The waning weeks of 2020 mark the end of what has been the most difficult year for the U.S. beer industry since Prohibition. While the thousands of COVID-19-related brewery closures foretold by a Brewers Association survey this spring have not yet materialized, the next few months will offer little relief for struggling beer businesses. Record coronavirus infections are mounting; so too are financial pressures.
As the industry confronts a combined public health crisis, economic recession, and business disruptions, the winter could get dark.
Amit Sharma, senior analyst for consumer foods at Rabobank, a Dutch bank focused on food and agricultural financing, says the next few months will shutter struggling hospitality businesses
“If your business was bleeding, you had already cut costs and you’re barely surviving, another three months of these types of [dine-in] restrictions are going to put you over the edge.”
The country inches closer to a cliff edge on Dec. 26, when long-term unemployment aid will expire for 13.4 million Americans, more people than receive traditional unemployment benefits. Without government intervention, a tumble then begins: At the stroke of midnight Jan. 1, a national backstop to protect renters from eviction will evaporate, and excise taxes on breweries, wineries, cideries, and distilleries will increase.
All this is set to take place as the country has continuously set record highs in the numbers of COVID cases and deaths since the start of December. The situation has gotten so bad, the U.S. Centers for Disease Control and Prevention (CDC) warned that post-holiday spikes in COVID infections will make this “the most difficult time” for public health in the country’s history. The long winter has barely begun.
The holiday shopping season—already underway—could help keep some breweries afloat. The National Retail Federation (NRF) predicts this year’s consumer holiday spending will increase between 3.6-5.2% over 2019, though NRF chief economist Jack Kleinhenz appends a major asterisk: “The near-term concern is the long shadow cast on the economy by the surging virus and expiring government support … which could pump the brakes on the momentum we have seen and have consequences for spending.”
Even under normal circumstances, Americans traditionally buy less alcohol in January compared to other winter months, including February (Super Bowl) and March (St. Patrick’s Day). To survive this winter, breweries are left with a narrow suite of choices. In some localities, new restrictions on occupancy and indoor dining mean fewer customers can drink indoors at taprooms or brewpubs; colder weather in much of the country reduces the appeal of outdoor seating. Even so-called igloos or heated tents are imperfect in terms of cost, availability, and safety.
Facing what Dylan Mazurkiewicz, on-site business developer for Lakefront Brewery in Milwaukee, calls “questionable months ahead,” breweries realize they can’t count on government relief. With survival in their own hands, many are still trying to hold modified events, offer heated outdoor seating, and create food and drink specials to draw customers to their physical spaces.
“We’re chucking stuff at the wall and hoping something sticks,” Mazurkiewicz says.
Fewer drinkers are visiting taprooms, bars, and restaurants, either because they don’t currently feel safe in public spaces or because officials have put limits on indoor dining and drinking capacity. At-the-brewery sales are down 26% year over year, according to Brewers Association economist Bart Watson, and as of June, keg production was still down 45%. Encouraging people to visit taprooms has gotten so dire the Brewers Association has made that promotion a key tenet of its 2021 marketing priorities.
Breweries that rely on on-premise business to stay afloat are left competing for a smaller pool of customers than ever before. While a sliver of breweries are able to remain afloat on distribution and packaged beer sales alone, that’s not the reality for most. After closing its brewpub to on-premise dining for three months beginning in March, Lakefront Brewery owner Russ Klisch put the question of whether to reopen to his brewpub staff.
“Russ was pretty direct with us, like, ‘If you want to continue to support your jobs here, we need that [taprom] income.’ It was like a ‘shit or get off the pot’ kind of moment,” says Mazurkiewicz. “I know that he wasn’t trying to manipulate us; it felt like the truth.”
With the arrival of cold winter weather and an increase in COVID rates, Mazurkiewicz says Lakefront has seen “a pretty noticeable dip [in customers] even on our busiest days.” (He declined to quantify that dip, but says the brewery’s overall production numbers will end the year down about 15% versus 2019, to 30,000 barrels.)
Part of the brewery’s solution has been the installation of five greenhouses, or “Hop Houses,” which Lakefront set up on its patio in late November. Three offer seating for six people; two offer seating for eight; all have tables and electric heaters inside. Lakefront offers them via a reservations-preferred online system where customers can prepay for food-and-drink packages to reduce their contact with servers. The appeal of outdoor seating during the pandemic is fresh air movement: The CDC notes that ventilation (“the amount of air coming indoors”) is important in reducing the concentration of virus contaminants in the air. But it’s unclear that structures like igloos or greenhouses offer ventilation that’s any better than a taproom.
Mazurkiewicz says servers haven’t voiced any safety concerns with the Hop Houses, which are cleaned between groups and are aired out by opening the door for 30 minutes between reservations.
But they’re not without costs and drawbacks. The brewery spent roughly $5,500 on the five structures, and depending on the weather, customers generally still need to wear coats, hats, and light gloves inside. Klisch personally installed wood flooring and rugs in each Hop House because the patio’s concrete felt cold, even through shoes.
Tents, igloos, and other structures might feel like the outdoors, but infectious disease experts caution that they are not.
“These structures are basically like recreating the indoors outdoors and you lose the benefits of eating outdoors,” Dr. Linsey Marr, an engineer and expert in the airborne transmission of diseases at Virginia Tech, told Restaurant Hospitality. “A tent defeats the purpose and would only be a little bit better ventilation-wise than eating inside the restaurant.”
Despite the drawbacks, breweries know they’re damned if they do, damned if they don’t when it comes to offering as much on-site seating as they can.
“Some survivor, monkey-brain part of me turned on and was like, ‘Let’s make the best of this,’” Mazurkiewicz says.
The first quarter of 2021 will prove to be a make-or-break period for breweries that limped through summer thanks to patio sales, and which survived December on the strength of holiday spending. Economic conditions look stormy, and governmental relief for hospitality businesses can’t be counted on. As federal and some state aid disappears, some Americans will have less money to spend at a time of year when they historically shell out less for alcohol—a potentially devastating double-whammy for businesses.
Some economic headwinds are specific to the hospitality industry. Potential pandemic-related liability lawsuits loom. Insurance companies contend they don’t need to provide COVID-related business interruption payouts to hospitality businesses. Other economic threats are more generalized: Unemployment and housing support packages created in March are set to expire at the end of the year, leaving millions of Americans with less income and the potential to lose their homes. A pause on student loan payments, passed in March, was only extended until the end of January.
As of Nov. 14, 4.6 million Americans were receiving benefits through Pandemic Emergency Unemployment Compensation (PEUC), which is set to expire Dec. 26. According to Axios’ analysis, only about 2.9 million will be eligible for the extended benefits program; “the rest and any potential new applicants will be out of luck unless Congress extends the programs.” Simultaneously, a U.S. Census Bureau survey from Nov. 9 finds 5.8 million U.S. adults say they are somewhat or very likely to face eviction or foreclosure by January. Right now, 17.8 million people in the U.S. live in households that are behind on rent or mortgage payments. This has alarming implications not just for people’s safety but for consumer spending.
With U.S. families struggling to meet such basic needs, they’re unlikely to have money to spend on indulgences like restaurant meals and alcohol. Overall economic strife isn’t good news for the hospitality sector.
Despite massive instability, the federal government has yet to reach consensus on further aid for households or businesses. On Dec. 6, Senate Majority Leader Mitch McConnell and President Trump appeared closer to supporting a $908 billion package that would not include direct relief payments to Americans. It would, however, provide approximately $300 in supplemental federal weekly unemployment benefits, extend a pause on evictions, and reauthorize the Paycheck Protection Program (PPP). Some lawmakers, including Sen. Bernie Sanders, have said the lack of direct payments could cause them to vote against the package.
In cities or states where help does exist, it’s a fraction of what’s needed. When Los Angeles County opened applications for $5.6 million in aid to local restaurants, for example, demand crashed the website. The program will award grants to 2,500 restaurants, yet there are tens of thousands of such businesses in the county. On a larger scale, the state of California halted new applications for unemployment benefits for two weeks in late September due to a massive backlog, preventing 1.6 million Californians from applying.
The pandemic’s ongoing threat to independent restaurants should be of major concern to breweries.
“Independent restaurants are down 40-50% in revenues, and that’s a huge chunk of where small breweries are selling their products,” says Rabobank’s Sharma. Chain restaurant sales are only down 7-9% this year, according to Rabobank.
The widening gulf between the success of chains versus independent restaurants is a trend that existed before COVID, and one that’s likely to continue, Sharma says.
Facing huge structural and economic difficulties, breweries have more than the cold weather to slog through in early 2021. The pandemic is amplifying existing economic woes that are unlikely to evaporate even when a COVID vaccine is widely available.
But to push through to a post-vaccine world, breweries need to survive a long, difficult winter first—one that’s truly make or break.
Words by Kate Bernot