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This year has handed breweries a rat’s nest of financial pressures to untangle: input cost increases, higher cost of goods sold, general inflation, pricier freight, and supply-chain delays or shortages that drive up prices. These issues are so tightly knit that they can seem one and the same—especially when the net result is that everything costs more, and margins are down.
Most breweries could weather this for a little while, taking a hit on profits in the short-term. However, this summer, indications have grown that these issues weren’t all tied to the outbreak of the pandemic or to transitory inflation. With higher costs seemingly here to stay, a number of breweries large and small have indicated that they’ll raise beer prices this fall, if they haven’t already. Others are pumping the brakes on price as a recession potentially looms on the horizon, making price hikes—already a hard pill to swallow—even riskier.
“The next thing you might be dealing with is a recession and inflation problems—that might be the problem sooner rather than later,” says Jim Watson, senior analyst for beverages at Rabobank, a Dutch multinational banking and financial-services company. “Breweries then have to cut costs even more because they have less room to take price.”
If pricing isn’t a lever your brewery is able to pull right now, there are still strategies to beat back at least some inflationary pressures. While supply-chain hiccups affect cash flow, inflation eats into profitability—something breweries need to address head-on, right now.
“On the profitability side, the squeeze of the gross margin is systemic in nature,” says Maria Pearman, beverage practice leader at GHJ, an accounting, tax, and advisory firm. “What we’re experiencing now will reverse, at some point, but for the foreseeable future, it’s here to stay.”
Here are five non-price areas for breweries to consider when determining their strategies for mitigating current inflation’s effects on profitability.