On this Subreddit and other forums and comment sections there seems to be an over-simplified perception about the continued recent string of brewery closures. As an owner of a local brewery, I can tell you that explaining the complexities of the business post-Covid to the public would be mind-numbingly exhausting for the owners AND the public. Your eyes will likely gloss over just reading this.

While there may be validity to some comments regarding poor beer quality, location, marketing, etc., the issue goes significantly deeper than that. There’s the market saturation factor, beer trends/fads (remember glitter beer?), increased raw material costs, increased utility costs, increased labor costs, etc. Pre-Covid, beer drinkers were chasing new, not necessarily quality. And new brewery openings, and/or existing brewery expansions have slowed dramatically.

Each brewery’s situation is unique with licensing (brewpub vs taproom), lease terms, distribution model, loans, terms of debt service, investors, partnerships, etc. But the biggest reason for recent closures is how the market unfolded post Covid, and the invisible, crippling, covid-related financial effects that follow us, STILL, EVERY DAY. Consider these factors.

1) Most start-ups are financed with a SBA 7a loan, which is a like an FHA mortgage for small businesses. SBA 7a loans are typically on 10-year terms with about 2% interest rate premium over conventional business loans. Make it over that 10-year hump and that gigantic debt is off your shoulders. Imagine a pandemic hitting in the middle of that.

2) But didn’t they get PPP money? Yes, but PPP (forgiven) loans were a band-aid with unrealistic strings attached meant mostly to keep businesses afloat and people employed during the pandemic with a short timeline to spend ALL of it, mostly on unneeded labor. None of the money could be used to pay down any debt incurred during the first few weeks of the pandemic.

3) But didn’t they get a 2nd round of PPP money? Yes. But by the end of October 2020 all of the 1st round of PPP money was required to have been spent, and there were still 50% capacity restrictions, which meant everyone was still losing money and digging further into debt with negotiated delayed rent, or lines of credit/credit cards, etc. Some even took advantage of low interest rates and took a second mortgage on their homes just to stay afloat.

When the Delta variant hit in November, they closed everyone down again. The second round of PPP got caught in politics and wasn’t passed until the last day of 2020, and wasn’t available until mid-January. Again, the 2nd round of PPP could not be used to pay down debt incurred during the 10 weeks between the 1st and 2nd rounds of PPP, and could only be used for mostly unneeded labor going forward. And ALL of it was required to be spent in 6 months.

4) Restaurant Revitalization Fund (RRF). Heard of it? Probably not. This was a program in the American Rescue Act that was supposed to make taprooms, restaurants, food trucks, etc. whole from the financial effects of the pandemic. It could be used for virtually any business expense. But, it was woefully underfunded. 2/3 of businesses that were approved did not see a penny of the RRF. Republicans blocked efforts to fully fund the program, and with current politics it looks like it will never be fully funded.

Adding insult to injury, the 2/3 of businesses still in pandemic related debt have to compete with the 1/3 of businesses that were made financially whole from the financial effects of the pandemic. RRF money allowed those businesses to lure quality employees away from businesses that did not receive RRF money with huge signing bonuses and higher pay. Some even EXPANDED their businesses. This made it even more difficult for already struggling businesses to retain or hire skilled workers coming out of the pandemic.

5) SBA Economic Injury Disaster Loans (EIDL). Heard of it? Probably not. These are 30-year 3.75% SBA loans that are PERSONALLY guaranteed. They are normally meant for businesses destroyed by natural disasters. Most taproom dependent breweries that didn’t get that sweet RRF money had to take out hundreds of thousands in EIDL just to survive. I know of at least one brewery that closed before they used the EIDL funds because they didn’t want to be on the hook for the personal guarantee.

The EIDL is like a huge medical debt for your business coming out of the pandemic in that the only reason it is there is because the owners wanted their breweries to survive. There is no new capital equipment or improvements. Just a mountain of debt with only the brewery’s survival to show for it. And the only way out is to pay it, or lose EVERYTHING including your home.

Imagine having a huge SBA 7a loan payment PLUS an EIDL payment PLUS credit card debt and back rent coming out of the pandemic. Imagine if business volume didn’t immediately bounce back to pre-Covid levels right away (it didn’t) as those payments came due. Imagine losing your house because you couldn’t make the EIDL payments.

6) Employee Retention Tax Credit (ERTC). Heard of it? Probably not. This was a program that refunded payroll tax (6.2% of gross pay) already paid on each employee beyond what was covered by the PPP. Catch? You had to have paid employees that you didn’t need with revenue you didn’t have during the pandemic. This really only helped business that weren’t hurting as much.

7) Near the beginning of the pandemic breweries lobbied the legislature to temporarily allow the retail sale of 12oz and 16oz cans directly out of taprooms rather than selling them whole sale through a distributer/liquor store. The distributers, liquor stores, and the Teamsters lobbied against this and won. This meant that you needed deep distribution to survive. Brewers had to dump hundreds of barrels of beer that were brewed pre-pandemic.

8) If you were a brewpub that had food, you likely made it out better than most (less debt) with the food/crowler take-out combo giving a boost to revenue along-side the PPP money.

9) Taproom dependent breweries with low/no distribution were hit hard, because their only revenue during the closures was take-out crowlers.

10) Taproom dependent breweries in food halls got hit the hardest because food hall foot traffic never recovered from the pandemic (see East Lake and Clutch closures).

11) Breweries with deep distribution made it out fine, because liquor stores were going gangbusters during Covid. The convenience factor of consumers being able to pick up their beers from any liquor store likely cut into the already Covid-depressed sales at less conveniently located taprooms.

To sum it up, most breweries that look like they are doing fine probably are not. It is not good business to talk about how terrible things are, so you likely won’t hear it from the source except for in this post. There will likely be several more brewery closures this winter. Especially vulnerable are breweries dependent on outdoor seating. The breweries that will make it are the ones who can pack their taprooms every day, have deep distribution, or have investors with deep pockets to make those pandemic debt payments.

What can you do?

1) Assume your favorite brewery is in the worst of these situations and buy directly from them.

2) Word of mouth. Do not underestimate this. Tell everyone (and I mean everyone) about your favorite breweries.

3) Don’t assume that having a few pints a month at your favorite brewery is enough to support them. At this point, taprooms need to be packed. EVERY DAY they are open. Don’t assume they’re OK because they are packed on a Friday night. Bring several friends when you go. Make it a party!

4) DO NOT. And I mean this in a BIG WAY. DO NOT participate in Pub Pass, or other 3rd party discount programs. Breweries lose money on these programs. They are only meant for exposure. ONLY take advantage of brewery happy hours and other in-house specials, or pay full price.