Fear on tap as COVID-19 chokes off small brewery sales

Canadians have been lining up outside liquor stores and stocking up on alcohol to make staying at home during the coronavirus pandemic more palatable, but craft beer insiders say COVID-19 has still cut the froth out of their industry.

A recent online survey from the Canadian Craft Brewers Association found that among the 317 breweries and brew pubs that responded, almost half saw their March revenues drop by more than 50 per cent from the previous year. More than half are expecting the same or worse for April.

"Everyone's just doing what they can to survive," said Rick Dalmazzi, the CCB's executive director.

Many of the county's 1,100 craft breweries, which employ about 10,000 people, have been left vulnerable by restrictions on businesses put in place to enforce physical distancing and reduce the spread of the novel coronavirus.

According to the Conference Board of Canada, beer remains Canada's most popular alcoholic beverage, accounting for 41.5 per cent of total alcohol sales in the country and contributing $13.6 billion to Canada's gross domestic product in 2016. 

Craft beer plays a significant role in those numbers, Dalmazzi says.

"Name another industry over the past 10 years that has put hundreds of new manufacturing facilities in small towns across Canada," he said.  

But with restaurants and bars shut down, craft beer sales have plummeted. On-site sales in brewery tap rooms and dining rooms tanked because of mandatory closures. Plus, the growing industry is overflowing with young companies not yet profitable, and owners are struggling with keeping up costly operations. 

The CCBA says its survey suggests 65 per cent of brewery employees have been laid off. Fourteen per cent of respondents to its survey didn't know how much longer they could stay open.

Veteran industry observer and beer writer Jordan St. John predicts COVID-19 could break a significant portion of craft brewers.

"I would say that you're probably looking at something like a quarter to a third of the craft brewing industry basically disappearing within the next three months, depending on how long the situation continues," he said.

Bars and restaurant customers suddenly didn't need suds

COVID-19 has reduced demand for craft beer. With restaurants and bars closed, some breweries' orders have dried up altogether.

"We lost 100 per cent of our draught accounts in a day. Everybody was forced to close," said Chloe Smith, the owner of Townsite Brewing, in Powell River, B.C.

Smith's brewery is two ferry rides and five hours north of Vancouver on B.C.'s Sunshine Coast. She fought hard to land accounts in the city and on crowded retailer shelves over the past eight years.

With Restaurants Canada projecting about 30 per cent of bars and restaurants are closing forever, she's already feeling losses.

"We certainly have had some of them say, 'Come pick up your kegs. We're not opening up again,'" she said.

Townsite's staff of 16 has been slashed to six. The taproom is closed. Bottles are being sold locally and online. Smith's not sure when she should start kegging beer again because she can't predict when local bars will reopen. 

"It's just a really difficult time for decision-making on all levels," she said.

Looking ahead, Smith feels lucky her landlord is also the brewery's key investor.

On-site sales and events lost

The pandemic has also pummelled brewers by preventing them from selling draught on site.

Both brewpub and taproom business models have become increasingly popular with craft brewers. Selling beer from a keg in your own building offers the best profit margins.

But right now, Bearhill Brewing Company, for example, is only recording losses. All four of its brewpubs were forced to close because of the pandemic.

Its Edmonton location will soon open for takeout, but more than 90 per cent of Bearhill's 350 workers have been laid off.

The company, which has been around for 15 years, has a canning operation and sells to liquor stores, but revenue falls far below ongoing bills.

Co-founder and CEO Brett Ireland believes reopening will bring revenues at 75 per cent below normal, and agreements with landlords and other support will be critical.

"We're anticipating at least a two-year timeline to get back to close to where we were going into this," he said.

Jeff Dornan is also feeling the pain.

He's been running All or Nothing Brewhouse with brother Eric for six years.

Their newly renovated taproom in Oshawa, Ont., with capacity for 100 people, is supposed to generate half their sales but sits empty these days. The plan to host birthdays, weddings and other events on the front patio and big back lot has been wiped out.

"That was going to be kind of our saving grace," said Dornan. "We were really excited."

For two months, the company has been making hand sanitizer at break-even prices, a move that helped it keep six of its 10 workers employed.

Moving back to brewing beer and into online sales, Dornan worries that after the traditional winter slowdown, a summer of social distancing won't bring peak sales.

"We've obviously never lived through a pandemic before. It's hard to say where we'll be in the future," he said.

Young breweries at risk

According to the CCBA, 79 per cent of Canada's craft breweries opened in 2015 or later.

The association also says almost two-thirds of craft breweries have three months or less of cash reserves.

New operations and those that have just made big investments to expand worry St. John the most.

"That could be a death blow to you, depending on your cash flow," he said.

In Wolfville, N.S., the owners of The Church Brewing Company aren't sitting on a pile of money.

Since 2017, brothers Steve and Matt Haysom have nearly spent their life savings from two decades of working in Alberta's oil patch to open a large-capacity microbrewery, restaurant and taproom in a historic stone church.

"We are at risk of losing it," said Steve Haysom. "We don't sleep at night."

Going into their second summer of business, 200 seats in the brewery are empty, revenue is down 70 per cent, and only 10 of its 85 employees remain on the job. The company is still selling to Nova Scotia liquor stories and doing deliveries.

The brothers remain hopeful they can save the business through cost cutting and customer support.

"I wouldn't say that beer or alcohol is recession proof, but it's probably recession resistant," said Matt Haysom. "So, I think people will find a little bit of beer money."

Calling for help

Facing a summer without festivals, full patios and sports events, Dalmazzi says the craft brewing industry will see COVID-19 casualties.

While online ordering is happening in many provinces, he'd like to see it, and delivery fees, approved across the country.   

Photos of beloved brews selling out online don't show the whole picture, he says, and more measures to help craft brewers are needed.

The CCBA is calling for the eligibility criteria for the Canadian emergency wage subsidy (CEWS) to be expanded to account for new breweries that may not have relevant 2019 sales data for comparison to show a loss and breweries that may have growing sales year-to-year but still not be profitable.

The association would also like the federal government to follow the U.S. example and provide relief on the excise tax brewers pay on their production.

Dalmazii says he's disappointed Ottawa went ahead with an automatic increase of 1.89 per cent on the excise tax last month instead. All levels of government could provide more tax relief, he said.

"I know that governments are not looking to reduce revenues, but anything to help with cash flow," he said. "Every month is important."