview with Forbes. Having successfully negotiated an array of options on behalf of other breweries, we welcome a conversation to discuss your next steps as a going concern. We welcome the opportunity to discuss:
Nixon Peabody advises brewers in all phases of their growth as well as in distress. In addition, we have represented investors and lenders in various capacities in the beverage industry. Although there is continued uncertainty regarding the COVID-19 pandemic and the economy, it is never too soon to start planning and understanding the various options that may be available to best protect your investment and business.