Perhaps you’ll recall that a few weeks ago I wrote a piece about the state of the beer industry in Ontario in 2020. I would not blame you if you didn’t remember that because it has been a busy few weeks here in existence. You probably own either all of the toilet paper or none of the toilet paper and all of you are seriously considering what to do with the dried beans you panic bought.

A local wag suggested that I was probably downplaying the effect the Coronavirus was going to have on the market. Naturally, that was correct. I was trying to prevent people from panicking.

It seems to me that the horse is well and truly out of the barn on that front and while we haven’t seen anything like the worst of it yet, I’m not really here as a harbinger of societal doom and gloom. I’m more of a specialty subject doom and gloom kind of guy.

People used to ask me whether “craft beer” was a bubble. I would answer that we were seeing a fundamental inversion of the brewing industry and that we might be over saturation, although one 2008 style economic downturn would probably correct that over saturation. We’re there now. Not only is market liquidity basically toast, but a large portion of the hospitality industry in North America was laid off this week.

The Imperial College Report from London suggests that in order to mitigate the damage this virus will wreak on society, we probably need to engage in social distancing and isolationist behaviour for 12 to 18 months. To be completely honest with you, nobody has any idea what that’s going to look like. The good news is that they suggest rolling periods of isolation may be possible, but ultimately all of this speculation. Work on vaccines will take the amount of time that they take. Minimizing the loss of human life probably means that we have no taprooms or bars or restaurants for the foreseeable future. We’ll call it at least two months.

If you had recently written a post about how much you hated beer festivals, you basically got your wish. Cancelled until 2022. 

The problem is, according to an unnamed small brewery in Toronto, that without bars and restaurants, there’s no licensee income. Restaurants and bars that have been shut down are not in a position to pay their bills, which means breweries aren’t getting paid for the kegs they have already distributed. That source of rolling cash flow is gone. In the specific instance I’m talking about, my source says that they are able to pay the employees what they are owed and maybe cover the rent for this month, but without cash flow it’s an exercise in inevitability even with a skeleton crew.

There are currently some 400 breweries in Ontario, but you give it three months and we’re going to see that number cut down by a third to a half. Some of them were not profitable to begin with, but even the ones that were profitable are going to be in a lot of trouble.

I have some ideas that might mitigate circumstances over the next two year period, and I can only hope that someone at the AGCO and the Federal and Provincial levels of government will rally round and listen to sense. This is wartime footing and no mistake. This is partially an economic issue and partially a morale issue. A cold beer at the end of the day is great for societal morale. It’s a little taste of normalcy. From an economic standpoint, the excise tax can’t be collected if the breweries don’t exist. Here they are in no real order:

1. Excise is formative for beer and has been forever. Gruitrecht. Assize of Bread and Ale. You know why macro beer is 5% alcohol? Cause that’s where the excise bracket changes.
   
   In the meantime, in order to mitigate damage, we should probably halt all escalating increases in excise charges until the pandemic subsides. There’s no point in making this harder for any company at this point. I’m not a fan of the big brewers necessarily, but that’s employment and logistical function you don’t want to overlook at this time. You might need canned water later.
   
   
2. Contract breweries continue to exist. There is an entire genre of business in this province based on renting space in larger production breweries in order to make a virtual brewery exist. We’re talking Brunswick Bierworks, Equals Brewing, Cool Brewing as pure examples of this principle.
   
   Issue is a large number of established breweries like Wellington, Junction, Collective Arts, etc… are also in this boat. That is to say that bricks and mortar breweries are dependent on their virtual contractors to operate at volume. Whether they are startups like Paniza Brewing or Silly Sir Brewing or more established brands like Ace Hill and Lost Craft, you have to understand the fatal hit that they are about to take.
   
   The contract breweries can only sell through LCBO, Grocery, Beer Store, and Licensee. They are not allowed their own retail shops. Licensees are gone. These are entrepreneurs who have the ability to sell and deliver their product and we should change the regulations so that they can sell online and deliver within a set geographic area.
   
   If we don’t do that, we’re going to lose the contract brewers. Not only will that wipe out 60-70 small businesses in the province, but it will significantly impinge the operation of larger breweries as well. It’s a domino we can at least delay toppling.
   
   
3. Currently the AGCO has rules for delivery which are pretty sensible in non-pandemic existence, but which cause problems in this situation. Breweries are allowed to pass along shipping costs from Canada Post and courier services to the consumer, but are not allowed to charge if they are doing the delivery themselves on the basis that they are technically operating as a retail store. The transaction is essentially viewed as though they were standing at the counter of the retail store.
   
   Now, that is a fiction which is relatively appropriate in good times. In practice, this social distancing means that the balancing aspect of that retail strategy (taprooms, food service, etc.) is gone, so there’s nothing to mitigate shipping costs.
   
   For that reason, I would call on the AGCO to allow breweries to charge what amounts to break even shipping fees on their products. Instead of taking a loss through shipping, breweries could absent those expenses from the equation. It would help them keep staff on longer having switched their basic function within the brewery, reducing the burden on EI and the Emergency Support Fund. We would be passing along the expense of receiving a luxury good to the consumer.
   
   
4. We may be able to mitigate some of the licensee damage here by allowing restaurants and bars who are doing food service to sell a limited quantity of alcoholic drink to go with food on a takeout basis. This seems like an odd flex, but there are other jurisdictions where this is possible. You can get a growler of beer or a bottle of wine to go. It’s essentially the opposite of “bring your own bottle” for local restaurants.
   
   I know we’re an exceedingly moralistic province, but given the circumstance, it is probably not going to lead to societal decay. Panic would lead to societal decay. This might actually boost morale a little and mitigate some of the damage to the restaurant industry. Not a lot, you understand, but some. Especially in the case of something like Toronto’s Bar Volo where they are actually importing beverages, there’s the double impact of reduced licensee sales and an inability to sell the imported products at the taproom. A limited set of circumstances, I appreciate, but no less dangerous financially.
   
   
5. Thanks to attentive reader Geordan Saunders from Napanee Brewing for the following idea.
   
   Outsourced delivery services such as Coldhaus and Prologix could be extremely useful in pooling home delivery over the next 12 month period. They have refrigerated warehouses and fleets of trucks that could be very useful, and better than that are of a size sufficient to standardize processes that would mitigate any risk to public health. All that would need to happen is a recognition of their potential in this situation and a tweak to regulations to allow them to do pooled home delivery for their clients. 

Look folks, this is going to be terrible. The chances are that a lot of breweries in the province are not going to be able to survive a two month shut down without significant intervention on the part of the government. Twelve months of this as it stands will be ruinous. We have the opportunity to at least mitigate this situation so that brewery employees can feed their kids and pay their rent. If you feel, as I do, that this is important, please spread this message.

If you’re with the AGCO or a Government Office or a beer lobbying organization, I am totally willing to consult on this in order to help expedite in any way I can. I bureaucracy pretty good as you may have noticed from the statistical analysis pieces over the years.

In the meantime, you can help by buying beer. A pandemic is no time for non-alcoholic beer. Beer is a fine way to preserve and defer calories, so stock up. If you’re going to go purchase it in person, make sure that you’re engaging in best practices from a public health standpoint. Wash your hands. Retain some personal space. If you’re going to be packing it, that’s the same criteria.

We’re all in this together, so let’s act like it.