Minnesota's craft brewers say they are in trouble

Craft breweries in Minnesota say they need the state's help to stay afloat.

Many have tried what they can to keep their businesses going during the state's stay-at-home order. But more than half said they could be forced to close in three months if the stay-at-home order is extended beyond May 13, according to a Minnesota Craft Brewers Guild survey of 77 members.

Owners and analysts said the business is precarious, with a national Brewers Association survey producing similar results. Many have heavy debt loads, and state laws impede some revenue streams.

"Breweries typically have one to three months of expenses on hand. But when revenues drop 60 to 70 percent, you can't sustain that beyond eight weeks," said Matt Schwandt, co-owner and head brewer at Bauhaus Brew Labs in Minneapolis. "Unless they can get really creative for capitalization, government help is not a long-term option. I'm glad the SBA loan is forgivable, but the option to take on additional loans is not good."

Most brewers get about 70% of revenue from their taprooms or brew pubs. Larger craft breweries are closer to 40 or 50%.

With those closed by state law, smaller breweries have resorted to pickup and delivery orders. For many, that's a lifeline, especially for breweries that don't yet sell in liquor stores or have limited distribution.

Foxhole Brewhouse in Willmar temporarily stopped selling to liquor stores as a way to boost profits.

"We can keep more profit selling by walk-ins or deliveries than selling wholesale to liquor stores," said Ryan Fuchs, co-owner of Foxhole. "We don't want to snub liquor stores, but they're booming and we're not."

Craft-beer sales to Minnesota liquor stores are down 20% from earlier in the year, according to the Minnesota Craft Brewers Guild.

That's partly because consumers, especially early on in the crisis, were buying 12-packs of staple brands to save money. It's also because "craft drinkers are often browsers and now they shop less often and want to get in and get out," said Jim Watkins, co-owner of Sociable Cider Werks.

Even selling from the taprooms, brewers feel hamstrung by state law. Minnesota is the only state that restricts smaller taprooms and breweries to selling only growlers and crowlers, not the 12- or 16-ounce packaged cans that can be sold in liquor stores.

Larger breweries such as Summit, Schell's, Surly, Fulton, Castle Danger and Third Street can't sell even the growlers and crowlers to taproom customers — a state law meant to protect wholesalers and liquor stores, and smaller breweries to a lesser extent.

The state brewers association is asking state legislators for help, suggesting measures such as temporarily allowing all breweries to sell beer in 12- to 64-ounce containers for at-home consumption, suspending regulatory fees for the rest of the year, waiving sales tax payments through October and establishing a forbearance and rent abatement program.

"Selling to go is at best a band-aid," said Evan Sallee, co-founder of Fair State Brewing Cooperative and president of the Minnesota Brewers Guild. "The vast majority of our revenues come from taprooms."

Large or small, it's expensive to brew beer on a commercial scale. Stainless steel tanks, spinners, filters, and optional canning lines and centrifuges can add up to between $50,000 to $2 million to purchase and maintain.

"Those who speculated on 'if you build it they will come,' that will be an Achilles heel for brewers," said Mike Bamonti, CEO of KEG Consulting in Minneapolis. "Companies that are highly leveraged will not be able to keep up with their payments. This is very serious."

About two-thirds of 150,000 craft-brewery workers nationwide have been furloughed or laid off, said Bart Watson, economist for the national Brewers Association. "It shows how tight funds are."

The government assistance was a welcome short-term fix, but Watson doesn't see it as the lifeline that many small businesses need.

Brewers that depended on bars and restaurants for a portion of revenue worry that even after they reopen, business may be but a trickle at first — and maybe longer.

They said they worry that the number of beers sold on tap or in cans and bottles may be trimmed to cut costs. A keg can cost a restaurant $100 to $250 and struggling businesses may not be able to afford as many.

Many brewers say their best hope now is to break even.

"We're not even trying to make a profit," said Fuchs of Foxhole.

The breweries are trying to think creatively to market their beer.

Bauhaus has always had a drive-up window setup, but it had never been operational until now.

"The novelty is fun," Schwandt said. "It's not every day you see a drive-through brewery."

Bauhaus also added a nonalcoholic beer called Nah shortly before the virus hit, but its local success made the company start marketing it nationwide.

"We're [one of the first Minnesota breweries] to put out a nonalcoholic beer in cans since Prohibition," he said. "We can ship it anywhere in the country."

Pryes Brewing in Minneapolis had good timing when it recently added canned beer. With the recent Minnesota law change allowing canned beer to be sold in restaurants and bars, that's another revenue source, albeit small.

"It's about 15 percent of what we were selling to bars and restaurants before the shutdown, but we want them to be successful, too," said Mike Corneille, co-founder of Pryes.

Surly, which cannot sell beer on its premises as a large brewer even with a food order, started selling its pizza, brisket and side dishes for pickup and delivery from its Minneapolis restaurant.

It also started promoting its #TastesBetterLocal campaign.

"Buy a Minnesota beer," said Omar Ansari, founder of Surly Brewing. "It's more important now than ever. Those are your neighbors. I'm not just saying that to boost sales. It matters."

John Ewoldt • 612-673-7633