Fallout from the COVID-19 pandemic has been difficult enough for breweries’ staff and bottom lines as breweries limit hours, cancel events, and, in some cases, close to the public entirely. The financial hit is perhaps even greater to businesses that were already in the midst of capital-intensive projects before the virus’ arrival, like new locations or expensive equipment purchases.
Six months ago, Tree House Brewing Company purchased a $1.1 million parcel of land adjacent to its Worcester, Massachusetts brewery to construct a 76,700-square-foot warehouse. Three months ago, Red Leg Brewing Company broke ground on an $8-million brewery and events center. And Buffalo, New York’s Big Ditch Brewing Company last week announced a $47-million second location.
Depending on how those projects are financed and how well a business is able to continue generating revenue during this economic slowdown, the following weeks could be the difference between survival and failure for some companies. Each passing day of the crisis has the potential to alter how breweries think about debt, risk, and expansion for years to come.
On Monday, Tim Barnes heard some unfortunate news. Because of the COVID-19 pandemic, Cheyenne, Wyoming closed its department dedicated to providing building permits. That meant staff couldn’t inspect his just-constructed, $2-million taproom, which was slated for a mid-March opening. It was set to be the second outpost for his business, Black Tooth Brewing Company, based in Sheridan.
The department would stay closed for the foreseeable future.
“The last two weeks of March are huge weeks for beer sales,” says Barnes, co-founder of the 10-year-old company. “That’s the time to have a brewery anniversary or have people out at your new taproom watching sports.”
Because the building can’t be inspected, the Cheyenne grand opening is on pause. Even if he could get the building inspected, Barnes says he’s reluctant to hold any kind of event as public health officials warn against social gatherings. For now, the second brewery sits empty.
Some have already made the decision to close for good. San Leandro, California’s Cleophus Quealy Beer Company announced Tuesday it would cease operations at the end of April, explaining in a statement that “The costs of staying in business continue to climb while the beer industry becomes ever more consolidated and unpredictable … We unfortunately can’t weather the storm ahead.”
Black Tooth’s Sheridan taproom remains open with enhanced safety and sanitizing procedures, which included the removal of the taproom’s beloved popcorn machine and the requirement that guests place their used glasses directly in the dishwasher to minimize employee contact with dirty glassware. The production brewery continues to brew and can beer for distribution across its four-state footprint.
“I’m sure glad we package,” Barnes says. “I’ll put it that way.” Barnes is alluding to the plight of taproom-only breweries who don’t distribute widely. As states close bars and restaurants to in-person dining, and as Americans socially isolate, draft sales have virtually dried up in some places. The COVID-19 pandemic comes after years of advice to the industry to focus on “own-premise” and taproom sales. In a swift reversal, breweries who package beer now find themselves with a leg up.
But that boost is only slight. Black Tooth produced 9,500 barrels of beer in 2019, and Barnes says he’ll be “elated” to sell 9,000-9,500 BBLs this year, given economic shakiness following the coronavirus outbreak. He acknowledges that sales of off-premise, packaged brands, which have mostly risen for breweries across the country, can’t float his Sheridan brewery plus the lease, loan, and interest on the Cheyenne project indefinitely. But sales of flagships Saddle Bronc Brown Ale, Bomber Mountain Amber Ale, Hot Streak IPA, and Copper Mule Ginger Lime Cream Ale are currently providing crucial cash flow.
“The gross margin on draft is much better than on packaged products, so it’s a shot in the arm but I know it doesn’t eliminate the loss of revenue entirely,” he says. “You could triple your packaged beer sales and it won’t make up for a 60-70% dip in draft sales.”
Black Tooth’s plan is to reevaluate an opening for the Cheyenne location on April 3, provided the city’s building permitting department reopens in the interim. The brewery is carrying payroll costs in excess of $7,000 for that taproom, as it’s already hired a general manager and a head brewer on salary. Six to eight taproom staff members expected their jobs to start this week, but haven’t had any work to report to. Barnes worries aloud that he’ll lose some of that staff, then laughs ruefully: “I wonder whether we will actually lose some of those guys because, who else is hiring?”
Self-financed brewery projects have more flexibility to ride out current economic headwinds. On Monday, the CBOE Volatility Index, a measure of the 30-day implied volatility of the S&P 500 that’s also known as “the fear index,” surpassed the heights it had reached during the 2008 financial crisis. How long businesses can support staffing—let alone costly projects—depends largely on their financial backing and stability before the COVID-19 pandemic hit.
Four-year-old brewpub Nine Giant Brewing, for example, had been targeting a late March or early April opening for its new space in Cincinnati, Ohio, the Nine Giant Fermentorium. The timeline has now been revised to a potential July opening. 20 feet from the existing brewpub, the Fermentorium will house a 5,000-square-foot taproom, a wine and cocktail bar, plus a private events space and barrel-aging facility. Barrel aging is already underway in the Fermentorium, and construction continues slowly, nearly finished.
In the meantime, Ohio bars and restaurants have been ordered to close to the public and are only able to offer delivery and carry-out sales.
“We’re paying utilities and rent on it, so not only are we paying that for our current space that’s barely operational, but the new space as well,” says Nine Giant owner Brandon Hughes. Rent, utilities, and insurance on the Fermentorium amount to about $6,000 per month.
Hughes says Nine Giant will make it through these challenges, for three reasons:
First, he says, the brewery and the Fermentorium are self-financed, meaning there are no banks “breathing down our necks.” Hughes and his brother-in-law are co-owners, and Hughes says they have the financial means to ensure they’ll personally be able to endure this crisis.
Second, Nine Giant’s sales were up 17% last year, putting the brewery on solid financial footing before the COVID-19 outbreak.
Lastly, Nine Giant’s to-go food and beer sales were so busy on Tuesday, the first day of dine-in closure, that it had to suspend online ordering to keep up.
But Nine Giant isn’t immune. Even if to-go sales remain strong, Hughes says the business will likely lose 20% of its kitchen staff while keeping on a brewer and three or four full-time bartenders. The brewpub would lose three part-time employees and one full-time employee.
“We have no debt so the only real financial issue is cash burn,” he says. “We’ll definitely reopen, but I think we’re maybe unique in that.”
Breweries and bars that took out loans to expand or start their businesses often don’t have such flexibility. Portland, Oregon’s Threshold Brewing & Blending opened just 13 months ago, and so far not one of its four co-founders—the brewery’s only staff—have yet collected a paycheck. Three of the co-owners continued to work other jobs in healthcare communications, software engineering, and as an optician while also working for the brewery. Because the brewery is entirely financed by these four and a small business loan, the team is anxious about what the following weeks will mean for their nascent company. Threshold’s head brewer, Jarek Szymanski, quit his full-time job in November; two other co-owners remain employed outside the brewery.
“Before all of this, every month we’re just paying the bills,” says Threshold co-owner Sara Szymanski. “We were hoping within the next couple months to start to get ahead of that, and now … It’s so heartbreaking because we’ve been working so hard to pull this off.”
Threshold’s major obligations are its lease payment and its small business loan, followed by basic utilities and other expenses, which total about $17,000 per month. Szymanski says the brewery will need to cover that in to-go sales, or else her team will likely have to dip into personal savings to cover those costs going forward. Threshold has begun offering its crowlers for curbside pickup as its taproom remains closed per state orders, but those sales won’t be able to sustain the business on their own. To meet that $17,000 goal, they’d have to sell 1,700 crowlers at $10 a piece.
“It’s not going to put a dent in anything but it feels good to be doing something,” Szymanski says. “I guess what we’re facing is just waiting to see what the government provides in terms of assistance and doing our best to try not to go out of business.”
Last week, agencies including the Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Consumer Financial Protection Bureau, National Credit Union Administration, and Conference of State Bank Supervisors issued a joint statement urging financial institutions to “work constructively with borrowers and other customers in affected communities” that have been financially burdened by COVID-19. These recommendations are non-binding, however, and don’t compel individual banks or lenders to forgive late or incomplete payments.
As it awaits news of government financial relief, Threshold is trying to team up with other small businesses in its neighborhood to offer those products through the brewery’s online store. It’s one way the brewery hopes to help other entrepreneurs during this unpredictable crisis.
“My heart goes out to the breweries that have just opened or small businesses that have just expanded because they’re out on a limb maybe even more than us,” Szymanski says. “It’s going to be tough.”
Buying into your own small business is always a leap of faith, but in such uncertain times, the leap can feel more like a freefall.
“It’s hard not to think about what the future portends and have that send you into a panicked tailspin,” says Austin Harvey, a co-owner of Chicago-based beer bar and bottle shop Beermiscuous.
Harvey and two other Beermiscuous employees bought Beermiscuous’ business, which includes two Illinois locations, from its original owner roughly two weeks ago. Discussions about that purchase began back in September, before anyone could have foreseen the outbreak of a global pandemic. Now, both locations are closed to the public, offering curbside pick-up orders only. All full-time employees have transitioned to part-time, and each day that passes with reduced sales represents a further blow to the new owners’ balance sheets.
Harvey and the other two Beermiscuous employees purchased the business from the previous owner, who Harvey says was looking for dependable income as his children are about to enter college. (That an economic recession was potentially on the horizon might have also factored into that decision.) The employees bought Beermiscuous with a down payment and a loan from the owner himself. That saved them banking fees, but the loan came with a slightly higher interest rate. They’re now in conversation with the owner and the buildings’ landlords about rent and loan abatement, but Harvey says if the COVID-19 crisis continues to stretch on, he’ll also be faced with product loss as beer goes out-of-code.
“Payroll tax reprieve is nice but rent is still due, and we took out a large loan from the previous owner. Thinking about paying that back is a kick in the head,” Harvey says. “[We owners] have already brought up like, ‘How much [credit] do you have on your credit card?’ ‘How much do you have on your credit card?’”
Harvey says community support has been a crucial bright spot recently. A GoFundMe to provide financial help to Beermiscuous’ seven employees has so far raised $2,450, and the business has received kind well wishes through social media.
“It’s very easy, especially in a time of near-quarantine, to feel disconnected and like you’re all alone out there,” he says. “Every bit of positive communication and support is a reminder that we aren’t. Even if things go into crisis mode, if we have to be George Bailey and pass the hat around … it’s giving me the hope and confidence that we’ll be able to survive this.”
Words by Kate Bernot