Shutdown aftermath hits craft beer

Jason E. Kaplan

Small breweries face delays, lost sales and uncertainty. 

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The federal government shutdown took paychecks and GDP growth, but its aftermath is threatening one of the state’s most precious resources: craft beer.

Thanks to the 35-day closure, breweries across the country are delaying the rollout of new beers. In a state with a robust craft brewing industry that can cause a ripple effect through a complex web of raw materials suppliers, packaging companies and distributors, slowing economic growth and injecting uncertainty into the market.   

“It makes me want to wait out the storm for another administration,” says Matt Swihart, owner of Double Mountain Brewery. “It makes me hire less people and invest less in my business.”

Breweries say a routine bureaucratic step is causing big problems. Before a brewery can release a new beer, a federal agency, the Alcohol and Tobacco Tax and Trade Bureau, needs to approve the label design for the necessary warnings. The bureau’s employees, furloughed during the shutdown, are now returning to their desks to face a towering stack of some 10,000 labeling applications. The backlog means a process that typically lasts 10 days could take months.

Business owners expect the delays will cause a noticeable drop in sales. Craft Brew Alliance, an umbrella brand for six craft breweries including Widmer Brothers and Red Hook, is waiting on close to 50 beers in the pipeline. John Harris, owner of Ecliptic Brewing, is holding off on five seasonal collaborations and predicts a loss of $20,000 in sales. Swihart estimates the delays will cost Double Mountain $10,000 a week, 20 to 30% of the brewery’s sales.

The problem hits Oregon, with its well-developed craft brewing cluster, more than some other states. Sen. Ron Wyden and Rep. Earl Blumenauer wrote a letter to Tax and Trade Bureau Administrator John Manfreda describing the statewide impact.

“In addition to the almost certain loss of money and inventory, coupled with cash flow disruptions, the craft beverage producers in our state have expressed concern over longer-lasting impacts,” Wyden and Blumenauer wrote.

“It makes me want to wait out the storm for another administration. It makes me hire less people and invest less in my business.” 
—Matt Swihart, owner of Double Mountain Brewery

The business model of craft breweries hinges on constant innovation. To draw consumers away from larger competitors, the small guys brainstorm fresh hop brews, winter pumpkin ales and other new flavors every two or three weeks. At Double Mountain these constantly rotating new releases account for about a third of the overall product offerings.

The constant stream of new releases creates a line of dominos that starts with labeling approval and extends to deadlines with vendors and suppliers every month. If even one label doesn’t get approved on time, those dominos start to topple.

Mary Rait, government affairs director at Craft Brew Alliance, says the delay at the bureau pushes back approval processes in 32 states. The brewery also needs to get through a separate process for formulas that contain special ingredients. “It all starts with that one approval,” Rait says. “A delay on the front end pushes everything back.”

Smaller businesses, which don’t plan as far ahead, face an even bigger setback. At Ecliptic, Harris has a collaboration with Brooklyn Brewing slated to drop next week, along with another beer. He submitted the labels in mid-January, and hasn’t heard back. Customers are already expecting the product and he’s worried the hype will fizzle. Without the approval he can’t sell the beer out of state.

“We have orders from all over our markets,” Harris says. “The momentum behind it is going to get stymied.”

Meanwhile, uncertain about whether the government will remain open, Harris has delayed press releases for March products.

Small business owners could make their long-term plans more conservative to account for the uncertainty. “If I’m looking at that schedule going forward, I might release a beer I released a year before,” Swihart says. “We’ve trained our customers to want new and dynamic offerings. Now I’m less competitive than a guy getting his stuff faster into the TTB (Tax and Trade Bureau) last year.”

“In addition to the almost certain loss of money and inventory, coupled with cash flow disruptions, the craft beverage producers in our state have expressed concern over longer-lasting impacts.”
—Sen. Ron Wyden

The shutdown has also caused other unanticipated problems for craft brewers. Swihart couldn’t get an emergency plan approved to send to the state fire marshal because a federal agency that needed to see it was shuttered. That could have delayed valuable information about the building from getting to first responders. Entrepreneurs opening new establishments are facing delays in regulatory approval that could jeopardize their small business loans.

On top of the immediate losses, a political climate of repeated shutdowns creates an aura of uncertainty that slows down the industry. President Donald Trump and Congress have only agreed to keep the government open for the next three weeks. If at that time the government shuts down again, Swihart says, his losses could double. In an era of recurring shutdowns, the regular presence of government regulation has become volatile.  

“I don’t have confidence that on a whim or a Tweet it won’t get shut down again,” Swihart says. “There doesn’t seem to be adults in charge. It makes us rethink our whole strategy. We might bring less new beers to market or open less locations.”

That’s enough to leave everyone in Oregon’s craft brew industry needing a cold one.

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