Nearly nine months after announcing plans for a new $12 million brewery and taproom in Philadelphia, the founders of Everett, Massachusetts-headquartered Night Shift Brewing today announced that they have reached an agreement with their landlord to terminate the lease on the 130,000 sq. ft. facility.
In an update posted to Night Shift’s website, co-founders Rob Burns, Mike O’Mara and Michael Oxton cited the economic downturn caused by the COVID-19 pandemic as the reason for scuttling what was planned to be the company’s “second ‘forever home.’”“The COVID-19 pandemic shook our business to the core, and obviously almost everything outside of it,” they wrote. “We’re lucky that we’re still in operation and able to see ourselves coming out of this crisis intact. But pushing forward on our Philly project has become too dangerous, threatening a potential collapse of NSB if we don’t pull the plug now. So, hard as it is, that’s what we’re doing.”
Night Shift had pushed forward with the Philadelphia project in the early part of 2020, the company’s founders wrote, with construction drawings for Phase 1 finalized in February, and financing approved by Eastern Bank. However, those plans changed due to the novel coronavirus outbreak in the U.S., leading the company’s founders to reach an agreement with their landlord, Alliance Partners, HSP LLC, to terminate the lease, effective May 5.
“To go from house-hunting in Philly over the 2019 holidays, to almost kick-starting construction in February, to an abrupt end of the project in April has been an emotional whirlwind and completely deflating,” the company’s founders wrote. “That said, we are resilient and scrappy, and have always found a way to make our dreams a reality. In the short-term, that means our independent, family-owned business needs to focus on core operations to weather this crisis. In the long-term, we hope this means we’ll be in a better position than ever to revisit our vision for Philly.”
In a conversation with Brewbound on Wednesday, Burns said Night Shift’s founders discussed potentially pushing back the project but when it became clear that there was no end in sight to the COVID-19 outbreak in the U.S., the project had to be shelved.
“If we go forward with this as planned, this could potentially be the nail in the coffin for the Night Shift company,” he explained. “Let’s not risk it all with our kind of blind entrepreneur optimism. Let’s hit pause and if things go according to plan, maybe we can come back and revisit it.”
Before the pandemic, Burns said the company had viewed the project as a “safe bet,” given its current need for extra brewing capacity, which is currently being filled at Rhode Island’s Isle Brewers Guild. In the proposed Philadelphia facility, Night Shift had planned to install a 100-barrel brewhouse, which would have provided an additional 30,000 barrels of capacity up front, and 200,000 barrels over time. The company had set a goal of opening the new facility by the end of 2020, but COVID-19 created too much instability.
“There’s just too many unknowns at this point to have that same level of confidence,” Burns said.
Oxton added that COVID-19 has presented Night Shift with a “survival crisis,” much like it has many other small and independent craft brewing companies and small businesses.
“When that happened, I think it was a shift from how do we salvage Philly, to how do we salvage Night Shift?” he said. “And then it’s just like, OK, cut anything that’s putting Night Shift at risk, and unfortunately, this huge project was one of the biggest things that could potentially threaten our overall survival.”
As of today, Burns said Night Shift is on solid footing, as long as current business conditions do not worsen.
“We’ve cut to a point where we’re sustainable,” he said for at least the next 12 months. “I think we could exist, but not necessarily thrive.”
In mid-March, Night Shift announced that it would not lay off employees but would instead institute a furlough program for every department to reduce “workload/pay for many,” but also to enable its staff to file for unemployment. The company’s founders also said they would forgo their salaries during the crisis.
Night Shift has also taken advantage of opportunities as they’ve presented themselves, such as applying for and receiving Paycheck Protection Program funding from the federal government, offering home delivery, fire-selling merchandise at 50% off.
Since Night Shift’s founding in 2012, the company’s volume has known nothing but double-digit growth. In 2019, the company produced a little more than 39,000 barrels of product, up from 30,700 barrels in 2018 and 18,947 in 2017, according to the Brewers Association. Burns said Night Shift was projecting another 10,000 barrels of growth in 2020, and the potential exists to still hit that target, although it’s still too early to predict given the unstable market conditions.
To support this growth, Night Shift has increased capacity at its Everett brewery late last fall by upgrading its 20-barrels brewhouse to a 60-barrel brewhouse. In late 2018, the company opened a second taproom in Boston with a 10-barrel brewhouse, however that facility has been closed due to the on-premise shutdown.
On-premise sales had accounted for about 30% of Night Shift’s business in Massachusetts, but Burns said the company has been able to make up for those losses by increasing sales in off-premise retailers thus far.
“Year-to-date in Massachusetts, we’re up just about double digits, even [after] losing that volume so we’re fortunate in that case,” he said, although the loss of taproom margins have left the company growing but “not necessarily as profitable as” it was three months ago.
Night Shift hasn’t completely shut the door on Philadelphia. Although today’s news is fresh, Burns and Oxton said they’d revisit it in a couple of years should economic conditions improve.
“We don’t know what next week looks like, let alone two years from now look like, so it’s still hard to predict but we still have a capacity problem to solve,” Burns said. “We can’t make it up here in our own facilities and we got to figure out how to do it, and we still believe that the Philadelphia market would be a strong one and makes a lot of sense for a number of reasons for our business. I think it’s now just about when and where and adjust to the scope or starting smaller or looking at a different way to get it done. Or just starting with distribution down there is something that I’m not actually planting on a physical location in the state.”
Night Shift’s distribution footprint includes Massachusetts, Maine, New York and New Hampshire, which it added in January. With the Philadelphia brewery, it would have been able to supply beer to Pennsylvania, New Jersey and potentially more Mid-Atlantic states.