Matt Opperman is Rowdy Mermaid Inc.’s Chief Financial Officer, so he loves math more than anything. Still, he woke up to a finance man’s worst nightmare when he discovered that an ingredient had gone up 6,000% in price practically overnight.
No, we didn’t accidentally add another zero.
Rowdy Mermaid, a Boulder-based beverage company that prides itself on brewing a kombucha that’s a pleasure to drink, is planning to release a new line of products. But if you’re curious about getting another drink with pineapple, peach, or maybe a re-launched Hibiscus Pulse, inflation reports will tell you more than Opperman.
Breweries in particular have been hit hard by inflation this year because they have shopping carts like the rest of us (though you could skip the hibiscus). Grocery shopping has been difficult this year. You probably noticed. Brewers like Rowdy Mermaid use their edibles for Go Go Grapefruit, Strawberry Tonic, and something called Rowdy Belly, which could be just the ticket for all those peppermint rinds and pumpkin pies you’re consuming this holiday season.
The mission statement of the Rowdy Mermaid can be seen in the break room of her Boulder office on Wednesday. (Matthew Jonas/Staff Photographer)
“We pride ourselves on our sustainability and use organic ingredients,” said Opperman. “So we are more affected than most. We are more restricted than others who can source from other areas.”
Oppermann knows that inflation has hit all sectors hard this year. The latest figures put inflation at 7.7%. That’s down 8.2% for the year, but that’s still higher than it’s been in decades. So Oppermann doesn’t want to give the impression that he’s whining. Sectors like manufacturing and the outdoors have been hit almost as badly as brewing. And while it seems that Boulder County’s unique, near-bulletproof economy will take the hit better than many other Colorado counties, it still hurts.
Artwork made from Rowdy Mermaid cans in the shape of the logo can be seen at their Boulder offices on Wednesday. (Matthew Jonas/Staff Photographer)
Still, the brewing could probably use a beer. For example, you can’t use cantaloupe for Roaring Pineapple, and using certain ingredients for certain products meant Rowdy had to deal with prices differently.
The company has no plans to change recipes or discontinue products because the “very harsh flavors,” as Opperman puts it, are helping his company differentiate itself in a surprisingly competitive kombucha market.
“We think that’s why we’re going to survive,” he said. “We don’t sacrifice quality. This is where we differ.”
But Rowdy won’t be offering new drinks with ingredients that have been hit the hardest. For that reason, you might want to take a look at the Commodity Market, as it may give clues as to what Rowdy’s new line of products might contain (Opperman doesn’t want to go into detail or give the cost of specific ingredients, of course).
“We’re not going to release a new product with the ingredient that’s up 6,000%,” Opperman said with a wry laugh.
Rising costs of doing business
There are, of course, other factors that bind Rowdy Mermaid that hamper most other industries, including packaging, transportation, and labor costs. Labor costs have increased as a result of the pandemic and this has been a struggle for all industries for some time. But paying workers more than planned makes the other price cuts all the more painful, and there’s a double whammy: recouping those costs can be difficult as inflation continues to outpace the generous increases workers enjoy as a result, leaving them spend less money on Christmas presents.
“Prices will rise as companies try to recover the costs of higher wages and inflationary pressures in the supply chain,” according to a report by the Boulder-based Outdoor Industry Association. “Although many workers have seen wage increases, these financial gains are being wiped out by inflation.”
The outdoor industry dreads these workforce numbers because younger and less-skilled workers should feel the impact the most, as they always do when something bad happens to the economy. More than a third of the leisure participants are between 18 and 34 years old.
“So it’s likely that the outdoor industry will also be affected,” the report says. “If the labor market tightens significantly, the impact will likely be greater. Consumers in these age groups are likely to be more conscious about their purchases this fall.”
However, as the prices of fabrics, certain gear components and transportation have increased, so have the prices of gear and apparel, said Quinn Trainer of Denny, Inc., a public relations firm that represents the Outdoor Industry Association and many other outdoor brands . Consumers are no longer willing to pay hundreds of dollars for a new ski jacket (even if it has a heater), especially when the outdoor gear might be too durable for its own use.
“We’re seeing more and more used gear outlets popping up at major outdoor centers across America,” Trainer said.
When inflation hits an industry, the effect can be more like a carpet bombing than a surgical strike.
When inflation hits, the Feds raise interest rates. Inflation has pushed the Feds to raise these rates sharply over the last year, even by a full point at a time around Easter Sunday. That cooled the market as effectively as an ice bath.
The market almost had to slow down, and even real estate agents aren’t unhappy to see a crazy few years coming back to their senses. But it also affects less successful realtors, mortgage and title companies, lenders, and builders who decorate a home to make it more attractive to buyers.
“The housing market is a little more balanced and that’s a natural occurrence,” said Scott Sternberg, executive director of the Boulder Economic Council and vice president of economic vitality for the Boulder Chamber. “But there are quite a number of industries that support these prices.”
The same issues that affect retail, including supply chain issues that have not only increased the prices of goods but also make them more difficult to source, are also affecting manufacturing, and manufacturing also addresses transportation and labor issues.
“Boulder has a higher percentage than many of the companies that have a commercial designation for manufacturing,” Sternberg said. “You don’t think so about it, but we do. That’s where inflation really kicks in when they’re trying to get products to market but are constrained by things they can’t control.”
Higher costs and supply chains have impacted commercial projects, Sternberg said, even as demand for them continues to rise in Boulder. It was particularly difficult to obtain generators and heating and cooling equipment and workers to install them. That, in turn, has hurt the life sciences industry, a particularly hot industry in Boulder right now.
“It’s notably growing very quickly,” Sternberg said, “but they have to build lab space, and that requires special equipment.”
The high-tech device industry faces the same problems as manufacturing. But the software industry may be offering a glimpse of what might be to come: Meta, the company that offers Facebook, and Twitter have both laid off thousands of workers, and other companies that helped break the work-from-home craze during to cover the pandemic, do this now reduction.
“They needed a large number of staff to cover the tremendous boom in digital adoption during the pandemic,” Sternberg said. “But now they’re taking shortcuts.”
On the other hand, this industry continues to reflect the mixed signals the economy is sending during inflationary crises as labor demand remains strong and worker confidence is high as a result. Workers with the right skills are winning the software industry and finding other jobs elsewhere, including the life sciences industry.
It’s still Boulder
Boulder isn’t like most cities, even in a state full of ski resorts, cities with iconic outdoor destinations, and Denver. Its reputation as a destination, both for tourism and conferences, has helped not only to maintain its strong economy, but to improve it a bit, Sternberg said.
It also helps that many Boulder residents have above-average incomes and homes worth millions, but tourism is definitely important, as is conferences, and both are growing.
“That’s good news,” Sternberg said. “It creates optimism for retail districts. We have every reason to be more optimistic than in other areas.”
Foot traffic has also increased, Sternberg said, a big sign that more workers are returning to the office.
“We think hybrid models are trending towards office space,” he said, “and that often impacts retail sales.”
As a result, occupancy rates for bars and restaurants are also increasing. Food and ingredient costs remain high (although they appear to have leveled off), and labor remains a concern for this industry perhaps more than any other.
Brewers continue to enjoy big crowds and good deals, said Bart Watson, chief economist for the Boulder-based Brewers Association. But inflation threatens their profits and may eventually limit their ability to thrive in a tight and competitive market.
“Basically, it affects everything you use to brew beer,” Watson said, “at rates we really haven’t seen.”
Ingredients are commodities, and the prices of commodities fluctuate constantly.
“But what’s unprecedented is all that’s going on,” Watson said of the rising cost of labour, transportation, ingredients and other costs.
Brewers have a clear disadvantage versus corporate beer makers, and that includes places like Fort Collins-based New Belgium Brewing Co. that are doing really well. They can’t negotiate prices as much and don’t own barley like some of the big boys.
But they also have an advantage: Colorado customers expect to pay more for craft beer and don’t mind doing so. That will keep their business going with weaker profit margins.
“Brewers are faced with a difficult decision right now,” said Watson. “You can raise prices, but the market is too competitive for that. So they choose the other path, and margins continue to erode. Brewers need sales even if they produce less. That is hard. It will be a challenging time.”
It could be overwhelming for smaller breweries, but Watson doesn’t think breweries will close.
“It’s always a combination of things,” he said. “I don’t think that’s the thing. If prices go down again that’s fine, but if all prices hold up five years from now it could get really bad.”