Now may be the time to review the types of supplier contracts brewers have in place, review their growth strategy (new equipment, which contains steel), and negotiate contracts appropriately. -Luna Senior Vice President, Senior Development Officer, Davies Crasta.
SANTA FE, N.M. (PRWEB) April 18, 2018
Luna Capital, a brokerage and real estate firm based in Santa Fe, New Mexico with a specialty in brewing businesses anticipates new steel tariffs will effect brewing companies immediately. Luna weighs in on the Trump administration’s February announcement regarding imposed tariffs—25% on steel and 10% on aluminum--below.
According to the Brewers Association, 30% of craft beer now comes in an aluminum can, and small brewers that produce 10,000 barrels or less per year represent the fastest growing segment of those who can. Additionally, breweries that have been open less that a year chose to can over any other option.
Aluminum accounts for 5 – 7% of the cost of producing a can of beer. In the worst case, a 10% increase in the price of aluminum results in a modest margin impact to the brewery. It will be less than pennies per can. There’s roughly 3 to 7 cents of aluminum in a can of beer. A 10% tariff is 3/10ths to 7/10ths of a cent.
The exemption of Mexico and Canada from tariffs eases the pain, as about two-thirds of aluminum imports come from Canada, lessening the tariff burden to an even more manageable level.
The greatest burden that craft brewers will feel is in cost of steel. Manufacturers of mash, brew kettle, fermenters and bright tanks will likely increase prices as a precautionary measure to protect their margins.
Companies will need to evaluate whether absorbing the costs or passing them onto their customers is more prudent.
“Now may be the time to review the types of supplier contracts brewers have in place, review their growth strategy (new equipment, which contains steel), and negotiate contracts appropriately. Additionally, there are mechanics in place to hedge risks via futures contracts or swaps, but note, these market-hedging strategies carry inherent risks,” said Luna Senior Vice President, Senior Development Officer, Davies Crasta.
About Luna Capital: Founded in Santa Fe, New Mexico in 2013, Luna Capital is a proactive and transparent commercial lending advisor providing capital resources and real estate expertise to businesses in the Southwest and nationally. Through careful analysis and planning, Luna becomes an invested long-term partner for their clients, engaging the business on every financial detail by building out customized plans that are then carefully overseen and guided. Luna is an exceptional creative force in an industry not known as such. Their thorough process and relationships with banks, SBA programs, private lenders, private equity and individual sponsors elevates their loan approval rate to nearly 100%. CEO Kris Axtell founded the company after a decade in the banking industry. He was joined by COO and Managing Member Brandon Fitzpatrick, an MAI trained appraiser and qualifying broker, in 2016. For more information about the Luna Capital team and services, visit: http://www.luna.capital.