Dear Client:

Your editor told the Chicago Tribune on Friday that this past weekend would be crucial in telling the tale of how this pandemic has and will affect the beer industry, particularly on-premise, and indeed the worm has turned.  It’s worse than we thought. Much worse. 

The dam broke on Sunday afternoon on the Ides of March, as Illinois Governor J.B. Pritzker ordered all restaurants and bars across the state to be closed to dine-in customers until at least March 30. Delivery and drive up will remain open. This will be effective end-of-business tonight. 

Ohio Governor Mike DeWine did the same in his home state, issuing an order to close all bars and restaurants (effective Sunday evening) indefinitely, though these establishments, like Illinois, would be allowed to continue carry-out and delivery services, which typically doesn’t include beer.

Not long after, California Governor Gavin Newsom asked for the closure of all bars, nightclubs, brewpubs, and wineries. Restaurants in the state were directed to decrease their occupancy by 50%.  There was no timeline given, nor was there an indication of this was a request or a mandate. A brewery with a restaurant (bona fide eating place or brewpub) will be asked to maintain “deep social distance” between patrons.  Gov. Newsom also called for senior citizens (65+) to self isolate at home. 

Later Sunday afternoon Massachusetts Governor Charlie Baker announced  a ban on the state’s bars and restaurants from serving food and drinks on site. Like the rest of the states enforcing these types of measures, delivery and takeout at these establishments can continue. 

Yesterday afternoon, New York City Mayor Bill de Blasio said the nation’s largest public school system would close starting this week. Later that night  news came that The City “would order all bars and restaurants to close. They would be limited to takeout and food delivery,” per the New York Times. 

Washington Governor Jay Inslee also called for the temporary shutdown of the state’s restaurant and bars late last night. Like everywhere else, take-out and delivery will still be permitted. 

Then Monday morning Indiana Governor Eric Holcomb ordered the state’s bars, nightclubs and restaurants to close through the end of March. Takeout and delivery will still be available.

Maryland Gov. Larry Hogan on Sunday announced an executive order to indefinitely close all casinos, racetracks and simulcast betting sites. “These are unprecedented actions in an extraordinary situation,” the governor said.

Colorado Gov. Jared Polis declared a state of emergency and closed all ski resorts in the midst of Spring Break.

New York’s 258 year old St. Patrick’s Day parade was also cancelled, as well as the Boston Marathon. That in addition to cancellation of South by Southwest, March Madness; the postponement of Coachella, the suspension of Broadway plays, the NBA, the NHL, Major League Baseball spring training; and temporary closures of Disneyland and Walt Disney World, among others.

This amid chaos at Chicago’s O’Hare airport as U.S. citizens abroad scrambled to get back to the States before the travel ban takes effect.  

These are just a few large examples of a national shutdown and cancellation of business, most of it affecting 0n-premise sales.  

We reached out to a smattering of on-premise operations in the wake of the closings. 

Chicagoland’s Half Acre operates a couple of taprooms with kitchens. But 

Co-founder Gabriel Magliaro told BBD they shuttered those before it was mandated. 

He called the state’s bar and restaurant closures “a big deal for all brewers in Illinois, but at Half Acre we’re supportive of the measure to hopefully be out in front of an even deeper issue. The sooner we can effectively control what’s happening, the sooner we all can be back to the luxury of normal, everyday life. In the end, beer will win.”

“A LOT OF PEOPLE ARE GOING TO GO OUT OF BUSINESS.”  That’s the response from one distributor we spoke with in Illinois. Obviously, this will affect the fortunes of thousands of workers and small businesses, many of whom live paycheck to paycheck and many of which are low on cash this time of year. What is most concerning are the thousands of independently owned on-premise establishments and their employees who count on a mobile public for their sustenance. I fear this pandemic will spell the end to hundreds of dive bars and taverns, and perhaps even larger chain establishments.  This doesn’t necessarily affect beer distributors, but certainly the bans in Ohio, Illinois, New York, California etc. will put the hurt on craft brewery tap rooms. 

A NATIONAL RESTAURANT SHUTTERING? And then, early Sunday evening, the Trump administration seemed to drop hints that some mandated shutterings could be imminent. 

Asked if bars and restaurants could potentially be ordered shut, Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, told a reporter: “That could be — absolutely,” according to Bloomberg. 

FEEDBACK FROM THE FIELD. BBD has gotten a lot of feedback over the last few days from readers, from brewers to distributors to trade orgs, on what the rapidly escalating COVID-19 situation in the United States could mean for the beer industry. 

Data doesn’t lie. So we reached out to NBWA chief economist Lester Jones on what he’s seeing, and what we’ve seen before in these situations. 

For anyone who has visited the grocery store lately (or glimpsed the headlines), the possibility of a short-term bump for beer seems pretty likely. 

“Everyone’s gonna stock their pantries … and people will probably be pulling a case of beer,” Lester said. “So now it’s up to beer wholesalers to maintain existing inventories, deplete it, and restock store shelves. I think the mechanics of current supply chain are going to hold steady over the next couple of weeks.”

We told Lester that one distributor in California shared that while they’re down low singles in the on premise, they’re up double digits in the off-premise — and even more in gross profit, as he believes some of the profitable taproom business is being driven into the off-premise. 

It didn’t surprise Lester.

SCANS WILL PROBABLY LOOK PRETTY GOOD IN A COUPLE OF WEEKS. “You’re correct in what you’re hearing from the field; we’re hearing people who are doing very well at replenishing their off-premise accounts,” he said. “And they’re seeing a pretty strong consumer pull at retail. What that means is, when the scans come in in two weeks in IRI, Nielsen, the business will probably look like it’s doing really well. 

“But that 20% of our business in the on-premise, is at risk.” 

So beer distributors will have to work with their on-premise partners. “Some that are operating on thin margins may close down. That’s just inevitable when a significant economic shock hits the economy.”

It’s also important for beer distributors to remind their retail partners on the soundness of their supply chain. 

To that end, NBWA is going to put up tips on what distributors should do to assure retailers that “what’s moving through the supply chain has minimal human contact.”

MORE DATA SOON FROM FINTECH, BPI. Lester promised some Fintech and Beer Purchasers Index numbers in the next couple of weeks to help quantify industry numbers. 

“I’m going to monitor it; at NBWA we have a partnership with Fintech, to track weekly STRs, we’re going to keep a close eye on that.” 

He added that the Beer Purchasers Index, a measure of how much wholesalers are buying, is currently in the field.

“Given the rapid rate of pantry building, I suspect it’ll be a pretty high number, I’d be shocked if it isn’t. But I won’t know for another 5, 6 days.” Lester said they’ll release the BPI data immediately “to let people know what the extent of the beer purchasing side of the business is looking like at the moment.

“And we’ll follow it up with weekly tracking from Fintech,” perhaps even parsing out on and off-premise numbers. 

While the short-term data may indeed show volumes up, the longer term effects aren’t as known.

“You’re going to see a lift, and you’re going to see a drop. Things always revert back to the mean,” Lester said. 

RISK OF RECESSION? “What we’re talking about is a public health crisis. Who would have thought that would have brought an end to 10+ years of economic expansion. Over the past 10 years, the overall economy has benefitted from growing service employment. I think this is definitely going to put a damper on that job engine of growth. So the risk of recession obviously is a lot higher today than it was last month.”

CAN BREWERS KEEP UP WITH PRODUCTION? We also asked some brewers and their trade organizations whether they believe the virus will impact brewers’ workforces, and thus, their production abilities. 

On Friday, Sierra Nevada’s Joe Whitney shared that their production has not been impacted yet, despite California having been hit harder and sooner with the effects of COVID-19 than most of the nation. “But the coming weeks will certainly be challenging and knowing how to prepare is a a bit of a moving target changing daily, sometimes hourly,” he said. 

He also shared that sales trends for the month so far have been tracking “about 2X YTD trends.”

The Beer Institute declined to comment on what the virus — and its ensuing closures and restrictions — could mean for members’ ability to keep up with production. 

We also asked the Brewers Association what they’re hearing about production — and if any BA members have shared anything about taproom trends, with the on premise taking hits. 

“Great questions that we don’t have answers to in these evolving times,” BA economist Bart Watson told BBD. 

He believes the impact will vary based on location and the individual brewery and their practices and decisions.

“I think you’re right to ask about taprooms (and brewpubs) since the demand side is likely to be more important for any impacts than the supply side. We are hearing initial reports of reduced traffic from members in some of the hardest hit areas, but as you know there’s lots of variation week to week in the beer business, so it’s tough to pin down a specific effect – I’m not doubting there is one, but just hard to put a number on it. We’ll also be watching [the] data to see if there is any corresponding pick up in off-premise, but again, too soon to really see much from the numbers.”

TTB SAYS PRODUCTS PURCHASED FOR EVENTS THAT HAVE BEEN CANCELED CAN BE LAWFULLY RETURNED. Finally, a bit of reassuring news out of the TTB: Though Federal consignment rules generally disallow “the sale or purchase of alcohol beverage products with the privilege of return,” the agency said that, due to the massive and unforeseeable event cancellations over COVID 19 concerns, “TTB will not consider returns of alcohol beverage products purchased to sell during such cancelled events to violate Federal consignment sales rules provided the products were not initially purchased or sold with the privilege of return.” TTB did note that “even though such returns are lawful, a producer or wholesaler is not required to accept returns of such products.”

OPEN TABLE:  SEATED DINNERS ALREADY DOWN +30%

BBD has spoken with a few on-premise operators about sales trends in the wake of COVID 19’s U.S. spread. Though some haven’t yet seen a total slowdown, with sports events canceled and all the general “stay home” messaging– none are eager to quantify publicly what this virus could do to their businesses. 

We are finding some quantification: One data point — which was before this weekend — came from reservations app OpenTable, which shared that “looking at comprehensive data from restaurants on our platform — across online reservations, phone reservations, and walk-ins — we note sharp declines over the last week (to Friday).”  To wit:

-In the United States and United Kingdom, we see a 20 percent reduction in total seated diners vs. last year. (All declines cited here are on a year-over-year basis.)

-Things seem to be getting worse quickly, though. Yesterday (Thursday), the U.S., UK, and Canada all declined by around 30 percent.

-At the city level, diners are down approximately 45 percent in Seattle, 40 percent in San Francisco, 30 percent in New York, and 25 percent in London, Los Angeles, and Chicago. 

Anecdotally on Twitter, people posted pics of crowded bars for St. Patrick’s day weekend in Chicago and New York.  However, the bars and restaurants I frequent in San Antonio are all reporting very slow foot traffic. The situation is changing daily, indeed, hourly. 

BALTIMORE COUNTY CIRCUIT COURT DENIES INJUNCTION AGAINST TERMINATION IN WAKE OF BOSTON/DFH TIE UP 

On Thursday, the Circuit Court Judge for Baltimore County, Maryland, “respectfully” denied F.P Winner’s motion for a temporary restraining order and preliminary injunction against termination in the wake of the Boston Beer/Dogfish Head tie up, who naturally are trying to align their wholesalers.

With this, we understand that Boston Beer has moved Dogfish Head to its area distributor, Bond. Recall, in late January, Boston chief Jim Koch told BBD they expect to be more than 80% aligned with DFH by year’s end. 

Recall, about four years ago, the same court dismissed F.P. Winner’s claims of wrongful termination by Pabst Brewing Company in their entirety [see BBD 07-12-2016].

Until tomorrow,

Harry, Jenn and Jordan

“Beware the Ides of March.”

-Seer to Julius Caesar, who ignored him. Later Caesar was murdered by his friends on March 15.

———- Sell Day Calendar ———-

Today’s Sell Day: 11

Sell days this month: 22

Sell days this month last year: 21

This month ends on a: Tues.

This month last year ended on a: Fri.

YTD sell days Over/Under:  +1