There have been numerous challenges facing breweries in the wake of COVID-19. But with social-distancing policies likely in place for months to come, brewpubs and small, taproom-focused breweries face even greater obstacles than their larger counterparts with distribution agreements.
Breweries that sell most of their beer on-site have been forced to close those spaces in response to stay-at-home orders. Without significant national grocery placement, e-commerce visibility, or sometimes even the ability to package, those businesses have seen their revenue streams annihilated.
Today’s beer industry doesn’t come with a one-size-fits-all business plan, and COVID-19 has only heightened the distinct differences among all these companies:
Brewpubs and taprooms are, in essence, hospitality companies. Their social function is the same as bars and restaurants, and taproom employees have more in common with restaurant servers or bartenders.
A larger packaging brewery will often have a high percentage of employees focused on the more industrial side of work: production and packaging.
Regionally and nationally distributed companies, therefore, are manufacturers more than hospitality businesses.
Just as breweries are uncertain that to-go or delivery sales can keep them alive, two-thirds of restaurants don’t believe that takeout or delivery can sustain their businesses until they reopen. While own-premise-focused breweries seek relief from the government during this economic crisis, are their financial needs best served by working within the manufacturing sphere? Or should they also consider aligning themselves with the hospitality sector?
Brewing industry trade organizations typically group all beer producers together within their membership. The two largest groups, the Beer Institute and the Brewers Association (BA), lobby and advocate on behalf of breweries with both national distribution and with taproom-only sales.
The BA, recognizing that brewpubs’ hybrid model overlaps both restaurant and brewery functions, in April issued a letter to the federal Office of Management and Budget. The letter called on the office to revise portions of the North American Industry Classification System (NAICS), the standard used by the federal government’s statistical agencies in classifying business establishments, to create a specific code for brewpubs distinct from that of other breweries. The proposed brewpub classification code would nest brewpubs under the larger category of restaurants rather than brewpubs, giving clarity to the idea that the BA in fact sees these members as unique because of their revenue stream.
As COVID-19 has exposed the vulnerabilities of taproom breweries and brewpubs, those businesses are finding out just how much they have in common economically with restaurants and bars.
The restaurant industry itself has seen members organize differently in recent months. In the early stages of the pandemic, a group of restaurateurs came together to form the Independent Restaurant Coalition (IRC). While trade groups like the National Restaurant Association (NRA) already exist in the hospitality industry, the IRC says it represents the needs of specific businesses that differ from those of larger fast-food companies or chains.
IRC members—non-publicly traded companies with fewer than 20 locations—maintain that their needs are distinct from businesses like McDonald’s, Starbucks, and Olive Garden. Notably, the advisory group the White House assembled in response to COVID-19 includes leaders from McDonald's, Chick-fil-A, Wendy’s, Outback Steakhouse, Subway, Waffle House, Kraft, Coca-Cola, and other large corporations.
“We need direct representation for the restaurants we operate, which don’t have the same infrastructure [as large NRA members],” says Kwame Onwuachi, a chef and founding member of the IRC based in Washington, D.C. “Our restaurants pay yesterday’s bills with today’s profits.”
He calls on Congress to prohibit publicly traded companies from receiving funding in the next rounds of the Payroll Protection Program (PPP) or Coronavirus Aid, Relief, and Economic Security Act (CARES Act) loans. The IRC has also asked Congress to establish a Restaurant Stabilization Fund providing up to $100 billion in grants to independent restaurants. The BA, meanwhile, has created its own version of a relief fund in partnership with fundraising non-profit Bottleshare. The Believe In Beer Relief Fund plans to distribute donations it’s collected to breweries and guilds to cover operational expenses.
“This doesn’t mean publicly traded companies shouldn’t get funding, but the small ones should get funding first,” Onwuachi says. “It’s also about carving out a fund for restaurants owned by minorities, women, and marginalized populations. If there are billions of dollars going out, we need to make sure those people get access.”
He says that not only do IRC member restaurants’ financial needs differ from those of national, publicly traded companies, but their owners don’t have the same level of access to lobbyists, government officials, and financial institutions. Small restaurants’ accounts, he notes, don’t accrue huge interest for banks. Their owners don’t have high-powered accountants on speed dial. Small brewery owners, too, often lack such direct relationships with lobbyists and government officials.
“If you're a CEO for a company that’s publicly traded, I’m pretty sure you’re playing golf with someone you can call up to push through some financial paperwork. I don’t play golf at all, and I certainly don’t play golf with any CEOs or bankers,” Onwuachi says. “They’re not trying to meet me on the basketball court.”
As COVID-19 ravages hospitality businesses, companies with common goals have organized themselves in new ways. The IRC and NRA aren’t adversaries, Onwuachi says, they’re just advocating for the distinct, immediate needs of their constituents. The beer industry has already seen small coalitions form in a similar way over the past few years: guilds have splintered, and new alliances like the Sour and Wild Ales Guild (SWAG) have coalesced. COVID-19 could catalyze the formation of blocs designed to address unfolding challenges based on specific types of brewery business models.
When Dani Babineau, CEO and co-founder of Redemption Rock Brewing Co. in Worcester, Massachusetts, discusses whom she looked to for guidance through the COVID-19 pandemic, she mentions the company’s accounting firm, law office, governmental organizations, and local restaurants. Conspicuously, she doesn’t mention Wormtown Brewery, the largest brewery in town.
“They have the things they’re worried about—bigger cost structures and way more staff,” Babineau says.
She sees Redemption Rock’s fate as more closely tied to those of Worcester’s independent restaurants and bars, companies she believes are part of the same ecosystem. Customers may bounce between all three types of business, and restaurants and bars also support small breweries by purchasing their beer.
“Whatever the economic effect [of COVID-19] is on taprooms is going to be the same as the effect on food-based and alcohol-based hospitality businesses,” Babineau says. “It’s about where people congregate and socialize. It affects our front-of-house as well as that trickle-down effect from restaurants not being able to do draft sales.”
Leadership at Modern Times Beer, which operates seven taprooms (six in California, one in Oregon) and manufactures beer for distribution in 13 states, says a taproom-focused brewery’s needs are “virtually identical” to those of independent restaurants during this crisis. Current economic relief options, like the PPP, aren’t the best fit for those businesses, according to Modern Times CEO and founder Jacob McKean. He says payroll doesn’t make up 75% of the expenses for most hospitality businesses, so the requirements of the PPP forgiveness plan make it virtually useless for breweries and independent restaurants.
His ideal financial relief package is modeled on what Denmark’s government has provided: a complete government take-over of payroll obligations, a rent and mortgage holiday, and grants to cover remaining expenses. (In 2019, Modern Times used equity crowdfunding platform Wefunder to raise $1.2 million to cover operational expenses.) But, looking at most levels of government, McKean says he’s not expecting even a fraction of the support most breweries currently need.
“The current relief programs are particularly ill-suited to hospitality businesses. […] The result will be massive economic devastation,” he says. “That will be especially acute for low-income workers and independent small- and medium-sized businesses.”
Even companies that have never before needed to form trade groups are finding that the massive challenges of COVID-19 require new, collective thinking. Until last month, America’s independent music venues had no professional or trade organization. With all of their venues closed and concerts on hold—likely for months—venue owners were forced to come together as they never had before.
The result is the National Independent Venue Association (NIVA), which formed in April to lobby the federal government for immediate economic relief. Audrey Fix Schaefer, who heads communications for NIVA and several Washington, D.C. music venues, says it was an unprecedented move for venues that had never before been formally organized. Within 10 days of launching NIVA, more than 800 venues representing all 50 states had joined. Members are not just coordinating lobbying efforts but have started hosting virtual seminars to share knowledge related to accounting, marketing, and human resources.
Independent venue owners are typically so focused on managing their own businesses, Fix Schaefer says, that they don’t take the time to network with others like them across the country.
That’s probably a familiar story for small brewpubs and taproom-focused breweries. They may look to another bar or taproom in town for occasional advice, but it’s only since last year that such breweries have had a national-level committee devoted specifically to their needs.
NIVA’s members realized a similar lack of organization and lobbying risked leaving their businesses in the dust as federal dollars were doled out.
NIVA repeats the line that its members were “the first to close and will be the last to reopen.” Its businesses are under specific threat from COVID-19 in a way that others aren’t. Like own-premise breweries without large distribution and packaging options, they’ve lost their primary source of revenue. Targeted lobbying and advocacy offer a chance to save their livelihoods.
Stark differences in business models and revenue streams mean COVID-19 has dealt a sharper blow to some breweries than others. The pandemic and loss of on-premise sales highlight the ways in which the industry’s members already differed, and such challenges should catalyze own-premise breweries to build bridges outside of the manufacturing sphere. Discussing shared challenges with hospitality businesses could offer them new allies in their fight for survival—allies they need now more than ever.
Words by Kate Bernot