Supply chain uncertainty is an acute pain for the beer industry. Brewers are especially vulnerable because key ingredients such as hops aren’t easily sourced elsewhere.
The disruption has pushed many craft brewers to diversify their businesses, creating new risks.
“Brewers have to deal with not knowing when their next hop shipment is coming and trying to plan the release of beers that require certain hops,” said Paul Martinez (pictured on the left), program manager at PAK Programs, a managing general agent (MGA) that serves breweries, distilleries, and wineries.
“At the end of the day, you don't know if you're getting these hops and your ability to pivot is paramount to the survival of your brewery.”
The shortage of supplies continues to be a pressing concern for brewers, who must now also deal with the rising cost of raw materials and transportation challenges affecting their bottom line.
“I don't know if we'll ever be at that point where you can order something and know two days later that it's there. Whether its hops for the next season or even aluminum cans, putting items on order is not a guarantee that you're going to get them when you want to get them,” Martinez told Insurance Business.
“The shortages are still very real and very challenging to brewers just from a scheduling aspect.”
Supply chain delays also make equipment breakdowns potentially devastating for brewers. Replacement times for machinery have ballooned from 30 days to 360 days, forcing brewers to stall their operations or pivot, creating a business interruption loss.
“In many cases, the machinery and equipment issues are even worse than sourcing the day-to-day ingredients to brew beer, because we’ve seen no relief from the lead times and the lack of availability of spare parts for boilers and chillers,” said Larry Chasin (pictured on the right), president of PAK Programs.
Amid supply chain delays and an inflationary environment, Chasin stressed that agents need to work with brewer clients to get the right valuations.
“It’s easy for an agent to put a number on an application and say we need $500,000 worth of coverage on their policy,” Chasin said. “But that could easily double quickly in this environment and leave the insured unable to rebuild.”
Many craft brewers have adapted to supply chain risks by diversifying. Some are producing new products such as hard seltzers and canned cocktails or adding a hospitality element such as taprooms.
Others are also branching out through partnerships, such as product collaborations with local distilleries. Expanding a brewer’s portfolio also spreads the risk posed by supply chain uncertainty.
“There are so many different styles of beer, and some require a lot of hops while others don't,” Martinez said.
“It’s important to diversify and have a vast portfolio so that if something does occur and you can’t receive a certain kind of hop, then you can have a backup beer you can make instead.”
Diversifying also brews new and different exposures for beer businesses. For example, popular canned cocktails bring a risk of can leakage due to their formulation. Fruit components, which are high in sugars and acid, mean manufacturers need to use different cans for cocktails than they would for beer.
“The drinks continue to ferment and can lead pressure to increase in the can, which causes the can to rupture,” said Martinez. “With canned cocktails, you must make sure that all the ingredients are chemically sound.”
Additionally, introducing high proof alcohol onto a brewer’s premise also heightens the risk of vapour explosions and fires.
“Even just open-air pouring creates vapors, and often this is done right in the middle of your brewery, so you're exposing your entire operation to this hazard,” Chasin said.
Brokers and agents serving the brewery industry must stay on top of their clients’ operations to help them manage their risks and ensure they have adequate insurance coverage.
But there’s also an unusual feature in the industry that helps businesses deal with business disruptions when they do occur.
“It’s a very collaborative industry – we've had breweries go into contract with neighboring breweries to produce beer for them while they’re waiting for new equipment,” said Martinez.
“Smaller breweries can tap larger breweries for resources. They help each other out, it's one of the great parts of this industry.”
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