Local brewers coping with effects of national aluminum shortage

FARGO — Beverage producers nationwide have grappled with a shortage of a key ingredient: aluminum.

Demand for canned beverages skyrocketed as a result of the COVID-19 pandemic, causing a shortage of cans.

Ball Corporation, the United States' largest aluminum container manufacturer, noted in its second quarter earning report that "higher at-home consumption combined with already tight supply/demand conditions outpaced domestically produced volume" in it's beverage packaging division.

Scott McCarty, a spokesman for Ball, pointed out that even without the pandemic throwing a wrench in the market, 2020 was on track to be a year of growth for cans. "Hard seltzers have experienced explosive growth as a category and specifically in cans," McCarty said. "Soft drinks and the still and sparkling water categories have seen it too, with marketers shifting their packaging mix toward cans and away from single-use plastics."

Add the pandemic into the mix, McCarty said, and the result is a shortage of cans.

Throughout the Fargo-Moorhead area, brewers have rushed to mitigate the ripple effects of the shortage.

Drekker Brewing Company co-founder and president Mark Bjornstad reported that while the Nordic-themed brewery hasn't experienced a shortage of the blank 16-ounce cans it uses, there has been a variance in their can deliveries. "We are constantly checking in with our supplier about if they expect any interruption to supply," Bjornstad said. "They don't think that they are going to feel that, but there is a variable lead-time and difference in delivery of them and we've felt that a little bit."

A minimum order of cans, Bjornstad said, consists of 25 pallets, which is "about the footprint of a semi trailer," he said.

Drekker has kept more cans on hand than usual, Bjornstad continued. "We know that we're highly dependent on receiving these blank aluminum cans, so we need to keep that inventory," he said. "There's a cost of inventory. We have capital locked up in three times the normal inventory than we normally would of cans. That puts a strain on operating capital."

There's also the matter of storing triple the number of cans. Fortunately though, Bjornstad said, Drekker completed a new 6,000-square-foot warehouse last fall, which he said has come in handy.

Fargo Brewing Company co-founder Aaron Hill said operations have been "minimally impacted."

"We did receive our previous shipment the day we ran out of our existing inventory, which was cutting it a little close, but that does happen from time-to-time," he added.

Across the Red River, Moorhead-based Junkyard Brewing Company has dealt with what owner Aaron Juhnke described as a "unique" set of circumstances.

"Minnesota breweries are only allowed to package 64-ounce or 750-milliliter containers for off-sale," Juhnke said. "We can package any size container we want for distribution to local liquor stores, but for off-sale from our brewery in Minnesota, we only have those two options."

Juhnke said that breweries statewide "scrambled" to either begin packaging their beer or start packaging more than usual. "There was a massive shift from on-premise consumption to off-premise consumption," he said. "That meant breweries were packaging a dramatically larger amount of their beer."

The can shortage coupled with the state's restrictions on container sizes "has huge implications for Minnesota breweries," Juhnke said. "It means we're generally using the 750-milliliter can size — which is an obscure can size that's only produced in my understanding four times a year by Ball."

Juhnke said he has never been able to contact anyone from Ball, adding that most information he has heard about their manufacturing has been "through rumor."

"They had pushed back production of the 750-milliliter cans and they were intending to continue pushing it back, so there was this really bad shortage of 750-milliliter cans," Juhnke continued. "That led to a pretty major shortage for a lot of Minnesota breweries where they were left with very little options."

Bart Watson, chief economist for the Brewers Association, reported that aluminum cans comprise 60% of all beer sales.

"The aluminum can is the most popular, volume-wise, form that beer is consumed in," Watson said. "For craft brewers, it's about 50% of package sales or about 30% of overall sales, at least it was prior to the pandemic. During the pandemic it would be higher."

Though consumers still favor bottled beer for quality, Watson said, they also list convenience and portability as key factors in favor of cans.

Consumer preference has dictated the choices small brewers have made when starting up, Watson explained. Small brewers have to choose between bottling or canning their beer, he said, and recently the choice has been canning.

"We've seen increasingly that the new start-up breweries have chosen to invest more in canning lines than bottling lines, so they don't really have an alternative," Watson said. "It's not like they can buy bottles and bottle their beer because they don't have the manufacturing equipment to put it in bottles."

According to Watson, the can shortage has hit small breweries the hardest as even large brewers are experiencing supply-chain difficulties. "If Anheuser-Busch and Molson Coors can't get all the cans they want, you can only imagine what that means for your local brewpub," he remarked.

The Brewers Association cautioned that the can shortage could be a "medium- to long-term issue" with can manufacturers such as Ball favoring larger orders and contractual obligations. Ball is slated to open new can manufacturing plants in Glendale, Ariz., and Pittston, Penn., by the end of 2021, but "demand is likely to continue to outpace supply through next year or possibly longer," the Brewers Association warned.

Uncertainty surrounding Canadian aluminum has exacerbated the strain the shortage has put on small breweries.

President Donald Trump signed a proclamation reinstating a 10% tariff on Canadian aluminum , Thursday, Aug. 6. The administration reversed course Tuesday, Sept. 15, when it opted for quotas on Canadian aluminum rather than a tariff.

Watson estimated a tariff would have increased the cost of manufacturing by $350 million, though taking into account the spike in demand for aluminum, that could have been "potentially larger," he said.

"When you talk about how much beer is sold in the United States annually, even small increases are going to lead to huge costs systematically," he concluded.

Bjornstad said that Drekker has yet to experience a substantial increase in costs, though he said rising costs "could trickle down to suppliers or consumers."

To make up for losses in taproom revenue, Juhnke said that Junkyard opted for a "small price increase" for its wholesale and off-sale offerings.

Junkyard has kegged beer from before the pandemic which it may ultimately dump to free up space, though Juhnke said it hasn't gotten to that point yet.

"We switched over immediately to canning everything as soon as we started to hear that quarantines were coming and we haven't switched back," he said.

Bjornstad said Drekker shifted the "vast majority" of its production into cans. "Already the majority of our product was going into cans versus draft kegs, but we've shifted even more of that to cans," he said.

While local breweries have been able to avoid it, Watson said some small brewers have had no choice but to cease production or dump beer.

"Maybe it just means they're not selling beer they could be selling otherwise or they're not brewing beer because they can't put it into cans," Watson said. "For many brewers, it means they're not going to get those sales that they have demand for, which is extremely unfortunate right now given that many of them have lost a big percentage of their draft sales."