Disruptions in breweries’ supply chains and rising costs of ingredients and packaging materials continue to make headlines, but nowhere in the U.S. are these factors more pronounced than in Alaska and Hawaii. Breweries outside the continental U.S. already faced challenges in obtaining the inputs they needed at a reasonable price, typically paying 50% more for the same items as mainland businesses.
Then the pandemic made it all worse.
Breweries in both states say there’s no wiggle room left: Costs have skyrocketed or certain materials are just flat-out unavailable. It’s forced breweries to make decisions that affect consumers, including raising prices and, in Maui Brewing Company’s case, moving some brewing operations away from the company’s island home.
As 2021 closes, breweries are expected to have already forecasted beer production and sales for next year—a near-impossible task for companies that aren’t sure they’ll be able to obtain or afford basic materials.
“It’s hilarious to me—well, not hilarious, it’s awful,” is how Lee Ellis, president of Midnight Sun Brewing Co. in Anchorage, Alaska, and board president of the Brewers Guild of Alaska, describes the state of the supply chain in his state.
The disrupted supply chain has already had major financial implications for Ellis’ brewery. Midnight Sun has stockpiled just under 1.5 million cans—about a year’s worth of cans for the brewery—as a hedge against shortages. Ellis estimates 10% of the brewery’s annual gross sales is “sitting in cans in the warehouse.” Because the company spent so much for so many cans all at once, it doesn’t have as much operating cash as Ellis would like: The cans alone have eaten up 7.5% more of the company’s annual revenue than they would during a normal year.
“We have, like, no capital right now,” he says.
Other Alaska breweries have also become desperate for cans, partially the result of a fall 2019 decision by Crown to no longer directly supply Alaska’s breweries and instead instruct them to purchase cans through brokers, similar to a recent announcement by can manufacturer Ball. Some Alaska breweries have turned to foreign sources. This year, Midnight Sun purchased blank cans from a supplier in the country of Jordan—5,855 miles from Alaska. (That’s roughly the mileage it would take Midnight Sun to drive to Ball’s Fairfield, California facility and back.) The process to get the cans was so expensive the brewery raised prices by 8% on all its canned beers at the start of 2021.
Retailers ultimately determine the shelf price, but Ellis says where six-packs were traditionally priced between $8.99 and $11.99 in Alaska, they’re now selling for $11.99 to $14.99. Ellis says he at least fared better than fellow Brewers Guild member Matanuska Brewing Company in Palmer, Alaska, which, according to Ellis, ordered 500,000 cans from China, only to find they wouldn’t seal properly. Ellis says the manufacturer refused to troubleshoot this with the Matanuksa team and were therefore unusable. (Matanuska Brewing did not confirm these details with GBH as of press time.)
Cans aren’t the state’s only supply chain issue, either. Historically low levels of oil production in Alaska have hampered its overall economy (more than two-thirds of the state’s budget in 2020 came from oil revenues), which has had the trickle-down effect of increasing costs on cargo shipments to and from the state. Those costs rose in 2020, and carriers have announced they’ll go up another 5.25-7.5% in January.
There’s no alternative shipping method for Alaska’s breweries to obtain materials.
“Every single thing we get in—98%, about, of all of our materials—are brought in by barge,” Alaskan Brewing Co.’s communications director Andy Kline told radio station KTOO.
Though geographic conditions are different, the supply chain is similarly knotted in Hawaii.
“We are brewing in paradise,” says Steve Haumschild, CEO and brewmaster of Lanikai Brewing Company in Kailua, Hawaii, and director of the Hawaiian Craft Brewers Guild. “But there is a cost to brewing in paradise.”
In early November, Maui Brewing announced that it would move some beer production to Colorado, where access to ingredients is better. Six-month lead times for malt shipments and difficulty obtaining carbon dioxide were behind the move: The lack of carbon dioxide to carbonate beer shut down the brewery for two separate weeks in October, Brewbound reports.
As the state’s second-largest brewer, Maui’s decision could also affect small breweries. If Maui is no longer importing large quantities of malt or hops to the island, it might become impossible for smaller breweries on the island of Maui to piggyback on those shipments.
“Local breweries have a history of working together, of putting together pallets of ingredients that they order, and I know Maui Brewing has always been one of the bigger ones to help smaller ones bring those in,” says Alexander Gates, the Honolulu-based author of Aloha State Beer. “Hawaii doesn’t grow any malt or hops so it all comes in together.”
As with breweries across the country, higher ingredient and material costs raise the specter of beer price increases for Hawaii’s consumers. An analysis conducted by the Hawaiian Craft Brewers Guild in 2018-2019 showed the state’s 18 total breweries pay 50% more to create a beer than their colleagues on the mainland due to the cost of bringing in ingredients. On top of that added cost, Hawaii’s bars, restaurants, and taprooms were restricted to 50% capacity until early December 2021, further cutting into brewery margins.
“At the same time, we can’t charge 50% more per pint because you have other brands being imported [to the state] who can charge less,” Haumschild says.
Gates estimates a typical four-pack of 16oz, locally made beer costs about $20. That may be comparable to prices in some other states, but Hawaii’s cost of living is about 26% higher than anywhere else in the U.S., meaning residents pay much more for necessities like food and gas than consumers elsewhere. (As of Dec. 13, the average price for a gallon of gas in Hawaii is $4.33, a dollar above the national average.) And it’s increasing: The consumer price index for Honolulu in September was already 5% higher than it was a year ago, with energy prices jumping 28%. Will consumers continue to pay a premium for craft beer with costs rising so quickly?
Haumschild says that while current supply chain constraints are bewildering, Hawaii’s breweries have always dealt with some form of higher costs and reduced availability of materials. It’s part of the cost of doing business on one of the world’s most isolated island chains, and it’s forged a tight-knit, adaptive community of breweries who band together in difficult times. Eight years ago, companies in the state successfully lobbied lawmakers to create a Class 18 license, allowing breweries to also be distilleries, cideries, and wineries. Lanikai Brewing itself took advantage of the change by creating Lanikai Spirits, which Haumschild says “provided huge flexibility for growth.”
He believes that breweries who have made it through the pandemic thus far in Hawaii will continue to ride out the storm.
Words by Kate Bernot