Into Hibernation We Go

Hello from semi-self-quarantine in Harris county. We’re now under a “Stay Home, Work Safe” order, which is something between “do whatever you want” and “Shelter-in-place”. We’ve personally decided to treat it as the latter, leaving our house as little as possible to get essential supplies like bricks for our pizza oven that we’re building in the backyard.

Our business, Holler Brewing Co, is now in hibernation. As a (mostly) draught-only operation, our two sales channels are the taproom and draught beer accounts, both of which are essentially shut down for an indefinite period of time. No sales any time soon. This is a daunting scenario – one that many businesses are facing and that will force some of them to permanently close. 

Many restaurants, bars, and breweries have responded by devising to-go operations to generate some income, creating a city-wide mosaic of drive-thru operations that’s cropped up overnight. We did too: We opened a “Beer to Go” drive-thru operated by our staff, complete with online ordering, and with all proceeds going to pay staff. Initially unsure whether this would be successful, we were overwhelmed by the response we got from our friends and fans. We ran the shop from Friday to Sunday and over that weekend we raised enough money to give our staff a good severance pay. At that point, we let almost all staff go and decided to keep running the drive-thru operation, but with proceeds going to the brewery. We agreed with the remaining staff to take it day-by-day, and after one day (coincident with the “Stay Home, Work Safe” order), we agreed to shut it down.

This was a difficult decision, as we had inventory to sell and the SHWS order did not bar us from doing so. In fact, it seems like pretty much every other business has continued operating their drive thru (and I don’t blame them at all). However, Kathryn and I had personally stopped venturing out, thus we certainly did not feel right compelling our two employees to continue coming to work. But even our boots on the ground had grown a bit weary, with our right-hand-man, Jorge, agreeing that now would be a good time to close.

So, we’re in hibernation at the moment. Our revenues have gone to zero, so we’ve done everything we can to drive our expenses as close to zero as possible. We’ve stopped brewing; we’re gradually transferring everything into our serving tanks, leaving our fermenters clean and without need for power; the grain we have on hand will keep for months, except the flaked oats, which we gave to a nearby brewery who is still operating. 

Our employees have all been furloughed – laid off with the intention of hiring them back as soon as we can. This was by far the hardest thing we’ve had to do since we started this company, and yet I know it was more difficult for the staff, some of whom had come to depend on the income. However, being able to give a couple weeks’ severance pay (thanks to the drive-thru support) eased our pain, and hopefully theirs, too.

We’ve slashed subscriptions and services everywhere possible. Satellite TV, Spotify, 401K plan, dental insurance, auto insurance, janitorial service, workers comp, Netflix, software packages, and (soon) internet. There was very little deliberation in all of this – every one of these threatens our survival by burning cash, and survival is all that matters. We also switched our health care from a traditional insurer to a cost-sharing plan, cutting our monthly health care cost by more than 50%. (This subject will get its own essay in due course.) 

Perhaps some of these changes will stick even if we do survive. We’ll need internet, of course, but do we really need dental insurance? That 401K plan was fun when we rolled it out, but most of our employees weren’t using it and it required significant fixed cost and administrative overhead. Perhaps our business is better off without these, or perhaps we’ll find more efficient solutions when we start back up? This is the beautiful process of creative destruction, in this case brought about by a very ugly disaster. As a forest fire clears the dead brush to strengthen the ecosystem, an economic recession clears bad investments, bad loans, and bad companies to strengthen the economy in the long-run. That is, unless our government attempts to counteract this tendency with a host of bailouts. But I digress.

We’ve had a lot of bills come due – supplies purchased in the last 6 weeks, credit card balances, sales tax collected in February (due March 21), and we’ve settled them up. Beyond that, the only expenses we’ll continue to incur while shut down are utilities and rent. With zero revenue, we can only pay these expenses for a finite amount of time. To extend this survival period, we’re doing some limited sales – a few accounts are still operating to-go shops and buying our draught beer, and this week we will experiment with a one-day-per-week in-town delivery program.

We’re fortunate that we have zero debt. Debt service payments, like rent, are a brutally rigid expense: they are incurred every month, no matter what. Debt amplifies a company’s cash burn rate during a time of shutdown – just one or two weeks of shutdown is doom for a highly leveraged company (and, in turn, the company’s lender or landlord). Debt makes companies (and individuals and governments) fragile. Many will use the excuse, “We didn’t see this coming,” pointing out how “unprecedented” this crisis is. They’ll fail to comprehend that the problem wasn’t just the particular crisis, but the fact that they lacked the ability to sustain any disruption – their business was living from paycheck to paycheck. And in 3, or 5, or 10 years from now we will have another unprecedented crisis that will threaten the same fragile entities clamoring for (and receiving) bailouts from helpless taxpayers.

That bit of commentary was my indulging in COVID Outrage. This temptation has been hard to resist. The way our leaders, our institutions, and many of our fellow citizens have managed and reacted to the public health crisis and the resulting economic crisis provide endless fodder for contemplation, reaction, and commentary, all when we’ve got more time to participate. Though not nearly as deadly as COVID itself, I’m convinced COVID Outrage is a virus, too. In an effort to resist it, Kathryn and I are both attempting to limit our internet and social media surfing to two times per day, which means we’re only doing it four or five times per day.

We’re also trying not to worry much about the future of our business. There is so much uncertainty that contemplating the possible futures for Holler Brewing Co can be depressing. What if this shutdown continues until October? What if people don’t want draught beer for the next 12 months? What if the resulting economic downturn crushes our business? What if we can’t get our employees back? What if we, or our loved ones, should become critically ill? 

Of all these questions, the last one is far more important to me. We worked so hard, and sacrificed so much, to build our little brewery and we cherish it, and cherish the relationships that it has with the community. We opened our doors three and a half years ago, and at that time we could not imagine having to lose the brewery. However, in a time like this, we’ve taken stock in what’s most important to us: As long as I’ve got my family, I feel lucky. We will do what we can to preserve the brewery through this, but life could still go on without it.