Dan Katt, co-founder of Good City Brewing, clearly remembers the evening of March 11, 2020.
Business was booming at Good City’s new downtown location, boosted by the performance of the Milwaukee Bucks, who had the best record in the NBA. The Bucks were off that night, but their home arena next door was rocking to a Lumineers concert. There were no indications that Fiserv Forum would sit empty after that for at least nine months.
But that night, the NBA suspended play after its first player tested positive for COVID-19. Good City closed the downtown location a couple days later, and thousands of local businesses followed in the coming days and weeks.
“It was really a bizarre few days, a sad few days,” Katt said.
The rest of the year has been equally bizarre for craft brewers, with struggles highlighted by some bright spots, including packaged beer sales.
“The operative phrase that I hear from brewers is, ‘We’re hanging in there,’” said Mark Garthwaite, executive director of the Wisconsin Brewers Guild.
Performance depends on size and business model, he said. Small brewers that rely heavily on taproom sales have struggled the most, while brewers that had strong wholesale, packaged operations or were able to quickly scale up that side have done better and even grown in some cases.
“The big adjustment when the pandemic set in was for breweries to put as much as they could in cans and bottles rather than kegs,” Garthwaite said.
The closure of taprooms, restaurants and bars, along with the cancellation of sporting events and festivals, forced some brewers to dump kegs early on. Third Space Brewing, based in Milwaukee’s Menomonee Valley, was one of them, said Andy Gehl, co-founder and director of sales and marketing.
“The pandemic hit at one of the worst times for a production brewery like us, because you’re ramping up for summer,” he said.
But overall sales are up this year, Gehl said. About 60% of Third Space’s sales typically come from packaged beer, but that number has shot up to 75% this year as people drink beer at home instead of at bars. The brewery also added distribution territory in Door County, Green Bay and the Fox Valley.
Brewers have gotten creative to boost sales and stay top of mind for customers, launching new beers, creating virtual and drive-thru beer events, and even adding new products such as beer bread mix and hand sanitizer.
But the emphasis on packaged sales is tough on margins, Gehl said. Customers pay much more for beer by the glass than by the six-pack, and grocery and liquor store sales involve more costs, such as stocking and promotional fees.
Eagle Park Brewing Co. took advantage of the increased demand for packaged beer with its new Muskego facility, co-owner Jake Schinker said. It started production there in March and opened the taproom in July while retaining its location on Milwaukee’s East Side.
Previously, the company had focused almost entirely on taproom sales. But the new facility and distribution deals with Beer Capitol Distributing, Frank Beer Distributors and La Crosse Beverage, LLC this year allowed it to increase production by 300%, Schinker said.
“We have been able to get our beer into more hands than ever because people don’t have to travel to our taprooms to get it,” he said.
As packaged beer sales grow, the industry now faces a can shortage, Garthwaite said. Many craft brewers switched to cans in recent years because they’re lighter and more sustainable than bottles. But the U.S. only has two major can manufacturers, and demand is outstripping supply.
“The smaller you are, the harder it is to actually get your hands on cans if you can’t buy in large quantity,” he said.
Adding to the uncertainty is a potential tax increase, Garthwaite said. Small brewers saw their federal excise tax reduced at the start of 2018 from $7 per barrel to $3.50 per barrel, but the reduction will expire at the end of the year if Congress doesn’t act. That would cause a $2 million hit to Wisconsin’s craft breweries in 2021, he said.
The changes and uncertainty have forced Good City to refocus on its core business, Katt said. The company will finish this year down about 50% in revenue and production, resulting in some furloughs and layoffs, but he doesn’t consider that a good measure of the company’s performance.
“We’ve been able to refocus on the fun, falling in love with beer again, and putting a ton of energy into making new beers and new brands,” he said. “That had maybe fallen off a little bit when we were opening downtown and juggling a lot of different balls there.”
The company plans to announce some long-term initiatives in the first quarter of 2021, Katt said.
“If we’re going to survive, we might as well come out of this better than we ever were before,” he said. “If our goal is just to survive and be the same, that’s probably not worth surviving.”
