After publishing my most recent article on the impact of climate change on global beer supplies, I was hoping to write about something a bit more lighthearted, but then coronavirus happened, and my curiosity got the best of me.
Can you blame me? After all, this is a once-in-a-century type of infectious disease, and the only thing everyone seems to agree on is that this is unprecedented. Even the 1918 Spanish flu, which was responsible for an estimated 30-50 million deaths, isn’t a fair comparison due to modern advances (and their corresponding problems).
In the +100 years since the 1918 epidemic, we’ve proven the existence of viruses, invented genome sequencing techniques, and, most importantly, developed life-saving counter-measures such as antibiotics and vaccines. All of these advances have dramatically reduced the number of infectious-disease-fatalities, and more importantly, enabled the explosive growth of our global population.
Conversely, these advances have made modern society especially vulnerable to an infectious pandemic , as made clear by Bill Gates’ 2015 TedTalk. Never before have our cities experienced such a high degree of population density. This paired with modern air travel, which has enabled us to be anywhere in the world in less than 24 hours, begs the question: should we be surprised that over the course of four months the number of cases of this highly transmissible infectious agent is nearing one-million?
Another distinction between 1918 flu and COVID-19 is that state of the global economy, which is significantly more connected and intertwined than at the start of the century. With consumers stuck at home, and a huge part of the population experiencing job insecurity, the fragility of our economic system has become painfully apparent.
As troubling as this sounds, there is still so much we do not know. Even among economists there is a lot of disagreement regarding the true impact this pandemic will have. This all stems from uncertainty: uncertainty on how long this will last, and uncertainty to how individuals, businesses, organizations, and policy makers will respond over the next few weeks and months.
Uncertainty was a recurring theme in my conversation with Jason Sahler, owner of Strong Rope Brewery, which is a New York State farm brewery and taproom based in Brooklyn. With on-premise sales making up 90% of their revenue, closure of the taproom has been devastating to Strong Rope’s margins.
By the time I spoke with Jason, sales had dropped by 50-60%, though, he expected it to be worse in the following weeks.
This loss is consistent with the limited data available to us by Open Table, which reported a 64% drop in the number of reservations in NYC during the week of March 15. By the following week, that number had plunged down to zero in virtually every major global city. Granted, this data only accounts for reservations; something most bars and tap rooms don’t require. Despite the incompleteness of this data set, it does paint us a clear picture of COVID-19’s devastation on the food service industry.
It’s easy to forget that it was only 2 weeks prior to the closure of bars and restaurants that NYC confirmed its first case of COVID-19. For breweries like Strong Rope, adjusting to all of this has been disorientating, but has left Jason and his team with little time to wallow on the big unknowns that underlie most coronavirus-related-fears. By focusing on what they can control, Strong Rope has responded by re-directing their efforts on getting their beer to people without relying on the allure of their taproom.
In this sense, Strong Rope is in the same position as many other breweries; they are forced to rethink the way they distribute their beer. This challenge has prompted Strong Rope to expand their online store to offer “order to-go” and delivery options of their cans, crowlers, and bottles; a win-win solution for thirsty patrons who are adhering to the stay-at-home recommendations.
Although this may seem like a simple solution to the consumer, this requires beer to be packaged in cans. This is a significant hurdle for Strong Rope, where 70% of their product volume is typically moved through their drafts. In order to move this product, they have to seriously rev up their can production, which is by no means a simple operation for a small brewery with limited facilities, especially during the height of a pandemic.
Despite the headache of retooling their business model to facilitate “off-premise” sales, there is some, albeit, limited data suggesting this is probably your best bet to off-set inevitable losses. However, that is working under the assumption that consumers plan on stocking up on beer in the next coming weeks. The alternative hypothesis would be that, due to the instability of the economy, people are prioritizing other food staples over beer.
Between the two scenarios, analysis of IRI Group Data scan suggests the former, with off-premise beer sales out performing 2019 during the first three weeks of March (that is the most recent available data).
Notably, March 15th was a “big week” for Brewers Association (BA) craft beers, which reported a nearly 25% uptick in sales (by volume and dollars) compared to last year. These kinds of numbers may be normal for summer sales, but for mid March, this is very unusual.
Additionally, more people are opting for a 12-pack over the formerly more popular six-pack, further supporting the stock-piling theory. As optimistic as these numbers are for the brewing industry, it is important to note that one week is a very small sample to be referencing, and this data doesn’t tell us anything about what to expect for the rest of the spring.
It also raises another uncertainty: how will people’s consumption change during quarantine? Will people end up drinking less at home because of the lack of social stimuli, or will we see an increase in consumption as a coping mechanism and to supply virtual happy hours?
Besides the issue of distribution, brewers are reconsidering how they formulate their beers during a period of slower sales. For example, any kind of beer that can be aged over a long period of time, like a dry stout versus a light IPA, is getting a second look at because it buys breweries more time to sell their existing inventory. Although this isn’t the case at Strong Rope, Sahler reported hearing that some “fancy” beers –beers that utilize a lot of specialty ingredients– are no longer viewed as economically sound, and are being replaced by more simple beers, such as lagers.
In a similar vein, brewers are blending malts to ration dwindling reserves, a practice I am familiar with, as I am also rationing peanut butter to minimize my trips to the grocery store. Hearing this raised the alarm bells regarding the vulnerability of our food system. After all, what happens to Strong Rope when they finally exhausted their malted barley reserves? Under the razor slim margins brought on by social distancing, will they be able to afford to restock and subsequently stay in business?
That is the worst-case scenario for our friends at Strong Rope, and as of now, things remain too uncertain to get bogged down by depressing hypothetical situations. It does highlight how precarious our food industry is on both sides. After all, it’s not just the breweries taking a hit, losses in sales impact the following year contracts for barley and hops farmers.
Compared to my article on the economic impact of climate change on barley supplies, this upstream effect is “consumer-driven” rather than “supply-driven”, meaning the demand isn’t there to match the supply, which has very different implications in terms of economic impact.
Considering how quickly developments are unfolding right now, the only certainty I am comfortable with is that the future is in a state of constant change. This frustrating reality makes it impossible to get a forecast for the following week, yet alone the upcoming months and years.
Despite the uncertainty, the fear of a looming recession is real. Fortunately, beer seems to be “recession-resilient”, or at least it was in our last recession; with sales performing only slightly worse during the recession than during periods of economic growth.
An important distinction to make is that the last recession was incited by banks rather than a virus, so using the 2007 housing market crash as a model for what’s to come is like comparing apples to IPAs. That being said, our response to this pandemic and the policies we enact in spite of it will have the greatest impact on the long-term consequences to come.
At the risk of sounding like a broken record, it is now more than ever, imperative that we focus on what we can control by take social distancing seriously, and if you can, supporting local businesses. For our friends at Strong Rope, their parting message was simple: we just need to get through this safely, and there will be a big party at the end, with, of course, lots of beer.
For more information on COVID-19 resources for brewers, click here.
Check out Strong Rope’s selection of “to-go” beer, and follow them on instagram & twitter!
References
- The Coming Economic Challenges Facing Craft Brewers. (n.d.). Retrieved March 24, 2020, from https://www.brewersassociation.org/insights/the-coming-economic-challenges-facing-craft-brewers/
- Covid-19: The history of pandemics – BBC Future. (n.d.). Retrieved March 30, 2020, from https://www.bbc.com/future/article/20200325-covid-19-the-history-of-pandemics