By: Tracey L. Kelley
At press time, details about the future economic impact of the pandemic are in constant fluctuation. However, most forecasters are certain greater challenges loom large.
It’s not for a lack of effort. There were many expedient pivots in the craft beverage industry, from the much-lauded manufacturing of hand sanitizer and flipping stale beer into whiskey to crafting subscription boxes and extending off-premise sales.
So, now what? We asked business consultants to provide their perspectives, and they eagerly offered frank but encouraging relaunch and repositioning action steps we hope spark ideas. Our experts include:
Jacob Halls, partner, and Rick Laxague, partner, Craft Beverage Consultants in Columbia, Missouri. Halls advises in areas of business strategy, compliance and marketing and distribution. Laxague provides plans for distribution, operations and sales and marketing. Laxague said, “Our experts have a combined 150 years in the alcoholic beverage industry, with deep knowledge in everything from sales and distribution, production and regulatory compliance to marketing, package design, event planning, IT, (social) media, hospitality and even values-based executive coaching.”
Scott Schiller, managing director of Thoroughbred Spirits Group, which specializes in helping new and established spirit companies. Schiller said, “Since 2009, our Chicago-based company has helped launch more than 30 distilleries, designed over 50 spirits brands and facilitated three exits.”
Beverage Master Magazine (BM): Right now, there’s still considerable uncertainty in the beer, cider and spirits industries. Is this a time to wait and see what happens, or an opportunity to take proactive steps?
Jacob Halls (JH): Be proactive—successful companies see their environment and adapt to it. Waiting to see what happens to you takes you out of an element of control of the direction of your company. See the changes in the hospitality climate and take note of how they’re not going to be going back to how they were anytime soon and adapt accordingly.
1. Were your on-premise sales 80% of your business? Find a way to team up with your prime on-premise accounts to set up partnered order pairs if the state allows curbside/delivery alcohol sales. For example, if you have 200 kegs, sell them directly from the taproom.
2. Slow down production in the areas where your sales drastically diminished, and shift to areas that have picked up.
3. Are you currently doing curbside sales at your taproom to supplement that revenue generation? Have you created a gift card program? Have you developed an online sales system and where legal, delivery/distribution program for your products and merchandise? Have you explored every option of new streams of sales? How have you maintained connection with your customer base?
Adapt—or Get Ready to Sell Your Equipment
Rick Laxague (RL): Be proactive now! If you’re not analyzing your business right now and what the new normal looks like for your brand post-COVID, chances are you won’t recover from this.
Scott Schiller (SS): The spirits business is recession resilient, not recession-proof. I’m not an economist, but at the time of writing this, I don’t foresee the economy recovering quickly. As such, there’s no better time for the well-prepared—whether existing or those in the wings to enter the industry.
I take no pride in writing this, but there are many distilleries, and companies in general, at risk before COVID. Unfortunately, COVID is forcing their hand. The knowledgeable, well-financed, nimble and diversified—such as those with a healthy combination of on- and off-premise ratios and affordable price points—have the potential to flourish. For the distiller in planning, there’s likely to be less competition and a healthy offering of used equipment.
BM: In your estimation, how much of a shift do you think the pandemic and its aftermath will make in the industry?
JH: I don’t want to sound grim, but the taprooms, bars and restaurants will take the largest hit, which passes to the alcohol producers for a decrease in on-premises sales. Walking around or dancing shoulder-to-shoulder in a club for three hours isn’t going to be viewed as normal for a while. If an establishment’s happy hour was its primary earnings time-of-day, and it could seat 200 people with the average space between seats being two feet, how many people concerned about this will want to sit that close to someone?
As businesses adapt, seating space becomes less per square foot. In order to earn the same dollars-per-hour, something has to change in the pricing or the amount of staff—both of which can drastically change customer flow and demographic of the restaurant. Service may go down with fewer staff, causing a less-positive experience and fewer return visits.
If the prices have to go up in order to maintain the same level of staffing, then some customers may now be priced out of the establishment, as they’re financially affected by the pandemic as well.
The brands of alcohol purchased by the establishment may also change: a package by the smaller craft producer that’s normally $45 per case or $200 per keg may be passed over for a cheaper $23 case and $60 keg in order for the establishment to maintain its customer service level of staffing and pricing.
Something will have to give. Bars, restaurants, wineries, breweries, cideries, meaderies and distilleries will suffer and, in many cases, cease doing enough business to survive their existing debt loads.
RL: It’s obvious that all segments of the industry have seen growth from new entries—that is, companies and brands opening in the past eight or more years. Some of these segments have triple-digit growth. This caused the glass for the consumer to be overflowing with overloads in brand, flavor, style and marketing. There’s no loyalty to a brand in the new 21–28 age range due to the influx of offerings. To stop the glass from overflowing, you have the following options:
1. Get a bigger glass.
2. More space in retail stores, as the stores aren’t getting any bigger. B: More stores, but with the cost of real estate and larger corporate retail stores the “A locations” are gone and a “C location” won’t deliver a ROI.
3. Turn off the faucet. Stop the “overflow abundance.” The thinning of the crowd needed to happen, but it’s unfortunate that a worldwide pandemic life scare is what it took. Think of Mother Nature and our farmers who produce ingredients to make these beverages. They burn off their fields after harvest to create new healthy growth for the coming year.
SS: The mid-size and larger distillers will benefit from this pandemic. Part of what has hindered their typical growth patterns is the number of new entrants and the plethora of local distillers who often gain favor.
The second tier puts an incredible focus on companies that provide their quickest pathway to recovery/profitability, which will likely cause some brands to have even less attention. I believe some brands will be delisted before that dance plays out.
Once we reach the third tier, the on-trade will rely on brands that provide value and support. Off-trade is doing very well, but I don’t foresee these profits being poured into unsupported/unknown craft brands, as consumer confidence isn’t likely to be there to warrant the investment to carry them.
BM: In what ways is a relaunch plan essential now, and how can a producer formulate one? What might it entail?
JH: I tend to have three or more plans for almost every situation—you can never be too ready, but you can always be underprepared. One may ask how to prepare as a producer. In order to plan, know your business history:
• Where have you struggled before?
• Where were you suffering most recently?
• How agile is your marketing team to communicate your company’s changes, and in a tone that maintains a positive message?
• How agile is your production team in shifting from kegs to package?
• How able is your operations team to facilitate the changes that need done: ordering disposable growlers, cans, contactless delivery material, etc.
• How able are you as the proprietor to manage the economic responsibilities needed to maintain changes in your company?
• Are you able to make hard decisions as needed?
• Laying off or furloughing a long-time employee is incredibly hard to do. Do you have a support system yourself for this?
Account for everything that has happened and can happen.
RL: What is the saying: “You have one chance to make a good impression?” Well, now you have a second chance! Look at your original business plan and model and select all the positives—then write a new one. You can remove things you did wrong and implement those you thought of after the fact. You know more now, but not everything. So source out what you don’t know, a.k.a, “phone an expert.”
SS: No matter how this pandemic is influencing your business, it’s vital to create a strategic plan with several pathways and outcomes, for there is only one who is all-knowing in this unknown, and that is neither you nor me.
With plans in place, financial models need to be built to ascertain how much time you have, and along with an awareness of critical decisions and time periods. Assigning weights to the various outcomes also allows you to make a calculated risk assessment on what should even be attempted.
BM: What top three action items do you recommend to producers right now?
1. Don’t produce just to produce unless you need to burn through raw materials already purchased. If you can, barrel-age or delay the release dates to maintain the production/release rate to sales rates.
2. Take a cold look at your finances. The hardest part of that is being honest with yourself. Don’t let ego make the decisions.
3. Be as proactive in your community as possible. If you can, develop a T-shirt that’s available online or curbside with 100% of the proceeds going to support your furloughed taproom staff or a local community cause. Work with your distributors in other communities outside your own to be supportive there as well. Be part of the community, even if you’re not local—keep your face seen in a positive way.
1. Evaluate finances. What can you afford to do, and what can you afford not to do, have or upgrade?
2. Branding. What can you improve upon from a brand perspective—as in, how to reach the consumer and engage with them? Get them to stop scrolling, and “like” (buy) your brand. I think virtual happy hours will be a popular thing moving forward for friends and families apart.
3. Distribution. Improve your relationship with the distributor network. This also means having adequate sales-brand representation to work with your distribution network to secure those placements.
1. Center yourself and get extra clear on your definition of success.
2. Develop a rock-solid strategic plan and financial model.
3. Get your team informed and aligned, from front-line workers to investors. Prepare them mentally and emotionally for what’s at hand. Ensure that you have the right warriors, and that you have the leadership and wisdom to see them through.
BM: In what ways can producers work within their communities and develop new marketing strategies to rebuild their businesses?
JH: As mentioned above, team up with distributors, businesses that supported your brand well, and charities and causes that are positively helping communities during this pandemic.
RL: Thank the community for the support during this crisis. If you have a loyalty program, use an email marketing platform to send a direct thank you letter to the zip codes where members reside. Make it a bounce back: “Thanks for the support, bring this letter in for a ½ off item,” or a similar promotion.
SS: Every business is in this together, and every business is going to need help. Distilleries and other craft producers have always been important members of communities, from supporting other local businesses such as farms and utility companies; to offering dependable and well-paid jobs from production to sales to executives; and of course, providing extensive tax revenue for their municipalities and states.
Distillers switched gears during world wars, and are doing so now during the pandemic. This is an amazing time to be a leading light in the community and an essential economic engine in a town’s rebirth. We often say “support local.” This is a two-way street and right now, distillers can lead.
BM: Finally, “no revenue” is an obvious answer to the question, “Should I close?” But in the current over-expanded market, what other answers might a producer consider?
JH: SKU reduction. If you have a brand that’s working and some that are lagging, but they’re being produced to fill out the portfolio to make your brand more attractive to distributors, grocery, C-store sets or franchise restaurant chain mandates—cut them! Focus on what’s working and do it well.
RL: Be humble. It’s more admirable to ask for help than to never build a new door to walk through. Also consider:
1. What’s your quality of life? Health, stress levels, missing kids’ activities because you must run the business and so on. This pandemic has brought families together. More meals in groups, board game conversation and outdoor life vs. a face in a phone all the time.
2. Are you staying true to the mantra, integrity and goal of why you opened the business? Some people will say no—they’re just trying to keep up.
SS: This pandemic will hopefully be the toughest business challenge you’ll ever face in your lifetime. As such, it presents an excellent opportunity to confirm your commitment to your business:
1. Is it your life’s calling/purpose?
2. Do you have the energy and resources to start back from where you were in the early years?
3. What will your personal and financial well-being look like if it takes two years to get to where you were at the end of 2019?
If you have the fortitude and the wisdom, you can work through this. And the field will likely be even greener if you can make it through the next 730 days.