Pandemic Puts the Squeeze on Local Breweries

A disruption to the global aluminum can supply chain has the San Francisco craft brew industry scrambling to keep up with demand.

1/28/21

SF Weekly

If you live in the Bay Area, you’re probably familiar with the signature printed aluminum Fort Point can. Decorated with playful colors like pastel blue or bright orange, the geometric line-designed cans are synonymous with the San Francisco beer.

Lately, however, some of those cans have been looking a little different. Whereas the design was once always printed directly on the aluminum, many Fort Point purchases now arrive in a can fitted with a decorated sticker. It wasn’t an aesthetic or cost-cutting decision — in fact, stickered aluminum cans are much more expensive than the printed variety, and the switch cost the brewery close to half a million dollars in 2020. Rather, Fort Point was forced to sticker their cans on account of a worldwide aluminum can shortage.

“I think the last thing that we would compromise is the liquid — but the package design is part of the product, and we feel like we’re compromising the overall finished product,” says Justin Catalana, founder of the Fort Point Beer Company. “There’s an enormous deficit on printed cans this year, and also just aluminum in general.”

With communal dining mostly off limits due to the pandemic, breweries pivoted from selling kegs to restaurants to selling canned beer directly to consumers. In the San Francisco Bay Area, where shutdown orders have been particularly stringent, breweries who spoke with SF Weekly said cans now make up nearly 90-95% of sales. Yet, as breweries all made the same switch nationwide, aluminum cans quickly became difficult to come by. Can suppliers have delayed deliveries, rationed supplies, and raised prices in response to the spike in demand.

But the problem isn’t only due to the sudden increased demand for portable beverages during COVID-19. Supply chain inefficiencies and national drinking trends also played a role in the global aluminum deficit. That’s left the beer industry, already hemmed-in by narrow profit margins, scrambling.

Supply & Demand

The aluminum supply chain is complex.

For starters, aluminum is one of the most recyclable materials around: According to the Aluminum Association, nearly 75% of all U.S.-made aluminum is still in circulation today. As of 2019, the average aluminum can was made of 73% recycled material. Most aluminum cans are made cheaper by reducing the amount of virgin aluminum required to make them.

Used aluminum cans generally go from a recycling facility to a smelter where they are blended with other inputs to make an aluminum alloy. Non-recycled inputs for aluminum like Bauxite Ore must be mined. Then they go to a manufacturer, and often then through several middle men who aggregate demand from smaller breweries before ordering from the main two American suppliers, Crown and Ball. Any disruption along this lengthy supply chain can cause hiccups, and there’s been endless disruptions in the last several months both related and unrelated to COVID-19.

Tariffs on foreign aluminum, for example, which the Trump administration imposed and lifted in a boomerang fashion throughout 2020, made it difficult for many aluminum product manufacturers to depend on a consistent price or supply for raw materials.

Demand for aluminum cans has increased in recent years as well. Hard seltzers in particular became a huge hit towards the end of 2019 and into 2020. Research from the International Wines and Spirits Record (IWSR Drinks Market Analysis) found that over half of American alcohol consumers were drinking at least one hard seltzer a week in 2020, and expect seltzers, which currently make up a 0.8% share of the American market, to near 2% by 2023. Behind seltzers, canned wine and canned cocktails also became more popular in the months leading up to and during the pandemic.

“Coming into 2020, our expectation was that the wine business was going to continue in its growth, but that beer was kind of staying flat,” says Jenn Coyle, CEO of the Can Van, a mobile canning service that assists a number of craft beverage makers throughout Northern California. “In March, all of a sudden everything shut down and it flipped.”

Last comes a plethora of diverse recycling issues nationwide that have left manufacturers with less recycled materials to work with. In California, hundreds of redemption centers have closed in recent years, leaving Californians with few places to redeem the five to 10 cent California Refund Value (CRV) of the bottles & cans they buy. RePlanet, California’s largest recycling center business, closed all 284 of its centers in August of 2019. During the pandemic, only one redemption center is currently operating in San Francisco: OurPlanet Recycling SF, a relatively small neighborhood recycling center. Nationally recycling experts are also urging people to empty aluminum cans before placing them in the bin, due to the way liquid and food can contaminate recycled paper and cardboard.

“People need that source of income and it’s not available,” says Hilary Near, a Commercial Zero Waste Coordinator for S.F. Environment. She notes that San Franciscans can look forward to a mobile CRV vending program soon as funded through a grant from the beverage container pilot program.

Meanwhile, the reduction in redemption centers means the incentive for people to recycle has decreased, and that less recycled aluminum is ultimately available for manufacturers. Virgin aluminum is significantly more expensive mainly due to the high amount of energy required to produce it.

Breaking the Chain

All of these factors put pressure on the aluminum supply chain before the pandemic hit. But, as is the case with most aspects of American life, the pandemic exacerbated weaknesses in the supply chain to a breaking point.

Recycling, for example, which was already on a decline, has decreased significantly during the pandemic. Though recycling at residential properties has significantly increased, it’s outweighed by the decrease in recycled material from commercial properties that have halted business. Robert Reed, Public Relations Manager at Recology San Francisco, told the Weekly that waste at residential facilities had increased by 5%, but that total waste from commercial properties had decreased by a total of 10% since March. Hilary Near says this has resulted in about a 20% overall decrease in waste collected by Recology.

The pandemic has also required many operators along the supply chain to reduce and socially distance staff, slowing aluminum can production. According to a survey by the National Association of Manufacturers (NAM), 53% expected their own operations to be impacted by the pandemic, and PWC adds that even metal manufacturers that don’t have to shift their own operations may be affected by the operational capacity of players they interact with along the supply chain. According to the NAM survey, 35.5% of manufacturers expected supply chain disruptions due to COVID-19.

Breweries themselves might be less impacted by social distancing measures. Canning doesn’t require more than a lean crew, and workers are generally spread more than six feet along a canning line. “These types of activities lend themselves well to social distance anyways, even pre-pandemic,” says Ryan Nosek, one of the co-founders of Ghost Town Brewing. However, that doesn’t mean they’ve been untouched by the pandemic by any means — Nosek says they have been regularly testing employees and shifting employee schedules to reduce interaction. Nonetheless, they had a staff member test positive the night of Jan. 8, and quarantined all staff members who had been in contact with them as a result until receiving negative tests (on Facebook, they reported that the infected staff member was asymptomatic and recovering well).

All of this has been compounded by the sharp increase in demand for canned beers that can be drunk at home. In the first two weeks of March alone, beer sales increased 8% in grocery, convenience, and liquor stores.

Reinventing the Craft

The fluctuation between factors has required brewers to be more nimble, creative, and resourceful than ever before. While some breweries have had to make occasional aesthetic changes, like Fort Point, others have held off on releasing new beers, or laid off employees to counteract the financial strain. “Some people were putting it in jars, like mason jars — they were literally packaging beer any possible way you could,” says Nosek.

Breweries that didn’t already have their own canning lines and had to depend on services like hers were hardest hit. Even the transition alone was difficult to estimate — Coyle of the Can Van says multiple breweries had her return repeatedly in a short span, realizing beer they thought they could still sell in kegs had to be canned. The Can Van even eliminated their minimums for orders, sacrificing a little bit of profit to instead to work with any brewery that could at least cover their transportation costs. “From day one [of the pandemic] the phone started ringing off the hook, and we were trying to figure out how we can help everybody and make sure that everyone has equal access to be able to can their beers,” she says.

Even those who had their own canning lines are often limited by storage issues in the crowded San Francisco Bay Area. Laughing Monk Brewing, with canning facilities in Bayview, says that even when extra cans were available to stock-up they could only hold a short supply. Head of Brewing Jeff Moakler says that if he could, he would have bought a truckload of cans when they were available, but could only store between one quarter to a third of that amount, or five to eight palettes of cans. “Most breweries in the city have storage issues because it’s such a small area,” he says. “Some breweries have offsite storage where they can store some stuff, but I’d say all breweries have at least some storage issues.”

Many breweries have collapsed entirely under the pressure. South San Francisco’s Armstrong Brewery, for example, closed their doors permanently in August. Southern Pacific Brewery in the Mission closed in September. Ferment, Drink, Repeat (FDR) Brewing in Portola Valley closed their doors at the end of the year. These are only some of the industry’s losses.

Those who have stayed afloat may be looking at an even tougher 2021: As a result of last year’s shortages, can suppliers have raised prices industry-wide for the first time in years. The increases may sound small — breweries who spoke with SF Weekly said can prices had increased anywhere from one tenth of a cent to half a cent per can — but even a small increase can throw off budget calculations in a big way. “This is the biggest increase that we’ve seen in the last 10 years,” says Jenn Coyle.

Those increases might get passed onto consumers, says Catalana from Fort Point. “Breweries, specifically production breweries like Fort Point — we operate at a very thin margin so a 5% increase to the price of cans is significant,” he says. “At Fort Point we’ve kept our pricing consistent so far into 2021, but I suspect you’ll start to see this reflected in the price to consumers.”

There might be a silver lining to the pandemic however, too. Let’s face it — the pandemic has encouraged a lot more at-home drinking, and mass produced standards like Coors and Bud Light only entertain for so long. Many customers, including this reporter, have found themselves indulging in creative craft beverages from small local businesses we want to support. And brewers, responding with an increased offering of can beer, have forged relationships with customers who may have never discovered them before.

Laughing Monk, for example, already had a plan to increase canning in 2020. “We were trying to build up a higher margin, just maybe not as high as we are now,” says Moakler.

Ryan Nosek, from Ghost Town Brewing, says he calls this shift a “silver lining,” albeit a small one. “We’ve established new relationships with customers that we previously hadn’t interacted with, and we want to keep them,” he says. “When things open up, and the keg accounts return, we’re just going to be making a lot more beer.”

SF Weekly Link: https://www.sfweekly.com/dining/pandemic-local-breweries-aluminum-can-shortage/