Apr 282020

Last week the White House outlined a three-phase process in which the country could reopen after closing due to the worst pandemic of our lives. It is during the second step that bars and restaurants could begin to reopen. There is no set timeline for this reopening, and the White House left the final decisions to the individual state governors.

Some of the states are in a better position to implement the reopening process sooner than others. But given the current status of the virus, it is safe to assume that most of the country is still looking at June before returning to a new normal, a date which is still about six weeks away. Even the PGA tour announced they expect to start their season the week of June 8th in Ft. Worth, although without fans at the games. At least it is a start.

In the recent IRI reports, the off-premise dollars and volume numbers still reflect growth, but not as dramatically as the recent four weeks had shown. Most wholesalers are seeing a slowing of the off-premise volume, but even those increases are not enough to offset the on-premise volume losses. Brewers and wholesalers are now looking into the future and making decisions for the next several months. A number of brewers have either reduced their staff by furloughing or laying off employees. Now, more wholesalers have done, or are considering doing, the same to their teams. Still others have decreased their staff salaries by 25% and implemented a reduced work week. Expect more of these reductions in the coming weeks as the shutdown continues.

The question is: will the real cost of the virus shut-down be the loss of sales or the toll that layoffs, furloughs, and salary reductions have had on those affected employees?  Brewers and wholesalers have worked hard to establish a corporate culture and environment to be able to attract and hold high performing employees. Will those employees who have been impacted by the cost-cutting reductions be as committed as they were prior to the virus? Many employees may be disillusioned and will have lost confidence in their company’s leadership. Expect some employees to transfer to beer companies who supported their employees during this crisis.

In the early 1980s, I was the owner and president of the seventh largest Schlitz Distributorship, geographically located in the southern-most point of Texas (The Valley), bordering Mexico.  During this period, the market was hit with a magnitude of issues: the devaluation of the Mexican peso, an oil embargo, the coldest winter in 100 years which resulted in devastation to the Valley’s citrus industry, and all while facing a 50% unemployment rate in The Valley.  I implemented a 10% across-the-board reduction in pay, and personally took a 20% salary reduction. That one decision, to reduce the pay of our staff, might have been the worst business decision of my career as employees lived from paycheck to paycheck.  There were not necessarily interested in the overall picture of the situation as much as they were in ensuring their ability to put food on their families’ table.  

While President of Warsteiner, the European economy was experiencing a 1.5 to 1 exchange rate with the euro, but Warsteiner itself was riding the largest third quarter in the company’s history from both a profit and volume view.  It was at this time that the owners decided to raise their price by four price points, slashed marketing in half, and laid off one-third of Warsteiner’s employees. This resulted in the Warsteiner U.S.A. losing 39% of its volume. Six months after these changes were instituted, the brewery admitted that it had made a mistake and requested that the prices be revised.  Twelve years later, their business still has not returned to those levels.

Those breweries and wholesalers that are able to keep their staff employed could see that commitment payoff for many years into the future. The companies that have no options, but apply their payroll reduction across the board, might also benefit if the companies apply for and receive support through the PPP government program and make those affected employees whole again.

As with the actions of the federal and state governments, when the virus is eliminated the second guessing game will begin and both breweries and wholesalers will be questioning their decisions. Thousands of people have been affected, but sadly, the worst may be yet to come.

Without loyalty, you won’t accomplish anything.

 Posted by at 6:00 am
Apr 072020

Many of us are now into the fourth week of the shelter-in-place virus edict and trying to adjust to our new way of life. Some experts are forecasting that the next couple of weeks will be the most difficult yet as the rate of infections rise and grave economic news continues to increase. 

Bump William’s recent update of the IRI data for the week ending March 22nd, clearly illustrates this point. The majority of the major breweries are experiencing extraordinary off-premise numbers while, at the same time, experiencing sharp declines in on-premise sales. Currently, off-premise volume gains are off setting on-premise volume losses. Even with strong successes in the off-premise, some major breweries, including Pabst and Deschutes, have laid off their on-premise teams, and many breweries may announce additional layoffs by the time this post become public. The longer the pandemic continues, the greater the chance that beer industry people will lose their jobs.

Last week, Nielsen CGA projected a loss of 18 million cases of craft beer during the shutdown, an estimate which could be conservative. Already there have been a number of craft breweries close and the industry expects more to follow suit. The general consensus is that the crafts were over indexed, and this situation is weeding out the weak sisters. Those breweries with owners whose intent was never to invest for the long haul will be among the first to close their doors. While, unfortunately, those crafts that were in the business for the love of beer and had goals of being in for the long-haul, could be negatively affected through no fault of their own. Numerous retailers and wholesalers are instituting policies that have directly impacted the financial viability of crafts, many of whom have over-indexed their on-premise marketing, while simultaneously limiting their investment in the off-premise accounts. The on-premise business is gone, and it will be awhile before it returns.

Many crafts have invested in the chains with new packaging, cans, and chain specialists.  These investments were to have been paid off this spring with new chain resets.  Despite the continuation of sales and services for the retailer, when the retailers postponed their resets, or wholesalers discontinued undertaking resets, the decisions were financially devastating to the crafts. Craft brewers cannot get their beers to the consumer.  When a vendor has their approved products scanning with a retailer, that product should have an opportunity to succeed or fail.

No one truly has a clear picture of what the industry’s future will look like in six months or a year, but one thing is certain, the beer industry will never be the same. Undoubtedly, when the industry looks back, the reflections will be: “we could have done this,” instead of a “what was done.” Hindsight is always 20/20.

Yesterday, the CEO of Raytheon stated that the airline industry would not return to normal for two years assuming a vaccine has been found.  Raytheon, with access to 12 billion dollars, is concerned about small businesses and their supply chain.  To support that chain, Raytheon is making cash available to those vendors.  The CEO stated, “Without our supply chain, we are out of business.”  Retailers and wholesaler should take his words to heart.

Groundhog Day. 

 Posted by at 6:00 am