If the pandemic wasn’t hard enough on small local businesses, the economic headlines have recently shifted to the potential (often referred to as neary certainty) of a recession. Among those local businesses that have struggled over the past two years are our favorite craft breweries that could soon be faced with another year or two of troubling times. All of us should be asking ourselves, will our local breweries outlast a recession?
I think the harsh reality is that most barely made it through the past couple years. While there’s lots of stories of craft beer fans supporting breweries during COVID, many in the industry will tell you that it was sheer will power to prevent going out of business. Which leads me to believe that few breweries are in any position to make it through an economic downturn. So here are my thoughts on what may happen and what breweries can do to prevent from closing their doors permanently.
Will There Be A Recession?
That’s a bit of a rhetorical question. I’m not an economist but those that know a lot more than me are saying it is inevitable. And it will be here sooner than later. Even as I write this, there’s real concern with housing pricing, general inflation, gas prices, etc. While the job market has been strong as employers aggressively hire after the pandemic, there are increasingly more stories of layoffs happening with more in sight.
Hopefully, I am not being too “doom & gloom” but I do want to be realistic about what is ahead as I think that helps from the conversation as it relates to breweries. If (when) there is a recession, the truth is it will impact all industries and it will certainly impact businesses selling direct to consumers as they will feel the tension in their budget.
Isn’t Alcohol Recession Proof?
It is true, alcohol has long been viewed as a recession proof industry. Despite tough times, people continue to consume alcohol. Unfortunately, in many cases, our culture consumes more as it is used as a coping mechanism. While I think that is really a bad use of alcohol and leads to more issues, that’s not quite what I’m focused on in this article.
What I do want to focus on is that when we say alcohol is recession proof, we are referring to the general volume of alcohol production not necessarily focused on where it is being consumed. The sales of alcohol via retailers and grocery stores is the most stable of alcohol sales. And many move to less expensive versions of alcohol during a downturn in their financial situation.
Taprooms are an expensive way to consumer alcohol. Just like bars and restaurants, there is a huge premium paid to consume at an establishment. If someone is looking to cope with hard times and do it without spending their literal last dime, they are going to buy low-cost alcohol and drink at home.
And while craft breweries will still see taproom visitors and retail sales, the volume is almost inevitably going to be lower. Breweries with a strong retail distribution strategy will likely weather hard times considerably better than a brewery that solely relies on taproom sales.
How Is This Different Than The Pandemic?
When looking into the future of the potential recession, it is natural to think “if they made it through the pandemic then surely they can get through a recession”. And that thinking isn’t necessarily wrong. Many breweries got creative in their sales. Breweries began to package more than ever. The community rallied around many of their favorites to ensure they could survive.
However, there are huge differences when you break it down. During COVID, people were restricted from doing the activities they were accustomed to doing. This built up a lot of demand and where there is demand, there is opportunity.
In addition, finances weren’t a concern for most Americans. While unemployment did spike, there were very aggressive benefits put in place along with stimulus money. I don’t want to diminish any hardships that occurred during that time but it is safe to say that many did just fine during the recession; especially if you worked the entire time.
The result was people had very little to do but still had available funds. So, it was easy to justify purchasing premium craft beer to drink at home and probably did so at a rate much higher than pre-COVID. Furthemore, when taprooms did open, there was a lot of people really excited to get back out.
Compared to a recession, many more will see an impact on their finances. Even those that stay employed will have tighter budgets due to inflation. Hard decisions will be made and I see taproom visits and purchasing $12 6-packs being on the decline.
What Breweries Can Do To Survive Hard Times?
Every business is different so this isn’t an easy answer. Some have large amounts of debt, while others have available capital. We see breweries that operate out of many locations while others have centralized operations. Others are focused on retail sales while others rely solely on their taproom.
Here are a few ways most breweries can increase their odds of survival:
Minimize Risk: If there was something new and semi-risky that is planned, it is best to delay that idea. Focusing in on the core business will be key. For breweries, that probably looks like evaluating where the vast majority of their profit comes from and ensuring that will be sustained during the recession.
Control Expenses: Getting consumers to buy your product is hard and predicting what others will do isn’t full-proof. So, a key to making it through a challenging time means a business must focus on what they can control. Reviewing all expenses on a regular basis to cut out any excess is critical. If expenses are cut then much less income is needed to keep the doors open.
Build A Cash Reserve: Getting ahead of the recession means going into that time period with available cash. For some, that means slowing down debt repayment or cancelling an expansion. And, of course, the prior mention of expense control plays into this.
Continue Marketing: During a recession, it is important to continue efforts to market. Stopping marketing efforts is nearly a guaranteed way to sabotage the business. However, it is time to evaluate what is working and consider new, low-cost options to drive sales. Furthermore, consider partnering in marketing efforts more than ever as it shares the cost and can help build allies to help you.
What Can Craft Beer Fans Do?
While we love craft beer, the reality is that none of us are going risk our own financial well-being for a brewery. At least, we shouldn’t. This means we may make decisions that have a negative impact on breweries that we truly love.
But there are some things we’ve learned in the past few years. The pandemic did show us the power of community. This power caused many to rally around the local taproom and buy their beer by any means necessary. And for many, they will do the same during the recession.
In addition, I’ve always believed that as craft beer matures, everyone will need to pick the handful of places they truly support. These are probably the spots close to home or work and produce the beer you prefer. Be a champion for these places during tough times. Not only buy their beer but tell others to buy their beer.
Breweries will come and go even in good times so do what you can to make sure your local spot survives. It seems selfish but the last places I want to close are my favorites. My (your) spending should reflect that.
We all hope that the future won’t hold a recession. It would be great if our favorite craft breweries can thrive but only time will tell. Until then, keep supporting craft beer!
