By: Raj Tulshan, founder of Loanmantra.com
Is the U.S. Headed for a Recession? And if so, is your beverage business recession proof? In the United States, only the panel of experts at the National Bureau of Economic Research (NBER) is able to classify economic conditions as an actual “recession.” At its most basic level, a recession is marked by two, consecutive quarters of economic contraction or negative real Global Domestic Product, (GDP). Understandably, more is at play in making this kind of analysis and most economists believe there are four major recession indicators.
Understanding that NBER must classify a recession, economists and financial analysts are closely monitoring several key indicators that suggest economic slowdown in 2025:
Declining Consumer Spending: The University of Michigan’s Survey of Consumers’ Index of Consumer Sentiment showed a 10.5% decline in consumer confidence in April. U.S. households are beginning to cut back on discretionary purchases creating ripple effects across industries from retail to hospitality.
Tighter Credit Markets: The Federal Reserve’s efforts to control inflation have led to higher interest rates, making it more expensive for businesses to borrow. Many lenders have also become more cautious, tightening their lending boxes and limiting access to capital. Small Business Administration (SBA) changes have caused industry shifts for government-guaranteed lending and associated products.
Business Slowdowns: Hiring has slowed, and some companies are scaling back operations as demand softens. Government layoffs have impacted the private sector. These trends may continue to lead to more job losses.
Trade and Tariffs: With major tariffs, most business owners are wary of what that means for their bottom line. They suspect that tariffs will increase production costs, challenge the supply chain and disrupt small business operations.
10 Tips to Recession Proof Your Business
If a recession takes hold, beverage businesses—especially those reliant on consumer spending—will likely face many challenges. Loan Mantra offers approaches to offset these challenges:
CHALLENGE- Staying Sober: Being in a constant state of uncertainty and entertaining a daily stream of negative news can have a devastating mental impact on the general population.
APPROACH- Drowning in questions and doubt will not help the business become more recession proof. As a business owner, employees, customers and the public will be watching your example for signs of a crisis. Focus on what the business does best. Instead of becoming overwhelmed, break down tasks into day-to-day actionable steps. Offer an open-door policy and be transparent with loyal employees. Offer a group approach and/or collaboration with all aspects of the business to come up with solutions on how to meet goals.
CHALLENGE- Less Served: With customers spending less, businesses may struggle to maintain sales levels.
APPROACH- Review tangential product flow and reduce expenses that may not be necessary. For instance, if you’re a restaurant, for food deliveries instead of including plastic utensils with to-go orders, include items upon request, exclude napkins or excessive packaging with Beverage delivery. Over a year these small adjustments can add up to substantial savings. Common expenses can also be distributed over several locations. For instance, cross train bar and waitstaff and schedule among different sections and work sites.
CHALLENGE- Hyped up Hops: Inflation-driven price increases on goods, materials and wages could squeeze already thin profit margins. Tariffs also threaten to make costs higher on imported goods.
APPROACH- Reduce time spent on tasks that don’t directly impact sales and produce revenue. Efficient inventory management ensures you’re not tying up capital when you need it most for tasks like cleanup, makeready and taking inventory. For example, many retailers take an inordinate amount of time on inventory. Could this utility time spent for employees to count and restock be more efficient? Consider tightening inventory management by prolonging buying until it’s necessary using the just in time method.
Scale down product choices to the most popular brews or brands that offer higher margins. Companies like Bonobos are already ahead of this curve. This retailer offers concierge service that makes up for lack of on-site inventory. With an increased focus on customer service, customers can try on pieces at the store location which are then ordered and delivered to customers homes. Can this model be replicated by offering sample tastings with pre-pay for larger orders that can be delivered on demand?
CHALLENGE- Beer Money Fund: With banks tightening their lending standards, securing loans or lines of credit may become more challenging.
APPROACH- Having appropriate cash/capital reserves on hand is a vital step to recession proof a business. Loan Mantra recommends that businesses should have at least one month of operating expenses or ten percent of revenue on hand during a normal economy. In times of recession, businesses should hold 3-6 months of operating expenses. The time to shore up emergency reserves, apply for a line of credit or loans is before you need it.
Don’t wait to get commitments from a lending institution. Prequalifying for loans before you need them can give you peace of mind knowing funds are readily accessible if necessary and help recession proof the business. Also remember that chaos creates the opportunity to buy assets when prices fall that will later appreciate.
CHALLENGE- Half on Tap: Trying to meet revenue projections made last year may be impossible impacting the ability to meet payroll, make payments or even stay in business.
APPROACH- Review original financial forecasts and re-assess plans based on the new economic reality. Scale back and ramp up essentials, finding new benchmarks and project out accordingly. Watch market trends like consumer sentiment. Invent new ways to make money and diversify revenue. Chaos brings opportunity. Discover what opportunities and optimize based on those findings.
CHALLENGE- Loan or Groan: The financial crisis in 2008 exposed the vulnerability of both consumer and commercial markets to predatory lenders. Institutions with questionable lending practices offered exploitive interest rates on loans where borrowers were caught in a cycle of paying interest on compounded interest that resulted in bankruptcies.
APPROACH- Be wary of inflated interest rates on loans. Right now, it is easier than ever to access a diverse group of lenders to get funding that offers the best rates and alternatives for businesses. For example, any business can seek expertise to find the lowest rate and financing through technology offered at companies like loanmantra.com, an online portal that provides streamlined access to all funding sources and expertise to determine the best loan products and providers.
CHALLENGE- Traffic Circle: Consumers facing job loss or decreased purchasing power may spend less and have limited disposable income.
APPROACH- Focus on retaining customers. This could be prioritizing exceptional customer service, capitalizing on loyalty programs and through marketing personalization to maintain and strengthen your customer base. Look at ways to make it easier for customer to spend money with your business like offering incremental payments instead of requiring the total up front. Acquire customers for life is more important that an individual transaction.
CHALLENGE- Bottle Battles: Increasing tariffs may limit access and availability of product components, bulk materials and supplies.
APPROACH- Evaluate cost increases, remain flexible and anticipate delays. Suppliers based in Asia may be the most hurt. Try to absorb some of the increased cost of good. Identify the least amount needed to push to the end consumer. Identify potential vulnerabilities and secure reliable suppliers to mitigate cost fluctuations. Find additional supply sources that are US-based if possible. Open lines of communication with current suppliers to negotiate better terms or prices and cost-cutting measures. Building strong relationships with suppliers can result in favorable deals that help reduce costs during lean times.
CHALLENGE- Distilled Down Sills: Previously approved expenditures including additional resources and equipment may be frozen.
APPROACH- Analyze operating systems to eliminate waste. Has the business drifted toward more expensive habits? Optimize operations by looking for ways to streamline tasks and improve efficiency. Aim to automate repetitive tasks through technology to save time and reduce long-term costs. Evaluate additional lines of business for profitability and sustainability. Look for additional ways to diversify and add revenue.
CHALLENGE- Measure or Pour: A lack of inventory can inhibit production.
APPROACH- Consider mass purchasing of supplies that may not be available in the future or before prices increase. Evaluate existing product lines and services to determine if substitutions can be made. Look at potential options as alternatives that may not be ideal long-term but will still satisfy customers. For example, if you are unable key ingredients, what can you make? For instance, if Champagne is not accessible can you offer high quality Sparkling wine as a choice?
Looking Ahead
While the future remains uncertain, beverage businesses can become more recession proof against economic downturns by planning. Keeping an eye on market trends, managing finances strategically, planning for disruptions and maintaining strong customer relationships will be key to weathering potential challenges. For more information contact Raj at loanmantra.com.
