The beer industry was already in the doldrums this summer.

…The four months between May and August represent 40% of total annual beer sales, according to data from the National Beer Wholesalers Association, with holidays like Memorial Day and the Fourth of July helping make it a critical period for the category…

…From January to August, beer shipments to wholesalers tracked by trade organization the Beer Institute were down -3.7% from last year, continuing its long decline: Beer is down -11.8% in 2022 compared to 2012…

…This slow summer has had tangible effects already for beer companies. In August, Mikkeller announced the closure of its San Diego brewery—its only U.S. outpost—citing a difficult market for production breweries. Craft-focused beer distributors in the Northeast have cut jobs and sales territories this summer. “Independent beer” titan Stone Brewing in June sold to Sapporo to relieve mounting financial pressures.

And while the larger breweries had the latitude to raise prices, craft beer brewers were hesitant, as they were already pricier, to begin with. And the competition on retailers’ shelves is fierce.

…Yet the first six months of 2022 have not been positive ones for craft beer sales overall, giving some breweries pause as they wonder whether it’s smart to raise prices during turbulent times. Higher prices may make for better margins, but they have also have the potential to drive customers toward competing beer brands—or out of beer entirely in favor of other alcohol.

Bart Watson, chief economist for the Brewers Association trade group, which represents breweries it defines as “small and independent,” in mid-July noted that “there clearly is very little momentum behind craft beer at chain retail at the moment,” and characterized off-premise sales for the first half of this year as “underwhelming or even concerning.” As beer inflation trails the inflation rates for both groceries and restaurant meals, Watson calls this “good for beer consumers – really challenging pricing environment for small producers.”

…“The indicators for the first half of the year are not telling you should raise prices in October, even as your [input costs] are telling you you should raise prices in October,” says Sean McNulty, former host of the Selling Craft Beer podcast and a current contributor to Brewbound.

As it turned out, for a product that’s supposed to be the one inflation-proof industry in the whole economy, the beer industry is suffering a bit of a shock. It turns out, they’re not as special – or as bulletproof – as they thought they were.

Brewers are beginning to feel inflation’s pinch.

For much of last year, U.S. beer sales seemed largely unaffected as rising prices squeezed shoppers’ pocketbooks. Some beer drinkers traded up to fancier brands as an affordable indulgence; others switched to cheaper suds.

That changed after price hikes took effect across the industry in October. U.S. demand for beer fell in the last three months of the year as consumers reacted with sticker shock. Corona brewer Constellation Brands Inc. STZ 2.73%increase; green up pointing triangle now says it plans to make “more muted” price increases in the coming fiscal year, because higher-than-usual price increases in October slowed its sales growth.

“The consumer is overly sensitive to pricing actions,” Constellation Chief Executive Bill Newlands told analysts Thursday when the company lowered its earnings forecast, sending shares down nearly 10%. “We need to be careful in balancing our growth profile and our pricing profile.”

That’s a polite way to put it – “The consumer is overly sensitive” – don’t you think? I’d say about beaten half to death, but he is a corporate guy. And his company, which brews and imports beers like Corona (and one of my favorite easy-drinking dark quaffs, Negro Modelo) had a particularly rough quarter. They even lost ground in California, which is pretty unthinkable.

…Constellation Brands Inc.’s stock slid 9% Thursday — its biggest one-day decline since a drop of 11.8% on March 23, 2020, at the start of the pandemic — after the company reported earnings for its fiscal third quarter.

…The company’s beer depletions, a metric that measures the number of cases sold by distributors to retailers, was 5.7% in the quarter, down from 8% to 9% in the past four quarters.

Depletions for the company’s Modelo Especial brand were just 4%, compared with 10% in the second quarter.

…Kirk was expecting beer depletions of 8%

…On a call with analysts, Chief Executive Bill Newlands acknowledged a “series of headwinds” that developed in the latter part of the quarter. Those included higher price increases than usual at the company in response to cost pressures across its supply chain. Other parties in the distribution chain also raised prices, he said.

…The company is still facing higher costs for everything from raw materials, including wood pallets and steel, to packaging, fuel, freight and marketing, said Chief Financial Officer Garth Hankinson.

Other cervesa companies, purveyors of higher-end beers like Boston Beer’s Sam Adams, are facing further market challenges because of what they did to meet consumer demands during the nesting cycle of the Pandemic. They brought out hard seltzer and cider lines, and now seltzer sales are tanking. The sparkle has gone out of the water.

…Analyst Kevin Grundy downgraded both Boston Beer (ticker: SAM) and National Beverage (FIZZ) to Underperform from Hold, cutting his price target to $275 for the former and $38 for the latter. His concern in each case is the outlook for the carbonated beverages the companies make, along with valuation. Grundy’s old price targets for Boston Beer and National Beverage stock were $331 and $42, respectively.

For Boston Beer, Grundy warns that its Truly hard-seltzer brand is in for hard times.

It wasn’t always this way: Back in the early days of the pandemic when everyone was baking sourdough and ordering pizza, they were also guzzling hard seltzer, leading to exploding sales for the relatively new category. Yet just like Covid vigilance, the boom couldn’t last: Competitors flooded the space even as the heady growth leveled off, and like so many pandemic winners, Truly went from golden goose to albatross.

Grundy warns that the pain isn’t over, warning that the hard-seltzer category is “still searching for a bottom as Truly’s [market] shares losses persist.” He argues that Boston Beer’s revenue won’t be able to recover until there’s some stabilization in malt-based hard seltzers, which face ongoing headwinds including steep comparisons from 2019 and 2020, a return to bars and restaurants that are less likely to serve these beverages, and consumer fatigue.

Seltzer was always going to be a fad, though, so I don’t know that I would have bet the farm on it. How many iterations of fizzy malt beverages have we seen come and go over the decades – Zima or Bartles & James coolers, anyone? – but BEER remains a constant. Or it used to.

In an interesting aside, it appears even pot smokers – especially the younger ones – may be affecting beer sales, perhaps overall alcohol sales. This was kind of wild.

… “Cannabis should gain [four times] the number of consumers as alcohol [will gain] over the next five years … as younger consumers also take longer breaks from alcohol,” Azer said.

…Cowen’s proprietary survey revealed that 60% of cannabis consumers reported cutting back on their consumption of alcoholic beverages.

Beer industry types are hopeful their loyal customer base understands and either pays the freight, or goes to a less expensive alternative, maybe big brewery brand. But whatever choice they make, they still buy beer.

…“We haven’t increased our price in years. But right now, it’s absolutely necessary,” he says. “Our customers, our colleagues, everybody else I think will come to the same consensus.”

If anything happens to Yuengling, I’m toast. It’s the only thing I’ll steam shrimps in.

Even as a red wine type, if it comes down to saving the brewery?

I’m a team player.

PUT ME IN, COACH!

Slàinte Mhaith!