Published in Food/Agribusiness

Experts weigh in on next steps for Michigan’s craft beverage industry

BY Sunday, April 26, 2020 05:00pm

Craft beverage companies have been rocked by an unprecedented crisis, one caused not by bad business decisions or fundamental industry shifts, but by widespread closures related to a sweeping public health concern. 

Right now, most of the companies are focused on survival, eking out whatever revenue they can find and taking steps to ensure they’ll eventually be able to turn the lights back on and serve their elixirs to thirsty patrons. 

In separate interviews, MiBiz reached out to three craft beverage industry advisers to hear their take on what companies are doing to survive, weather the crisis and plan for an uncertain future. They were: 

  • Ryan Behringer, CPA and senior manager at Plante Moran PC in Southfield
  • Brandon Finnie, managing director of Hungerford Valuation LLC in Grand Rapids
  • Joe Infante, principal and head of the alcoholic beverage regulation team at Miller, Canfield, Paddock and Stone PLC in Grand Rapids

These three advisers participated in a similar MiBiz craft beverage industry discussion in 2017. Here are some highlights of what they had to say this time with the industry experiencing a much different set of circumstances. 

What’s your take on the state of the industry right now? 

BEHRINGER: I think in general just the uncertainty is killing everybody, not knowing when and if they’ll be able to get back to normal. … There’s no idea when you might even be able to turn the lights on, and when that happens, what’s the new normal going to look like? We’re all getting stir crazy, but I can’t necessarily say I will immediately jump into a room with 100 or 200 people to grab a beer. …

A lot of these brewery owners, within five years of them opening up, they’ve been slowly ramping up to try to pay themselves a salary because they’ve just been investing in the business. They’re working the weekends, they’re the bartender. When you think about the potential to cut that revenue just in a blink of an eye at 25 percent, 50 percent or more, I think that’s how you get to that high number (of brewery failures). 

FINNIE: We were already dealing with some breweries that were finding out how difficult the business was. There were several that were for sale, basically just people that were needing to get out. I’m sure this is going to make it even more difficult for them to survive. You’ve still got two buckets even within the good operator category. You’ve got the ones that were in better financial positions and ones that had maybe more debt from capital and other startup costs. Those ones that maybe were still good operators but had too much leverage, this could still suck them in. 

You heard about saturation for years and years. It had to happen at some point. You started to see the consolidation happening already in the last couple of years. What you started to see, even before COVID, is some people struggling to make it without any (state-mandated) closure. 

INFANTE: I don’t believe the sky is falling. I don’t know that this is going to wipe away the industry trends that we’ve seen over the last five to eight years where the industry has shifted to local. I’ve seen the number out there that 30 percent of all restaurants are going to close, and the same for breweries. … I’m hopeful that that’s not the case, but it really depends on consumers. 

Are people going to still want to go to restaurants when this is over with? Part of that depends on when do we come out of this, and what does coming out of it look like? Are we coming out of it with a vaccine? If that’s the case, I think things will probably return to normal, and people wouldn’t be scared to go to restaurants anymore. 

How should craft beverage companies be preparing now for the future? 

BEHRINGER: Now is as good a time as any to hunker down and make sure you really understand your fixed and variable costs and how much cash you truly need to operate. … Most people aren’t looking to cut costs when they’re growing year over year and they’re just trying to keep up with demand. … But now, if you don’t have an understanding of what you need, you’ve really got to look and start putting together some forecasts to figure out, ‘OK, what can I expect if…?’ 

The numbers are key and making sure if they’re not doing it, they’re getting with their advisers to really take a deeper look at their operations, their costs and what they’re going to need going forward to really understand the runway. 

FINNIE: I think a lot of places are going to have to be prepared to deal with hygiene in a different way, and the promotion of healthier habits. In the near term, there may be some spacing out of tables and chairs. Some of that certainly is going to be mandated in the near term, but that then becomes a difficult business decision. You’ve got underutilized capacity from a number of seats. That doesn’t help contribute to the overhead. 

I think we’ve also seen people taking advantage of time being closed to freshen up the taprooms, move stuff around, think about their layout, think about their processes and ways to be more efficient. 

INFANTE: I don’t think anyone has any idea of when things are going to open back up. They should be preparing for the status quo to continue for a while, and to tread water for a while. But then when things do reopen, they need to prepare for things not to go back to normal right away. I think there’s going to be a lag for in-person sales. You’ll probably see a rush of people who still want to come in, but it’s going to be certain people that will do that. I think your vulnerable population is still probably going to stay away. Your young families are probably still going to stay away, or at least limit it. 

It’s probably going to be a curve and it’s just going to ramp up and maybe it’s back to normal six months from now, 12 months from now, 18 months from now — who knows.

What could this current situation mean for the craft beverage industry going forward? 

BEHRINGER: From a business perspective, fortunately or unfortunately, it’s probably a crash course on seeing who the true leaders are and who’s been able to pivot, take a hard look at their business, make tough decisions, and continue to look out for their employees. 

I think there’s going to be a lot of people that gain a lot of goodwill with their local communities, their employees, as well as their customers by making the correct decisions on contactless delivery and pickup and still trying to do everything they can for their existing employee base, keeping everybody on as much as possible. Hopefully, there’ll be more of those feel-good stories versus the headline of ‘another craft brewery in so-and-so area closes its doors for good.’

FINNIE: I don’t think that this is going to change consumers’ preferences for craft beer and spirits and quality. Where you could see some impacts is if this does turn more into a recession and people decide to spend less on their beer and spirits. That could have a negative impact on craft. … 

We’re still evaluating (what the situation means) as it relates to all valuations. As we evaluate things from a high level, recognizing the drop in the public markets, there’s likely some negative impact on private companies. But I think doing projections right now is difficult for a lot of businesses. We’re not sure what the level of decline in valuations will be. We know that it’s something. But with the amount of risk and uncertainty, there’s a lot of hesitation. 

INFANTE: So far, I haven’t had a single client tell me they are going to shut their doors permanently. That hasn’t come out yet, and that’s why I’m still a little bullish on this. … Since (the stay-at-home order), I’ve had at least five new inquiries for opening breweries and wineries. People still want to open them. The people who want to open them are seeing this as sort of a silver lining for them. They’re saying, ‘I’m laid off right now, so I have time to focus on my dream of owning my own brewery.’ They’re taking the time of putting together their business model, line up investors and find space. 

If anything, it’s probably going to be better for those people. There’ll be some cheap equipment, some cheap space, borrowing might be cheap, although you might have a hard time getting lenders. But they have time. 

Read 951 times Last modified on Monday, 27 April 2020 12:26
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