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With increased awareness and preparations to deal with COVID-19, the past week has been a challenging one for businesses everywhere. While GBH will continue to share insights to help guide broader decision making, we also realize that things are evolving rapidly.
Increased isolation is bound to shift strategy for breweries, and we’re already seeing things grow in off-premise figures as taproom sales slump. In Washington State, where COVID-19 (coronavirus) was first found in late January, IRI-tracked volume in chain stores has shown significant increases in the time since, most notably in recent weeks while residents have been encouraged to avoid public spaces and stay indoors.
In the last week of February (+1.9%) and first week of March (+3.9%), beer sales in chain stores—which in our data set doesn't include FMBs or non-alcoholic beer that have driven growth—were up when comparing to the same weeks in 2019. This was well above sales nationally, which were actually down across the U.S. in the final week of February (-1.7%) and rebounded strongly the first week of March (+2.6%) at the same time more states began to encourage social distancing and safety precautions.
If what's happening in Washington is any indication, keep an eye on imports in particular. In the Evergreen State, that category earned some of the biggest year-to-year volume swings in 2020 during these weeks. IRI-defined "craft"—which includes the likes of Blue Moon, Founders, Lagunitas, and others—was up 5.6% in the first week of March compared to last year. FMBs (read: hard seltzer) showed the biggest jumps.
Not to be outdone, “value light” (brands like Natural Light and Busch Light) and “value regular” (brands like Busch and Keystone Ice) showed better volume in Washington compared to the rest of the U.S. at a time when shoppers may have been stocking up for self-isolation. There may be an expectation in the coming weeks to see higher-volume, low-priced packages move well, as we’ve shown in a previous issue of Sightlines Premium, and Brewers Association economist Bart Watson mentions as well.
We’ll have more specific data to share next week, as that IRI set will include the timeframe when Americans made their biggest effort to hunker down at home.
If you’re considering how to approach taproom or distribution sales in the near future, here’s a couple of our previous newsletters that offer analysis that may be valuable to revisit:
Numbers Game — The Future of Off-Premise Lager Means Low Prices, High-Count Packages
Pre-Loading The Sale — How A Sense Of Place Influences Customers
A full archive (and other industry analysis) can be found on GBH’s Sightlines page.
To get a sense of what business owners should consider during this time, we spoke with Scott Metzger, who worked as an economist at Valero Energy Corp. and University of Texas-San Antonio before opening Freetail Brewing Company in 2008. He now works as general manager at Wormtown Brewery in Worcester, Massachusetts, just outside of Boston.
For this Sightlines Premium article, Metzger offers the biggest things he’s considering for Wormtown and peers across the beer industry.
HOW PROACTIVE ARE YOU IN ADUSTING PRODUCTION?
You should anticipate the trade, especially the on-premise, to take a significant hit during this period. How proactive are you being to communicate with your wholesale and retail partners, and incorporating their feedback into your production schedules? In what will be an otherwise difficult financial period for many breweries anyway, you don’t want to exacerbate your problems with excess inventory, destructions, and buybacks.
You may also want to speak with your banks and landlord about payment deferrals if you are facing financial difficulty. Don’t wait until it is too late and you are just another person in the back of the line. Start the discussions now and make preparations that hopefully you’ll never need.
GBH: Are you eyeing a general range of what kinds of declines people may expect, especially for Wormtown?
SM: It is still a little early, but I am anticipating sharp declines, especially in the on-premise trade, in the next few weeks. Early on, I modeled out a number of scenarios for Wormtown ranging from doomsday—50% drop in on-premise, and 30% drop in off-premise trade for six months that never fully recovers—to more short term, less dramatic impacts. Right now our wholesalers haven’t communicated any changes in their forecasts, and retailers are remaining optimistic, but preparing for a wide-range of scenarios.
GBH: Who should businesses count on for help … if at all?
SM: I wouldn’t count on insurance companies being of much help, most have exclusions specifically built in to safeguard themselves in a global pandemic. I would start with a blunt conversation with your main POC at your bank and landlord. Be honest and open about what you are expecting, and make contingencies for various circumstances.
Unfortunately, I don’t think some breweries are going to make it out of this, especially those who were operating on thin ice already.
HOW WELL PREPARED ARE YOU FOR A PERMANENT SHIFT IN DEMAND?
Are you thinking about how the beer business may be permanently altered? We were already experiencing a market where “cocooning” was a real topic that didn’t involve Wilford Brimley and it felt like this past “Dry January” was the most real yet.
Craft brewers are heavily over-indexed towards the on-premise trade versus the overall beer market—how is your brewery prepared if the on-premise never recovers? How does your overall sales strategy need to change in this potential future reality? Start thinking about it now—chain retail resets occur several months in advance of execution, so don’t wait until you are hurting for volume to pull the trigger on a different distribution strategy.
GBH: Along with thinking ahead to next shelf sets, how should brewers be thinking of production schedules for placing specific kinds of beers/styles? Is it time to lean on flagships or flood some stores with new beers that might otherwise be draft-only at the taproom?
If you are a small brewery with limited distribution that relies heavily on taproom sales—maybe chain retail isn’t an option. If you can’t get into those sets, and if you are known for offering a wide variety of beers where freshness is a key selling attribute, think about how your taproom can shift from primarily being a drinking establishment to being a place for people to pick up your beers on their way home. Establishing a safe, convenient place for people to continue to enjoy the things they love about your brewery can be a life-saving pivot if executed properly.
For breweries who are more flagship focused—like we are Wormtown—innovation may end up being a key shot in the arm if we are facing an extended period of social distancing. This is one of those scenarios where there are a million different pathways, and the correct one will likely be the one most closely aligned with your existing brand DNA.
HOW ARE YOU PROTECTING YOUR PEOPLE—EMPLOYEES AND CUSTOMERS ALIKE?
Above all else, we are all people. What safeguards are you taking to not only protect your employees, but also your customers?
Ensure your employees feel comfortable and assured in taking time away from work. Implement policies and procedures for wiping down surfaces such as time clocks, POS screens, door handles, and anything else where shared touching occurs. 70% Isopropanol should be readily available in every brewery and is very effective. Keep in mind that other brewery chemicals like foamers, even ones with chlorine, will kill molds and fungi but not COVID-19. In the taproom, consider discontinuing reusable glassware and instead opt for single-use plastic.
Ask customers to dispose of their own cups to limit shared touching of objects. Flights and growlers might be another item to consider discontinuing. Make sure tables, counters, bar tops, door handles, seats, faucets, etc. are cleaned down regularly and after use by each customer.
GBH: How have you communicated these kinds of things in the past?
SM: We have a pretty close group here, so there has been a lot of direct communication, but also a number of company wide emails outlining policies and procedures as things develop. We’ve made a point to try and be as transparent as possible on what is driving certain decisions, which drives a greater appreciation for the seriousness of the situation.
GBH: Is there an ideal way to manage staffing as an owner/manager when you suspect you're going to be juggling schedules like never before?
SM: At this point, it is all uncharted waters. Being open about our thought process early is key, in my opinion. We went into [last] weekend with a plan for Monday and Tuesday but agreed we’d convene on Monday to assess any new developments and adjust our plan from there.
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