Supply Chain Special – What’s the impact on beer?
Just Drinks’ category commentator Stephen Beaumont considers how the supply chain squeeze has been impacting brewers.
When you cover the brewing industry, you grow accustomed to several somewhat predictable talking points; from traditional versus modern beer styles to the latest hop cultivars and trendy new yeast strains. Something rarely mentioned - at least until lately - is the supply chain.
Yet today, it's almost the only thing anyone in brewing wants to discuss. What will become of the can crisis? How much will input costs rise? Will we even be able to get sufficient amounts of barley malt and the hops we want, or indeed, any hops at all? And, how much of a price hike will consumers be willing to bear before they go running off to hard seltzers or whatever the ‘Next Big Thing’ might be?
Of course, brewers aren’t the only ones with supply chain concerns these days, but they're among those with the most experience in the matter. Early on in the pandemic, for example, there was an aluminium can crisis - costs rose and scarcity became a primary concern.
Despite many predictions to the contrary, that particular supply-side issue never quite fully resolved itself. And now, it’s back with a vengeance, with the squeeze on the largest supplier of aluminium cans in the US, Ball Corp, prompting the introduction of new minimum order requirements for brewers at the start of the year – later deferred to the beginning of March. The group then moved to withdraw its voluntary warehousing of excess inventory for smaller brewers.
Malted barley price increases are just getting started
The situation has the potential to deteriorate even further due to the current war in Ukraine, as Russia-based Rusal is one of the world’s largest aluminium producers,
Also likely to be impacted by the crisis in Ukraine is barley supply, given that the country is one of the world’s top five barley growing nations. This will no doubt compound the current barley shortage caused by “severely reduced yields” over the past growing season in Canada and the US, according to Bart Watson, chief economist for the Brewers Association in the US.
“While the real challenge will be if we have another poor crop year,” says Watson, “I still think that malted barley price increases are just getting started.”
Watson’s words are especially ominous when coupled with this recent observation from a trio of authors writing in the Financial Times about a coming “surge” in what UK pubgoers will be expected to pay for beer: “Prices of malting barley, the most important ingredient for lager, have more than doubled in the past year.”
Added to all of this are the same transportation issues affecting all industries around the world. Noting that the problem in the US is rooted more in a lack of drivers than a shortage of trucks, Watson describes transportation logistics as a “sticky issue” that he doesn’t see going away any time soon.
Observing that more deliveries occurring across all sectors of the economy translate into challenges on multiple levels - a need for more drivers, greater pay for those drivers already on the job, increased highway traffic, and so on - Watson recounts that some larger craft brewers in the US have simply purchased their own trucks because they couldn’t otherwise arrange transport.
While transport issues will have less impact upon the smaller craft brewers that make up the majority of the BA’s membership, according to Watson, the larger the brewer and the greater the distance that needs covering, the more such issues are going to affect the bottom line.
For the multinational brewers - or at least some of them - the road to mitigating soaring input costs is clear. In an interview with Reuters, Heineken CEO Dolf van den Brink noted that the group would offset increased expenses by raising prices, echoing a strategy laid out by Carlsberg's head, Cees ‘t Hart, in a statement released a few days earlier.
The question is how much these price increases will impact consumption, something that remains a mystery even to van den Brink.
“There’s no model that can handle this kind of inflation,” he said, “It’s kind of off the charts. So, it’s anybody’s guess … what the impact is going to be on volumes due to all these price increases.”
With their regular consumers perhaps less price-sensitive than mass-market beer drinkers, raising prices may prove less of a concern to craft brewers, at least in general terms. On a brand by brand basis, however, the Brewers Association’s Watson suggests the situation may be more nuanced. One thing craft brewers will need to wrestle with, he says, is whether price increases on any particular brands may lead consumers to opt for a different beer of the same or similar style from a different brewer.
“Craft beer customers in general, I think, are a little less brand loyal than are other beer drinkers,” says Watson, “I don’t think (price increases) will necessarily impact the category so much as they may impact individual brands.”
Supply Chain - Beer