By: Tracey L. Kelley
At press time, details about the future economic impact of the pandemic are in constant fluctuation. However, most forecasters are certain greater challenges loom large.
It’s not for a lack of effort. There were many expedient pivots in the craft beverage industry, from the much-lauded manufacturing of hand sanitizer and flipping stale beer into whiskey to crafting subscription boxes and extending off-premise sales.
So, now what? We asked business consultants to provide their perspectives, and they eagerly offered frank but encouraging relaunch and repositioning action steps we hope spark ideas. Our experts include:
Jacob Halls, partner, and Rick Laxague, partner, Craft Beverage Consultants in Columbia, Missouri. Halls advises in areas of business strategy, compliance and marketing and distribution. Laxague provides plans for distribution, operations and sales and marketing. Laxague said, “Our experts have a combined 150 years in the alcoholic beverage industry, with deep knowledge in everything from sales and distribution, production and regulatory compliance to marketing, package design, event planning, IT, (social) media, hospitality and even values-based executive coaching.”
Scott Schiller, managing director of Thoroughbred Spirits Group, which specializes in helping new and established spirit companies. Schiller said, “Since 2009, our Chicago-based company has helped launch more than 30 distilleries, designed over 50 spirits brands and facilitated three exits.”
Beverage Master Magazine (BM): Right now, there’s still considerable uncertainty in the beer, cider and spirits industries. Is this a time to wait and see what happens, or an opportunity to take proactive steps?
Jacob Halls (JH): Be proactive—successful companies see their environment and adapt to it. Waiting to see what happens to you takes you out of an element of control of the direction of your company. See the changes in the hospitality climate and take note of how they’re not going to be going back to how they were anytime soon and adapt accordingly.
Consider:
1. Were your on-premise sales 80% of your business? Find a way to team up with your prime on-premise accounts to set up partnered order pairs if the state allows curbside/delivery alcohol sales. For example, if you have 200 kegs, sell them directly from the taproom.
2. Slow down production in the areas where your sales drastically diminished, and shift to areas that have picked up.
3. Are you currently doing curbside sales at your taproom to supplement that revenue generation? Have you created a gift card program? Have you developed an online sales system and where legal, delivery/distribution program for your products and merchandise? Have you explored every option of new streams of sales? How have you maintained connection with your customer base?
Adapt—or Get Ready to Sell Your Equipment
Rick Laxague (RL): Be proactive now! If you’re not analyzing your business right now and what the new normal looks like for your brand post-COVID, chances are you won’t recover from this.
Scott Schiller (SS): The spirits business is recession resilient, not recession-proof. I’m not an economist, but at the time of writing this, I don’t foresee the economy recovering quickly. As such, there’s no better time for the well-prepared—whether existing or those in the wings to enter the industry.
I take no pride in writing this, but there are many distilleries, and companies in general, at risk before COVID. Unfortunately, COVID is forcing their hand. The knowledgeable, well-financed, nimble and diversified—such as those with a healthy combination of on- and off-premise ratios and affordable price points—have the potential to flourish. For the distiller in planning, there’s likely to be less competition and a healthy offering of used equipment.
BM: In your estimation, how much of a shift do you think the pandemic and its aftermath will make in the industry?
JH: I don’t want to sound grim, but the taprooms, bars and restaurants will take the largest hit, which passes to the alcohol producers for a decrease in on-premises sales. Walking around or dancing shoulder-to-shoulder in a club for three hours isn’t going to be viewed as normal for a while. If an establishment’s happy hour was its primary earnings time-of-day, and it could seat 200 people with the average space between seats being two feet, how many people concerned about this will want to sit that close to someone?
As businesses adapt, seating space becomes less per square foot. In order to earn the same dollars-per-hour, something has to change in the pricing or the amount of staff—both of which can drastically change customer flow and demographic of the restaurant. Service may go down with fewer staff, causing a less-positive experience and fewer return visits.
If the prices have to go up in order to maintain the same level of staffing, then some customers may now be priced out of the establishment, as they’re financially affected by the pandemic as well.
The brands of alcohol purchased by the establishment may also change: a package by the smaller craft producer that’s normally $45 per case or $200 per keg may be passed over for a cheaper $23 case and $60 keg in order for the establishment to maintain its customer service level of staffing and pricing.
Something will have to give. Bars, restaurants, wineries, breweries, cideries, meaderies and distilleries will suffer and, in many cases, cease doing enough business to survive their existing debt loads.