Five Months Down—And A Year to Go?

As the middles of months approach, my internal radar reminds me of an approaching anniversary. In a moment when time has less purchase, the month-middles count as a landmark. In mid-March, the US collectively went into quarantine, and so now we approach the fifth month life has been disrupted by the COVID-19 pandemic. Where we are—a holding pattern of patchwork openness amid the season of al fresco drinking—isn’t as pressing an issue, however, as where we are headed. So for this mid-August update, let’s peer into the future.

The Botched National Response

The US recorded 1,326 deaths from the pandemic yesterday. That’s bad. Death counts haven’t returned to their Spring peaks, but the US is faring far worse than most European countries—many hit just as hard in the initial wave as the US. Italy had six cases yesterday, France 14. Scandinavia—Sweden, Norway, and Denmark—had zero. The impact of these numbers can’t be solely measured in human life, however: the US failure to contain the virus has meant that:

  • Businesses haven’t fully reopened and many that did were forced to close;

  • Federal aid meant to tide businesses over during closures have now been spent;

  • Unemployment remains very high (31 million people, with a nominal rate of 10.2% and a real rate around 18%), and federal assistance ended in August, meaning people have less money to spend;

  • Protections against evictions have ended, sparking a housing crisis; and

  • States, required by law to balance budgets, are seeing enormous shortfalls and are being forced to cut services to the people now most affected by the economic shock.

To summarize: the health effects of the pandemic are nearly as bad as they were during wave-one peaks, but all the supportive services that allowed businesses and individuals to weather the crisis have ended. These shortfalls will almost certainly produce feedback loops, as people with less money have to cut back on spending, causing more businesses to fail, causing more unemployment, causing fewer people to have money, and round and round we go. And all of this is happening during the summer months, the time when we can more easily contain the virus by staying outdoors. But as the Starks love to say: winter is coming.


Breweries’ Resilience, So Far

Back in March, many of us expected carnage from a sustained viral outbreak. Remarkably, breweries are surviving. Bart Watson, Brewers Association economist, summarized this in a recent report of American breweries:

“As of June 30, the Brewers Association database showed 8,217 active craft breweries, up from 7,480 during a comparable time frame last year…. While it remains possible that closings will accelerate as 2020 continues, through the end of June, our database only shows 112 closings. That’s only 4% higher than the number we had found during the same time period last year.”

As a contrast, pubs and restaurants haven’t fared nearly as well. It’s hard when your business model depends on filling dining rooms. Many breweries geared their business to in-house sales as well, but most have scrambled to meet the market where it exists.

A local example demonstrates the dichotomy. The Toffee Club, with a focus on soccer matches and British beer, had been riding high before Coronavirus. (Portland may be the most soccer-centric city in the US.) Last week they announced they were shutting down permanently. By contrast, the owners announced yesterday that Away Days, the small cask-focused brewery that grew out of Toffee Club, would continue. Being able to sell beer is a big advantage. (The loss of pubs and restaurants is ultimately not great for breweries either, as we’ll discuss below.)

The Next 9-12 Months

Unfortunately, this thing is far from over. The only real relief will come with a vaccine, and that’s months away best case (Russia’s cowboy cure notwithstanding). We’re learning that COVID-19 loves closed spaces. For cold-weather America—that is, most of the country—autumn looms as a dangerous time. For breweries hanging by their fingernails, what are the ramifications in knowing we haven’t even hit the halfway point on this thing—and that the economy, barring an unlikely intervention by Congress, is likely to get worse before it gets better? They’re worried.

Breweries have different configurations and different revenue models. Here’s Joel Gregory of Ex Novo, which has a brewery and taproom in Portland and brewery in Corrales, New Mexico:

“Grim prospects for sure. We’ll try to get even more lean and efficient and likely can more one-off releases like we were in March-May. Don’t have a parking lot or anything where we could put up a big tent with heaters...if that’s even allowed.”

Ben Parsons, a Coronavirus Diaries regular, echoes Gregory’s sentiments and expands:

“Yeah, the future’s not looking bright. From a retail perspective, October is Baerlic’s usual low month of the year, with September pretty volatile as well as families transition back to school. But school is entirely different this year and, as a parent, I’m confident that beer will be a very important tool this fall as we all pretend to be teachers again—that’s a very stressful job on top of running a business!

“Regarding retail, as resilient as Portlanders tend to be, I’m not entirely confident that every popup patio around town that tentifies will do as well when its raining sideways and dark at 4:30pm. But there surely will be those that will do well if they'’e built right and in the right location. And to Joel’s point, we’re back in that situation where we need to plan our businesses around our own best guess of public and governmental policy. We have no idea what will or won’t be allowed, so we have to plan for everything or nothing at all. And if the unemployment benefits stay where they’re at, disposable income will be limited, so I worry that the macro ‘craft’ brands will have a leg up economically with low-priced 12-packs.

“Finally, to throw a couple of tires on this heap of a dumpster fire, if the can supply shortage is real, then small breweries who have relied on a pivot to package sales will be hurt the most. This is where it all goes back to economies of scale and access to market through distribution and it’s going to get very scrappy. But as bad as this all looks, I’m also confident that if a brewery can survive until, say, February 2021 then they can surely survive anything (fingers crossed that there’s at least a viable treatment option—in lieu of a vaccine—and we have some new leadership in DC and pigs fly, etc).”

Of course, a brewery is not an island. Particularly now, breweries need reliable retail partners if they’re not going to be swallowed up by mass market craft, seltzer, and other cheaper options. On this score, Sean Campbell of Portland’s Beermongers (a taproom and bottle shop) is not hopeful: “I suspect most breweries will be fine…. Taprooms, restaurants, and bottle shops will be the businesses that close. That is what we have seen so far and the trend will continue.”

None of these factors exist in isolation—they pile up, straws on the back of the industry. Any given business can bear only a finite amount.

The UnknowNs

The most frustrating part of this entire crisis has been its uncertainty. What we don’t know, can’t know, overwhelms what we do. The further we forecast out, the greater the uncertainty. This forces businesses to have contingent plans and just hope they’re making decent guesses. It’s easier to survive a crisis if you can see its end somewhere out on the horizon. With the Coronavirus, we can’t. We’re left juggling questions rather than answers. As unsatisfying as it is, any honest appraisal must admit that these factors will play an outsized role, and all we can do is acknowledge them and wait.

The Vaccine
Amid months of poor testing, we have identified a mere five million cases of COVID-19. while that may seem like a lot, it’s just 1.5% of the population. Even assuming it’s off by an order of magnitude, 85% of Americans have not contracted the virus. The notion that herd immunity will suppress the outbreak carries with it the assumption of millions of deaths and complete economic collapse. That leaves limping by as we are now, more or less permanently, or finding a vaccine.

There’s no guarantee we can create one, nor a guarantee it will be broadly effective. But in the rosiest scenarios, a vaccine won’t be ready until early 2021 and will take months to administer. And that’s if Americans can be persuaded to take the damn thing. (I wouldn’t trust polling on this, incidentally. People have a terrible track record of accurately predicting their future behavior.) And also if we have a government that will competently produce and distribute one. Which brings us to…

The Election
It’s dishonest to both-sides this story, so let’s squarely identify the problem. The Trump administration is responsible for the failure to keep the virus suppressed once the first-wave shutdown ended. In competently-run countries, the response was headed by the national governments who coordinated messages, issued consistent rules, and allocated resources across their countries. Trump, wishing for avoid blame, abandoned these decisions to the states, which have done a better or worse job in each jurisdiction. And yet, because we live in a united states with open borders, containment is ultimately only as good as the worst state’s response.

Moreover, the economic damage wrought by the pandemic will be more or less mitigated by who occupies the White House and which parties control Congress. If Trump is re-elected and the GOP keep the Senate, we can expect the current approach to continue indefinitely.

Other, Smaller Issues
If Trump does win in November, the effects of the virus will be felt differently across the states. Breweries in Oregon (5,000 cases per million) may fare better than those in Idaho (14,000 per million) or Arizona (26,000).

Supply chains may be disrupted. Trump recently initiated an aluminum tariff war with Canada, which has already threatened US beverage-can supplies. If Trump is re-elected, it’s difficult to guess what other trade moves he might make that will damage local businesses. Given his track record, probably some.

I’m also keeping my eye on consolidation, partly in beer but especially within the wholesale tier. Reyes is in the midst of creating a wholesale monopoly on the West Coast, with massive holdings nationwide. That’s definitely not good for small breweries fighting to get their product on store shelves. The bottleneck wholesalers create is increasingly becoming a choke point for most breweries in the US. Will the Coronavirus speed, impede, or have no effect on this process?

Last, the “unknown unknowns”—those variables we don’t yet see but which will certainly crop up in the changed conditions of December or March or July.

Breweries have survived thus far, which is a hopeful sign they may survive through the pandemic. The frustrating thing is we just don’t know.

And that’s where we are today, August 12, 2020.


Five Months Down—And A Year to Go?