Tough year ahead for craft brewers

A sharp rise in raw materials costs that cannot be passed on to the consumer will mean that many craft brewery may not make it through 2008.

You thought that brewing concerns had trouble coping with rising raw materials costs. Just think of the U.S. craft brewers. In their case, cost pressures have become so high that a fair number of smaller brewers may have to close their doors forever. Many are planning huge price increases in the order of 10 percent or more, says Beer Marketers Insights. Given that the U.S. consumer is in a bit of a tizzy over the economy, higher craft beer prices may become unpalatable to plenty of consumers.

Moreover, one should not underestimate the competition from the major brewers in the so-called Craft segment. Blue Moon from Coors, was up 50 percent to 60 percent last year, while the Leinenkugel volume (SABMiller) was growing almost 30 percent reports Beer Marketers Insights. These competitors usually sell at lower prices, without as much cost pressure.

Even Boston Beer, which brews Samuel Adams, has witnessed its share price decline after its last quarterly report, primarily because of cost pressures. Its stock has dropped 40 percent from its peak, wiping out USD 200 million in market capitalisation.

Perhaps, the Flying Dog brewery in Denver, Colorado, will set an example. In January Flying Dog closed its doors and moved all of its production to its state-of-the-art brewery in Frederick, Maryland on the East coast. Rather than invest the USD 1 million needed to renovate the Denver location, Flying Dog decided to move everything to Frederick, where 70 percent of the company’s beer is already produced.

The brewery blames increased costs of raw materials, combined with the loss of contracts from smaller craft brewers as the driving force behind the closing of the Colorado brewery.