Nanobrewers Adjust to Business in a Pandemic
In the last two months, the spread of the SARS-CoV-2 (novel coronavirus, the virus responsible for the COVID-19 disease) has created a new reality for most every person on this planet. Travel has nearly ground to a halt and many businesses in the hospitality world have closed their doors to walk-in customers. Most nanobrewers have built their business model on walk-in customers and must quickly adjust to this new reality or perish. We emailed Audra Gaiziunas, one of BYO’s “Nanobrewing” columnists, Bhramari Brewering Co. CFO in Asheville, North Carolina, and Brewery Consultant, as well as Peter Charbonnier, Co-Founder and Brewer at Populuxe Brewing in Seattle, Washington, and Jim Furman from Black Hammer Brewing Co. in San Francisco, California, to find out how they are coping and tips for fellow small-scale breweries. The beer world needs to come together to keep all our friends afloat. If you are a fellow nanobrewer and would like to add to the conversation, please email [email protected]. We hope this helps:
Business Challenges
Peter: Our main focus is still maintaining the health and safety of our customers and coworkers. We’re making sure we follow CDC (Centers for Disease Control and Prevention) recommendations and go the extra mile to ensure social distancing and a clean and sanitary experience for everyone involved. Until this thing blows over the challenges our business is experiencing pales in regards to the challenges to our community as a whole.
Jim: The biggest challenges we’re facing right now are the required almost daily adaptations to the rapidly evolving situation, both from a health and safety standpoint as well as in the context of staffing levels and retention. The complete lack of a definitive trajectory for this crisis is the biggest issue keeping me up at night, and I’m sure I’m not alone. However, we are definitely using this situation to our advantage, and we were able to jumpstart a lot of exciting projects in the operational space provided by the compelled shutdown.
Audra: The biggest challenge COVID-19 is posing to nanobreweries is a test of the owners’ fundamental understanding of their business model and cash flow. Those who opened undercapitalized and have been hobbling along, those whose popularity have hidden burn rate mistakes, and cash flow deficiencies, those who haven’t benchmarked their own business model and taken the time to pay attention to what their financial statements have been telling them . . . these nanos will have the rudest awakening. COVID-19 is the “surprise quiz” we were given in high school, being ordered to the front of the class to give your book report when you haven’t read the book you were assigned. In much the same fashion, if you haven’t spent the time to design your financial management systems, fully grasp the components of cost accounting as it relates to your inventory management, and regularly perform ratio analysis to understand how well you’re running your operations, this disruption will call you out without mercy. Cash is king in this industry, and without any sort of reserve or contingency plan as it relates to cash flow, the rug will be yanked out from under you swiftly, quickly, and ruthlessly.
Staying Connected With Customers
Audra: The taprooms closed by mandate are getting creative with their curbside and delivery services. In several parts of the country where my clients exist, breweries are setting up tents collectively in empty parking lots and offering a drive-thru service from 8–10 breweries in one lot, similarly to a food truck rodeo. Funds are being pumped into social media outlets to increase engagement, posts are getting more creative, and I’ve seen an increase in online contests and virtual scavenger hunts. One of my clients handed out $25 gift cards to first responders and healthcare workers within their community. With this newfound time on our hands, this is an excellent opportunity for us to invest more deeply within our respective neighborhoods and support those who have supported us, whether through Instagram stories, authentic narratives, or benevolent actions. The creativity I’m witnessing during this disruption keeps proving how resourceful and comradely we are as an industry.
Jim: Our taproom, as well as the bars and restaurants of all of our wholesale clientele, were closed by mandate on March 16th. We have rapidly shifted our focus from over-the-counter sales in our taproom to launching and growing city- and state-wide delivery. To keep our customers engaged with us, we have stepped up our social media posting and interaction, as well as our direct email updates. We’re planning to host an all-are-welcome online happy hour too, with brewery staff and ownership having a beer with our clientele, DJing, juggling, and dance performances by our interestingly talented staff.
Peter: We’re deemed an essential business under the Washington state governor’s directive, so we’re able to do curbside to-go orders. These orders so far are totaling about 5% of the revenue we expected to see in the last half of March. We’ve increased our social media presence and have upped the number of to-go products available in an effort to stay engaged with our customers.
Packaging Challenges
Peter: We’ve only used the mobile canner and bottler a couple of times and had no other packaging ready to go when the virus hit. In a pinch we ended up bottling a limited number of bombers off of a beer gun just to give people an option other than glass growlers. Crowler cans were scarce for a couple of weeks, but we did end up sourcing some and borrowed a seamer to make that happen.
Audra: The greatest supply chain issue for my clients at this time is obtaining crowlers and cans. With draft being essentially dead and taprooms closed, we’re transferring beer back into the brites to repackage for can/crowler off-premise consumption by our consumers. It’s the only viable sales package for some, especially for taproom-focused models; therefore, this influx of orders has overwhelmed the crowler and can suppliers.
Jim: Ahh, the Great Pandemic Crowler Shortage of 2020! We were very fortunate to have received a fresh pallet of 2,400 crowlers just before the pandemic struck (which at the current burn rate is less than a month) and although we are seeing slightly slower communication with our supplier, we don’t expect a significant problem with acquiring new crowlers. Bottles are plentiful since most breweries don’t have bottling machines these days, and standard cans seem to be readily available. We’re using this situation as an opportunity to bolster and expand our packaged beer offerings, since not only will packaged beer be king for at least another month or two, it helps us expand our wholesale and direct-to-consumer distribution reach across the state. We’re also partnering with Whole Foods in the near future, and getting our beer in front of thousands of new consumers who may not have had the chance to pick up Black Hammer until now.
With draft being essentially dead and taprooms closed, we’re transferring beer back into the brites to repackage for can/crowler off-premise consumption by our consumers.
The Economic Stimulus
Audra: Attend the free webinars and fireside chats the Brewers Association and your local brewers’ guilds are offering. Talk to your accountant about which of the SBA (Small Business Administration)-backed packages are the best fit for you, as obtaining funds through one program may affect your eligibility for others later on. There are loan packages available for up to $2M, but the funding may not be as immediate as a $10K grant offered through a local CDFI (Community Development Financial Institutions). Understand how each interacts or fits in with the other. Will one nullify eligibility for another? Are personal guarantees required? Are there prepayment penalties? How much can be deferred and for how long? Almost every community has its own stimulus. Explore them all, then prioritize them based on your specific business model. I’ve worked on 16 emergency financial plans over the past two and a half weeks, and no two have looked the same. Understanding each entity’s fixed overhead and legal structure (LLC, S Corp, cooperative) is a key starting point in deciding which direction your business should take.
Peter: None of the stimulus options or policies currently being presented are particularly helpful. I need to replace my lost revenue, and none of the packages are designed to do that. SBA loans have the potential to increase our debt load during a time of extreme uncertainty. Deferring tax payments just kicks the can down the road and leads to a big expense right at the start of winter when the business sees a natural downturn. I understand that this is the best they could come up with on short notice, but it’s also painfully obvious that there was no plan in place to bring the economy down gracefully. This is a hard shut down and the cleanup will be very messy.
Jim: The Paycheck Protection Program, if deployed and awarded as proposed, will be our lifeline, and could keep this from being anything more than a bump in the road. The EIDLs (Economic Injury Disaster Loans) are also very attractive to us, which, combined with the tax reform on capital improvement depreciation, will help us expand and upgrade our equipment to significantly increase capacity and reduce labor costs. Our goal is not merely to weather this storm, but to use it as a break from day-to-day demands to shore-up our brewery equipment, production, marketing, and packaging.
Brewery Schedule and Volume Changes
Jim: Since most of our sales are over the counter at our taproom and our restaurant on the other side of San Francisco, Willkommen, and we had a few hundred barrels of beer already brewed at the start of the lockdown, our brewing schedule and volume has dropped considerably. As we package the beer we have on hand and free up tank space, we will brew at a reduced schedule but focus on longer-term lagers.
Audra: Most of my clients have experienced a drop of >50% volume, so I’m seeing more beer being put in barrels in aging, greater attention being paid to lager styles, and dry hopping schedule adjustments to fit more closely to spaced-out release schedules. Most brewers have gone from salary to hourly as a greater proportion of time has shifted to the cellar. My recommendation here is to understand what sells the best for the greatest margin and put it in larger package formats (12-packs, 15-packs) if possible. Beer drinkers are limiting their exposure to the outside world through mandate or choice, so make it easier for them to get more of your product in session styles.
Peter: We are no longer brewing. We’re not moving the volume to justify it and without knowing how long this will continue, I have no idea when I’ll get my cooperage back. Roughly 50% of my kegs are full in my cold room with the other 50% locked up in bars and restaurants, which were closed abruptly. I’ll need to see how many we’re able to get back in house before I can plan on when I might brew again.
Tips For Fellow Nanobrewers
Peter: “Unprecedented” is a bit of a cliché at the moment, but none of us could have foreseen this. If your business is struggling, you’re not alone. There isn’t a single brewery business plan in the world that lists “become global pandemic proof by spring 2020” as a goal. We all feel responsible for our businesses and employees, but this one isn’t on you. Stay safe, stay healthy, and maybe think about brewing a lager.
Jim: Work on creating and growing alternative streams of revenue — an online store, delivery using alternative shippers that will handle alcohol properly, local delivery of packaged beer. Not only will these alternative streams help keep you afloat during this shutdown, they’ll help provide extra revenue when we can all reopen in the hopefully-near future. Apply for all the federal funding you possibly can, even if you don’t want to take on debt. These loans are once-in-a-lifetime loans with minimal interest rates, no repayment penalties, no origination fees, and with the PPP you can get two months of rent, utilities, and payroll (including to owner operators who don’t take a “paycheck”, per se) forgiven by the Federal government. Also apply for any grants in you state, county, or city that you can get.
This is a global health crisis, but it doesn’t need to do actual harm to your business. If every brewery is experiencing the same crisis (and most of us are), the net result to each brewery is basically nil if we play our cards right.
Audra: This disruption is giving us time to step back and focus on personal development. Explore the historical trends of your financial statements and complete a ratio analysis. Understand the net burn rate of your nano. Take a Quickbooks class or a basic financials course online through your community college. Since we’re being forced to take a break, this could be the time we reinvest back into ourselves and revisit our original business plans to understand how things have changed since opening. Reevaluate your brewery’s success metrics to ensure their continued relevance. Take the time to learn how to construct a cash flow statement. Perhaps it’s time for a pivot with your model.
Change is inevitable, and it’s never easy. Yet, let’s embrace it. Change offers us the opportunity to forgive ourselves, reshape our paths, and construct our resilience. We may even discover hidden facets within ourselves and businesses we didn’t know existed. But most importantly, stay healthy friends.
