Brewbound Podcast: A Rough Week For Acquired Craft Brands, Plus, How PPP Funds Helped Breweries

[00:00:00] Jessica Infante: A rough week for acquired craft brands, a new owner for House Beer, and how all that PPP money helped craft breweries, next on the Brewbound podcast. Hello and welcome to the Brewbound podcast. My name is Justin Kendall and I am the editor of Brewbound and I am joined by Jessica Infante, the managing editor of Brewbound. What's up, Jess? Not a whole lot. How are you? Welcome back. Thank you. Rolling in five days off, I think at this point. Also joining us is Zoe Licata, Brewbound reporter extraordinaire. What's up, Zoe?

[00:00:43] Zoe Licata: Hello, hello. How's it going?

[00:00:46] Jessica Infante: Good to see you again. It's been a while like this is the first time I think I've taken off and I like might have messaged you all once.

[00:00:55] Zoe Licata: Yes, but I did catch you sending some emails and things to our task list on Asana. So you got like a B minus for spending time away from work.

[00:01:07] Justin Kendall: I think you texted us on one occasion. You also sent us Twitter DMs. So yeah. Borderline C plus.

[00:01:15] Jessica Infante: We'll get into the reasons why, because there are reasons why.

[00:01:20] Justin Kendall: But you did good. Marked signs of improvement over the last time you were out. So nice work.

[00:01:26] Jessica Infante: I tried and believe me, like when you have a 14 month old on an airplane, there is no getting your laptop out. There's no ability to do any work on a plane. So that was out the window.

[00:01:41] Zoe Licata: So thank you, Sophie.

[00:01:43] Jessica Infante: I will never, ever fly with a child late at night again. It's the last hour to 20 minutes that always gets you, apparently.

[00:01:53] Justin Kendall: I mean, that's my least favorite part of a play, too. So I don't blame her.

[00:01:56] Jessica Infante: The happy song didn't work. Elmo didn't work. Yeah. Anyway, bad parenting podcast. This is not. So let's get into some of our stuff for this week. Our featured guest is Aaron Staples, a Ph.D. candidate in agriculture. food and resource economics at Michigan State University. He has extensively researched the PPP program's effect on craft beer. You set this up, Jess. We're going to talk a lot about how this Paycheck Protection program helped out craft breweries during the pandemic.

[00:02:31] Justin Kendall: Yeah, yeah, really enjoyed our chat with Aaron. He's super smart. He understands this really well. And it sounds like it did help. I mean, you can hear him tell you all about it in a couple minutes, but I'm glad we chatted with him.

[00:02:46] Jessica Infante: Yep. And we are going to be on the Brad Avery, very soon. We'll be at the California Craft Brewers Association Summit in Sacramento next month, March 20th through the 22nd. Jess, Zoe, and I will be in person looking for us on the expo floor at the Brewbound Studio. We'll record some podcasts there. We'll just be talking to folks. I'll be on stage at one point. and we'll be hitting the various parties during that event. So come find us there. And we've also got a BrewTalks event coming up in Nashville during the Craft Brewers Conference. on that. We'll be at Nashville Underground on May 7th from 2 to 6 p.m. So basically the afternoon before the whole thing really gets rolling. We've got Sam Calagione from Dogfish Head. We've got Bill Shufelt from Athletic Brewing. We'll be talking about the dichotomy between low and no alcohol products and the higher ABV offerings. All those products are driving growth and craft now. We'll talk about that and, you know, what do you do if you're in the middle? That'll be one of the conversations. We're putting together another conversation. We'll have more panelists announced very soon, so stay tuned for all of that. And finally, last plug, if you like what you're hearing now, please like, rate, and review this podcast. Subscribe so you get all the episodes. So let's get into this week's news. And one of the reasons why it's hard to step away from this job sometimes is You got news hitting and you're trying to get to the airport on time and all of a sudden, Anheuser-Busch decides to shut down operations of Platform Beer Company in Ohio. All the tap rooms are closed. They are still producing three of the beers, but that's it.

[00:04:43] Justin Kendall: Yeah, this Story Broke Last Week platform is the newest addition to A.B. 's Brewers Collective. Came, was acquired in summer-ish 2019, just before A.B. finished acquiring the rest of the Craft Brew Alliance that it did not own. So not a whole lot of time in the A.B. family compared to other brands like, you know, say Goose Island, for example. But, you know, they've had some issues with their Ohio-based tap rooms. There was a staff walkout, what, a year or two ago? Zoe, I know you dug into that history for this story. What was the story there?

[00:05:19] Zoe Licata: Yes, there was a staff walkout two years ago over basically reactions to how they handled the COVID-19 pandemic and staff safety and also compensation. And Cape or Not from Good Bear Hunting did a little bit more details on this and looked in and they still never reopened after that. So that location and another one of the locations just have been shut down for the past couple of years. cutting their own premise presence and ask effectively.

[00:05:51] Justin Kendall: So now they're shutting down their their main brewery and tap room. Living on is three different IPAs, I believe. Yep. I assume just in the local-ish market in the Ohio area. And Platform Beer grew to the same size as the other brands in the Brewer'Brewers Collective. The most recent year for which we have BA data, they brewed 22,500 barrels. Compared to some of their siblings who are making several hundreds of thousands of barrels, that's not a whole lot. You never like to see anybody go out of business, but you got to think about if you're AB, maybe this is something that you need to do.

[00:06:30] Jessica Infante: As you said, this is the smallest of the Brewer'Brewers Collective breweries, not including the CBA brands that were acquired. And are they a victim of timing? So acquired in 2019, pandemic in 2020, that undoubtedly, as you know, we're going to have a PPP talk here in a little bit. You can't discount that that had an effect here. But, you know, were they ever going to rise to the level of a goose and a lesion, you know, whatever. I kind of want to rewind when they were acquired, some of the things that their owners or founders said. I want to get to those because not to sort of pin this on them as like, well, you said this and this happened, more so of, you said this and, you know, it shows what the hope was at the time that they were acquired, what they actually thought they were getting into. And the first quote is from Paul Benner. And he said, in speaking with the other craft brewery founders and Brewers Collective, We know partnering with Anheuser-Busch means we will have the resources and the autonomy to bring our vision for Platform Beer Company to life. Being able to continue leading the day-to-day operations was an important factor in our decision, and we have no doubt that this partnership will benefit our loyal staff and passionate customer base. And here we are in 2023 and, you know, we have the benefit of hindsight and we can say whatever we want now, you know, but you can see where they thought this was going, that they thought they were going to have the resources that they were thought that they were going to have a lot more help. And I guess it didn't materialize for them.

[00:08:14] Justin Kendall: Yeah, well, all those hopes, dreams and wishes you could reasonably expect to come true between, I don't know, 2012 and 2017. And things started to change after that, you know, consumers' drinking habits changed, where they wanted to drink changed. You know, we really saw taprooms boom and take off and you don't need a big corporate overlord to run a successful taproom. So the model back then would have worked. I can totally see why he would think like, cause you know, like one of my biggest pet peeves is when, you know, a brewery sells and then everybody goes like, well, it sucks now. And it's like, that, that is not true. Having a big parent company with deep pockets gives you things that you could never dream of before, like extensive quality assurance, lab work, all of that. That just means the beer will be of higher quality. And that's a conversation we don't have to get into right now.

[00:09:07] Jessica Infante: No, but I totally agree with you. And anyone could see it when they went to these breweries that were acquired like 10 Barrel. I visited 10 Barrel and they were putting in, I mean, it was a major factory basically at that point. And the investments that they were putting into the company were huge. And you know that they did it down the line, whether it was Elysian or whoever else. to sort of build these out. I mean, Goose has a new tap room coming online. So they're still making investments there. This isn't to say like Anheuser-Busch is done with craft. They're clearly not. You and I had the conversation with their leadership team. They're just more focused in what they're putting their resources behind. And this gets to the second half of this story is You all heard about it. I was getting texts about it. There were layoffs at other craft breweries in the Brewers Collective. This isn't just a platform thing.

[00:10:01] Justin Kendall: Yeah. And I mean, we can get into that. But the thing that really kind of struck me the most from what we heard, I'm sure you heard from multiple people that local sales reps for Goose Island's Chicago team have been cut because, you know, the general broader AB sales team is going to sell the brand. And that to me shows where AB's goals and priorities are going. Because selling a portfolio of brands, I have never had to do myself, but I think it's probably pretty difficult. But you know, when you're selling a bunch of things, the focus gets split. So what I think was probably you know, probably a quaint idea to think that they would keep this whole sales and marketing team for Goose Island in Chicago intact. Knowing the way that you have to run a gigantic, publicly traded, globally owned company, those two things don't align, you know? So we've heard of cuts at Devil's Backbone, Wicked Weed. We know of cuts at Blue Point and Carbock, and I'm sure other brands had the same thing. It's just been hard to get any kind of official comment on this, but I do trust the people that we've been hearing this information from.

[00:11:15] Jessica Infante: Yeah, same here. You know, when you look at this scenario, it is not unlike what we have seen in recent times. Peepco USA has done essentially the same thing that Anheuser-Busch did to Platform. They're only making Magic Hat number nine. That's it. Yeah, no other brands. And they're producing it, I believe, at the Genesee Brewery or or one of their major production facilities. I'm sorry, I can't remember. No, you're right. But they ended up closing the tap room in Vermont. That's now a zero gravity place.

[00:11:50] Justin Kendall: Great hermit crabbing.

[00:11:51] Jessica Infante: Yes. And then, you know, Molson Coors went a little further with St. Archer. They shut down the whole thing. They have put the St. Archer brand in hibernation probably forever until, you know, somebody buys that intellectual property. I'm sure, you know, they probably would sell it for the right price. And that sort of leads to the next question of, you know, a couple of questions, actually. What does this mean for the remaining Brewer'Brewers Collective breweries? And there are, what, 20 of them? I don't think anybody in that 20 probably feels overly confident about their position unless you're I don't know if anybody does. I don't know that anybody could, other than maybe the Kona brand, because that's clearly a focal point. And maybe behind that, Goose, Elysian, Shauna Golden Road, just to name a few off the top of my head. If I were any of those brands, I'd probably feel a little bit more comfortable. Obviously, Kona, since it's not tied to anything, that's a lot easier. It's already living that life outside of Hawaii. Overall, you know, I think it raises the question of, you know, for acquired craft, what it means as these large manufacturers look to focus on these scale volume brands, you know, look beyond craft beer to ready to drink products. They have to focus on only so much. And what are your priorities?

[00:13:23] Justin Kendall: Right. When A.B. came into having a total of 20 craft brands, we have to consider the time when all these acquisitions were made. Craft was just going up and up and up. And having all of these brands across the country really gave A.B. this wide portfolio that had a product for almost every need. If you wanted a retailer, I mean, nobody would do this, but you could reasonably say as a retailer, this is all that you need. You just have one rep from one wholesaler and one brewery person calling on you, and you've got everything covered from premium lights to premium regulars to economy brands to super premium in McUltra to some imports in Stella, like to whatever your local craft is, because the AB Brewers Collective is coast to coast. And when all of those craft brands are, I don't want to call them bloat, that's not right, but there are just so many of them. And now that Craftstar has seriously dimmed, or at least completely morphed into something entirely different than it was when the acquisitions happened, you don't quite need them all anymore, or you don't need to put them up on the pedestal that you had them on before.

[00:14:39] Jessica Infante: That's well said. It really sucks for the workers who are getting cut. This is the absolute worst case scenario that could happen for a founder who loves their brand to see it basically whittled down to this. I mean, I guess maybe not the worst case scenario. It's second to worst case scenario. It could be St. Archer.

[00:14:59] Justin Kendall: Right. Yeah, I would be really interested to know what founders think about this, because is there something in the back of your head that goes, well, if I had just held on, maybe I could do things differently. And like, we've seen this happen with like Lynn Weaver, who bought back three Weavers.

[00:15:14] Zoe Licata: We're also seeing some of those smaller breweries, those starting to find ways to be a part of some sort of larger portfolio, like that is how they have to survive right now. So it's kind of like, no matter if you chose it earlier or you're choosing it now, it might be unavoidable.

[00:15:37] Jessica Infante: Let's get to a brand that has been resurrected, and that'House Beer. And you both hit the story earlier this week.

[00:15:47] Zoe Licata: Yeah. And interesting segues a little bit because House Beer is kind of focused on one thing. The House Beer kind of disappeared last year without a lot of fanfare around it. It had launched as this company that was mainly focused on the on-premise. And of course, COVID-19 hurt that a lot. California-based brewery. And so they shut down production in early 2022. And we didn't really hear much about it. And they just announced yesterday that they have come back to life under new ownership. An interesting new ownership. Motocross star Carrie Hart, who is also Pink's husband, plans on acquiring the brand. We don't really know too many details about the deal or how much ownership stake you will have and all those juicy bits, but It's coming back. It will be going into production through Contract Brewing starting tomorrow, essentially, as it starts in March. Then they're refocusing on Southern California and being a real local craft brand with one SKU. It's a weird approach, I think, a little bit compared to what other people have been doing right now, where they're kind of really saying, this is our one thing and we're going to be this and be super localized. It might be effective considering that we're seeing a lot of people starting to trim down their portfolios and starting to possibly trim down some of their distribution if they need to. But yeah, overall, just a very different brand.

[00:17:25] Jessica Infante: And this is sort of back to the roots of what House Beer was when it started. It was one skew. It was a premium craft lager. They were going for the Pabst market and they were trying to be what I think Montucky essentially became. What a great call.

[00:17:42] Zoe Licata: Yeah, and they had just dove into some of the old press releases that we had gotten from them before, and they had tried to expand their portfolio a little bit in 2021. They'd gotten into like Rattlers and things to, I assume, try to get on some of the off-premise business that was kind of what people needed to get into. but it didn't work out or wasn't enough to save them. So they backtracked and they're saying, you know, this is the one beer that we're focusing on that we're known for and can sustain us. So we're going to focus on that.

[00:18:15] Justin Kendall: Yeah. They also expanded into a couple like random seeming markets. Like we had a bunch of press releases in 2017 when they opened New York, Idaho, and Florida. I get the Radler thing because I mean, the base of the Radler is the lager. That's pretty smart. You're already making that. Just add some fruit and you're good. But it'll be interesting to see what happens this go around. They sign with Scout in Southern California, which makes a lot of sense. So we'll see. I mean, the only thing that I do think of that concerns me a little bit is when you only have one brand and they do a few different package sizes. So that could make a difference. But you know, when you only have one brand, you're not going to get a ton of shelf space. So you might get lost. You do need a couple of facings to really grab consumers' eyes right away. But, you know, they've got a couple of different things going on. Cans, some bottles. So.

[00:19:09] Platform Beer: Stubby bottles.

[00:19:10] Justin Kendall: I love stubby bottles.

[00:19:12] Zoe Licata: They seem to be really leaning into their new owner now too. I mean, just looking at their website as in the past 24 hours, they've added a new like meet Carrie Hart page kind of emphasizing who he is. And it's all over their Instagram has been kind of teasers to collaborating with him. And we've seen some brands have been successful in kind of having this already known face. of a brand to help promote it and get more eyes on it.

[00:19:38] Justin Kendall: So I liked how you did not mention that Carrie Hart is Mr. Pink until like halfway through the story. I feel like he probably appreciated that.

[00:19:46] Zoe Licata: I know I would like I try to look out for that on the other the other way around. So yeah, I gave him the courtesy as well.

[00:19:54] Jessica Infante: It's so nice.

[00:19:54] Zoe Licata: Very kind.

[00:19:55] Jessica Infante: Yes, we are not defined by our spouses. And they probably prefer it that way, too. So last thing for this week, Molson Coors shaking up its U.S. business. They have a new America's business unit. I guess they're folding everything into, well, tell me what they're doing, because I know what they're doing, but they're doing something that does, you know, just basically elevated Michelle St. Jock's and

[00:20:25] Justin Kendall: Yeah, so they've created a commercialization division, which is basically going to be like the union of sales, distribution, marketing, innovation, and then their other emerging products, like their non-offerings and their spirits-based stuff. All of those are going to live under Michelle, who is being promoted from CMO to CCO, Chief Commercial Officer. to backfill Michelle's CMO role there promoting Sophia Colucci, who, you know, we first met as their VP of innovation for North America and was then promoted to lead the Miller brand and economy brands. Sophia is now going to be the CMO of the whole company. One thing that does happen here is that the Emerging Growth Division, which was led by Pete Marino, who was the president of that division, he'll be leaving the company. And Pete's been there a long, long time. Before taking on Emerging Brands, he was the leader of Tenth & Blake, which is their craft division. Interestingly, Tenth & Blake is gonna report up to Brian Farrow, who is the US president of sales and distributor operations. They say that the creation of this new commercial division is supposed to help keep the shit not confusing. It's supposed to help them make faster decisions. We'll see what happens. I mean, it was a complicated story just to understand because so much is happening, but ultimately I think it makes sense. Yeah, I think this will help them get their innovation stuff up to scale a lot faster. Something that really comes into play here is something that the three of us don't really talk about, but our compatriots on the BevNET side of things do, is the relationship with LA Libations, which is a non-ALK beverage incubator that has created things like ZOA, which is the rocks energy drink. Things like that are at play here. You know, stuff like Topo Chico Spirited, which is rolling out any day. The spirits based version of Topo Chico hard seltzer.

[00:22:23] Jessica Infante: So, yeah, I think with LA Libations, they essentially have right of first refusal on some of those brands. That's my understanding of it. That might be not completely correct, but I think that's essentially how that relationship works. It's funny how they frame this. I guess, you know, they didn't call it a reorganization, although it's certainly a reshuffling of the deck. And as your story points out, Michelle St. Jock's really drove the Super Bowl campaign for Molson Coors.

[00:22:56] Zoe Licata: Michelle was one of the speakers at the Alliance Room in a Beer event that I went to in October. And there was a lot of Molson Coors people there. And the continuous message, it was like the underlining theme of that whole event was how Michelle had kind of given new life to Molson Coors and their whole strategy. And I mean, she's moved up there pretty quickly. She started in 2019 and now like four years later is taking this new role. So it seems to be in line with Wilson Court's whole strategy of the past few years of just trying to freshen things up a little bit and kind of mix up the traditional way of doing things.

[00:23:36] Justin Kendall: Yeah, Michelle, in her time since joining the company, has led major campaigns for their biggest two brands, Coors Light and Miller Light, that have really, I think, are delivering some results for those brands at retail. But they've also launched some major really successful innovation products like Topo Chico and Simply Spike Lemonade. So, you know, she's been able to breathe life into the old guard and also create some new stuff that's worked out really well for them. So I think this makes a lot of sense. We've got a quote from Gavin Hattersley, the CEO, from a memo that went out to distributors that we received a copy of that I think should probably put a point on everything that I inarticulately try to express about this new division. But Gavin says, quote, this new function will unify multiple teams and geographies around a single strategy, driving clear total portfolio and geographic prioritization and allowing us to more quickly scale new white spaces, brands, and capabilities across the entire region, which is a lot of marketing buzzwords that's basically saying we're going to be able to build shit faster and get it out to you quicker.

[00:24:43] Jessica Infante: I like yours better.

[00:24:45] Zoe Licata: Thank you. It leads back to what they were talking about during their earnings call was that last week about simply spike to about how that the demand for simply spike was so much bigger than they thought. And they just didn't have the infrastructure to build it out as quickly as they could have and take full advantage of it. So now moving forward with this, they can do that not only for that existing innovation, but for anything in the future.

[00:25:08] Justin Kendall: So P Marino is moving on. He's been there a long time. Started as a marketing comms manager in 98 to 2000, bounced around two different things, came back in 2012 and he's been there ever since. So, uh, really shaped that company's craft strategy to be sure.

[00:25:23] Platform Beer: Yeah.

[00:25:25] Justin Kendall: Not sure where he's going. They hinted at some entrepreneurial endeavors. So best of luck to Mr. Marino.

[00:25:32] Jessica Infante: I mean, he's worked closely with L.A. Libations for some time. So, you know, he's definitely got his finger on the pulse of what they're doing. And, you know, probably a lot of entrepreneurs and I'm sure he's had a lot of contact with folks contacting him, just gauging interest. So maybe some of that interest ended up being like, I'm interested in this. Who knows? Best of luck to him.

[00:25:57] Justin Kendall: Best of luck to him. And to circle all the way back to the first conversation we had, a lot of talented craft beer professionals on the job market right now. So if you're looking to hire or you're looking for a job, we got a bunch of jobs at Brewbound.com, but interesting times to be sure.

[00:26:14] Jessica Infante: I do love a good plug for the job board.

[00:26:17] Justin Kendall: You know what? The job board needs love.

[00:26:19] Jessica Infante: It does.

[00:26:20] Justin Kendall: I hear from people all the time how much they love our job board. So there you go.

[00:26:25] Jessica Infante: Hit it up. And with that, we'll get to our featured interview with Aaron Staples on the use of Paycheck Protection Program money for craft breweries.

[00:26:36] Justin Kendall: Joining us this week is Aaron Staples, a PhD candidate in Agricultural Food and Resource Economics at Michigan State University, which sounds academically challenging and very rigorous. So Aaron clearly must be very smart. But Aaron has extensively researched the PPP's effect on the craft beer industry. Welcome, Aaron. How are you today?

[00:26:55] Platform Beer: I'm doing great, thank you for having me.

[00:26:58] Justin Kendall: Yeah, thanks for being here. Before we dive in, let's just give the listeners a quick refresher on the Paycheck Protection Program for anybody who may have memory hold it, because it was something that caused a lot of anxiety among a lot of people, but particularly I know the craft beer industry. So real quick, the PPP came through in the early days of the pandemic as part of the CARES Act, which was a $2.2 trillion relief package that went into effect in late March of 2020. So it was in response to the economy grinding to a halt amid stay-home orders to stop the spread. It was designed in part to help small businesses keep their employees paid while state-run unemployment insurance systems buckled under the pressure of mass applications. The CARES Act did a whole lot more that was very far reaching, but today we're talking about PPP specifically. And it did a lot more than help keep workers paid because businesses could use the funds they received to also pay rent, utilities, mortgage interest, and interest on debts. And there's a much larger conversation that we could have had about alleged abuse and fraud, but today we're going to zero in on how Kraft Brewers used the program. $1.06 billion went to craft breweries of the $790 billion of the PPP, which was put out over several rounds of funding. So we'll get all into the specifics, but from like a 30,000 foot view, Aaron, was the PPP effective in helping craft breweries?

[00:28:27] Platform Beer: Great overview of the PPP. We do see some evidence that the PPP did alleviate some of those early economic pressures of COVID-19 for craft brewers. Specifically within our study, we're looking at the probability of survival through July of 2021, as well as year-over-year production in terms of total beer produced in 2019. in 2020. And what we see is that breweries that received one of these PPP loans was more likely to survive through July of 2021 and then experience a smaller decline in year-over-year production from 2019 to 2020. Meaning that while all craft breweries or most craft breweries did see a fall off in craft beer production from 2019 to 2020, those that received one of these loans experienced a smaller decline.

[00:29:19] Justin Kendall: Well, Aaron, it sounds like you have really studied this super, super closely, but what made you want to pick craft beer for this project?

[00:29:27] Platform Beer: There were three key reasons behind choosing craft beer. The first was the overall growth of the industry over the past decade, going from an industry of 1,500 producers to close to 9,000. Over a 10-year frame is somewhat surprising, but shows that significant growth. So craft brewers were performing pretty well. The industry as a whole was growing. makes for a nice case study to evaluate, especially since all of these businesses were eligible to receive this PPP funding. The second and probably the most important or most central reason why we chose the craft beer industry was just what the shock of COVID did to food away from home. So craft beer, if you can think about that as just one segment of food away from home, food away from home meaning restaurants, bars, etc. So the USDA, the Department of Ag Economic Research Service, suggest that from February to April of 2020, expenditures in food away from home settings fell 47%. This coincided with a massive spike in unemployment in food and drinking places. So the service setting saw a substantial rise in unemployment, spiking at 35% in April of 2020. One of those industries that particularly hard was craft brewers relying very heavily on on-premise consumption. which got into kind of that third reason why we chose to study the industry was the Brewers Association did some early survey work. Roughly 900 craft brewers responded to a survey that suggested the industry was expecting to see large scale layoffs, large scale closures, halting or completely stopping their production lines. So we knew that there was this tension rising within the industry as kind of a bonus reason to study the industry was just an industry relationship with Bart Watson. So I reached out to Bart, the chief economist at the Brewers Association, kind of outlined what our idea for this project was, seeing if the Brewers Association would be willing to provide some data for us in terms of the universe of craft breweries, how much beer they produce, et cetera. And Bart and the entire Peruse Association was extremely helpful and supportive of this project, so I just want to quickly take a second to thank them for all their support.

[00:31:59] Zoe Licata: We love Bart. Bart is always super helpful with the numbers.

[00:32:03] Platform Beer: Yeah, he's been a great resource.

[00:32:06] Zoe Licata: I don't know how we can calculate it. And there's still breweries that may be dealing with like, did they receive PPP funding or not? But is there a way to see or know like what the craft beer industry would look like without that PPP funding?

[00:32:20] Platform Beer: That's a great question and ultimately like one that's, like you said, just so tough to evaluate because it's this alternative state of the universe for what would have happened without the PPP. We try to get around that. So by comparing the breweries that received PPP versus those that did not receive PPP, it's certainly plausible to think that if this program had not existed, more breweries would have closed down or experienced a steeper decline in year over year production. We can't say that with certainty, right? We don't observe that world. But it's definitely plausible, especially with what our results from this study suggest.

[00:32:56] Jessica Infante: I think a lot of people were surprised that the number of craft breweries in that time that closed weren't as high as, you know, some of the early projections. And clearly, PPP funding was a stopgap. EIDL was a stopgap. But, you know, what sense do you have on the number of craft breweries that have closed in that time? And I guess, was that just a stopgap? Are we now starting to see sort of the unraveling of things since there isn't that federal funding available?

[00:33:31] Platform Beer: That's a great question. So I think the Brewers Association reports that about 5% of craft breweries closed in 2020. One kind of limitation to our study here is that we're only able to look at the probability of business survival at one single point in time, so we only observe whether a brewery is open as of July 2021, either yes or no. One of the common responses throughout COVID was If these policies, these government policies are in place that are limiting capacity or completely shutting down in store or in restaurant dining, or if we're just seeing a significant decline in foot traffic based on this risk of the perception of contracting COVID-19. We're just going to close down our doors. We're going to be temporarily closed. We'll open back up maybe in the summer where we can do some outdoor seating or things like that. But that is 1 limitation there where we cannot see how many businesses temporarily close their door throughout. I think the closure rate has subdued since then, so 5% in 2020, it's been lower in the years following. In fact, I think even more craft breweries opened in 2020 than actually closed down their doors, which is a surprising statistic.

[00:34:49] Jessica Infante: That's definitely been a trend that we've seen is the openings have outpaced closures. But in the last couple of years, closures have ticked up in comparison. And I think that we're eventually headed for an equilibrium.

[00:35:04] Platform Beer: Definitely, yeah. And I think I think that's a great point in like a lot of these not necessarily boom bust, but we see that once an industry gains a lot of popularity, a lot of people get into it. And then, like you said, you reach this equilibrium where, hey, maybe we oversaturated at that market with too many producers. We need to kind of bring that back down to that equilibrium.

[00:35:27] Justin Kendall: And your friend and ours, Bart, has always said that we would probably see closings start to tick up regardless of COVID, just because the industry's maturing. And I know you'll see people say things like, well, there's this many wineries. There's no reason why we can't have that many breweries. But I think that is completely ignoring the fact that beer and wine are entirely different products with different routes to market, different shelf lives. Basically, everything about them is pretty different. But that's another conversation for another time. The BA breaks its members into four classes of trade. There's regional breweries who brew more than 15,000 barrels of beer, sold mostly through distribution. Microbreweries who brew fewer than 15,000 barrels, also sold primarily through distribution. Then there's brew pubs who sell most of their beer on site and operate restaurants. And taprooms, which is a somewhat new class to the BA's taxonomy. They sell most of their beer on site, but they don't sell food. So you examined how each of these sectors fared with PPP money and during the pandemic in general. What did you find? How did the factors at play affect all of these four different groups differently?

[00:36:33] Platform Beer: So one of the key research questions that we had was looking at how a business's pre-pandemic business model would impact its flexibility and resiliency through COVID. So the Brewers Association categorization of the four different segments makes for a nice little comparison group. where we can compare how those four different segments vary in their closure rates and year-over-year performance. What we find is that the brew pubs were most likely to close and experience the steepest decline in year-over-year production relative to those other segments, whereas regional brewers might have actually fared a little bit better relative to the other segments in terms of year-over-year production. And that really gets into that exact classification, how you're breaking down the business model of those four different segments. When we think brewpubs, we think about the fact that that business model is centered around the idea of consumers coming into that brewpub, ordering some beers, ordering some food, going about their day. That meant when we got hit with the shock of COVID-19, where all of a sudden we had these policies in place limiting capacity or just consumers decreasing the amount of money they're spending away from home, going out to eat, that really impacted their central business model. You might think a brew pub might not have a canning line on hand, might become very difficult to purchase one in the midst of a pandemic while all brewers were trying to pivot to canning lines. So that really affected their central revenue stream of consumers coming in to drink beer, eat food right on site. And then in terms of the regional brewers, if we're thinking about their business model, Regional brewers don't really depend on on-premise consumption. Less than 5% of sales are coming from on-premise sales. So they have these wide-scale distribution networks in place. They don't rely on people coming in. So those shocks didn't really hit them as heavily. So when we're seeing that consumers were shifting away from on-premise consumption and towards going out to the retail outlet, drinking more at home, that seemed to have benefited the larger regional brewers relative to the other segments. And then also we can think about macro brewers as well.

[00:38:55] Zoe Licata: Those regional breweries, while they don't, they might not necessarily rely on the on-premise as much, they also didn't seem to get as much funding through these federal programs. Was there any explanation you could find for that?

[00:39:07] Platform Beer: Yes, so regional breweries, while they produce the most amount of beer within the industry, they're the largest production threshold, they only represent about 3% of total producers. So when we were looking at the take-up rate, so whether a brewery decided to receive PPP or didn't receive PPP, We see similar rates across the four different segments. The fact that less money is going to the regional breweries is a matter of them only representing 3% of the total number of producers.

[00:39:43] Jessica Infante: Through studying this, is there anything in the outcomes that really surprised you?

[00:39:50] Platform Beer: I think that a lot of what we saw really matched with some of the industry expectations and then seeing some of the annual reports that have followed the fact that brewpubs are closing at higher rates, the idea of those business models. I think one of the more surprising things or one of the factors we haven't really talked much about is the role of loan timing. So with this Paycheck Protection Program, it was this first come, first serve loan program where the earlier you got that application in, the better. So we did want to look at the role of loan timing on year over year performance. So whether you received one of these loans earlier, did you fare better year over year? We look at this structural break in the loan program. Jess was talking earlier about the structure of the Paycheck Protection Program, how it was distributed through a series of loans. There were three separate, we call it tranches. The first tranche of the loan program lasted from April 3rd to April 16th, so only a two-week frame for $349 billion. Two weeks it took to distribute all that fund. It wasn't until a week later where an additional piece of legislation was signed into law that allocated another $285 billion to a second tranche of loan funding. And those loans started to go out a few days later. So there's this nice structural break where there's like a week or so gap where no one receives PPP loans. So we look at breweries on the front end versus the back end of that natural break to see how did year-over-year performance differ between those two groups. And what we see is that if you received it earlier, on average you perform better. So again, getting into that idea that loan timing appears to have played a role in that year-over-year performance. And we can think about the incentive structure that that creates for a brewery. If you have one of these PPP loans, you have an instant incentive to keep workers on payroll. Because if you do, the way the Paycheck Protection Program was structured was it could be forgiven. You didn't necessarily need to pay back this loan as long as you met certain criteria. So if you kept employees on payroll, maintain their compensation levels, this loan could be forgiven, wiped off the books just as one of those stopgaps, like we were saying earlier. But if you have to wait that two week period or a week or two weeks between that national break, then you don't have that incentive. You might say, hey, I've experienced a steep decline in foot traffic to my brewery. I'm not sure when this is going to ease up. Why don't we just temporarily close our operation for a little bit, see once we get PPP on the other end of this. and then we'll revamp our operation. So I think that was maybe not surprising that it might be kind of intuitive to think about why we would expect that, but definitely an interesting thing to explore.

[00:42:56] Jessica Infante: Do you think that there's a sense of like haves and have-nots on those who were able to sort of take advantage of this quickly as opposed to, you know, somebody that may not have the banking relationships or the loans, whatever the relationship would be to get those loans?

[00:43:12] Platform Beer: That's a great point and something that a few different researchers have looked at these equity concerns related to the distribution of these PPP loans. The fact that it might have benefited larger operations relative to smaller operations, benefited businesses that had a pre-existing relationship to a bank. So that's certainly something that is present within this program and researchers like myself need to be cognizant of when we're trying to assess the overall effectiveness of a loan program because we're having this issue where there's a self-selection into receiving these funds. People that might have more resources are saying, oh, I'm going to have this accountant staff, they're going to deal with this banking issue, they're going to get right on top of that. So that first come, first serve nature. appears to have benefited that, and that's a common criticism of the PPP. So there were two main rounds of the loan program, one that happened in 2020, one that happened in 2021. The one in 2021 was a little bit more targeted. Businesses had to demonstrate a reduction in basically revenue of more than 25%. So it tried to target more towards smaller operations and ones that were more impacted, but by then it's already nearly nine months into COVID. So it's a little tougher to evaluate.

[00:44:38] Justin Kendall: Now, you also found that 44% of breweries didn't receive aid, whether that's because they applied and were rejected or didn't apply or whatever. But do you have a sense of what happened to those businesses?

[00:44:49] Platform Beer: Yes. I guess that goes back to where we started with that overarching picture where the breweries that received these loans were more likely to stay in operation, experience a smaller decline in production. If you didn't receive one of these loans, the flip side of that would be that you're more likely to close and you're more likely to see a steeper decline in year-over-year production relative to those that didn't. There could be different reasons why a business decided or why a brewery didn't receive PPP funding. Like you said, it could have been that they applied and were rejected. It could have been that they maybe didn't know about it. It could have been that they just didn't want to have to deal with the governmental loan, the forgiveness criteria. They might have just said, hey, it's best for us to just avoid this loan program altogether. There could be different reasons why those businesses might not want the loan or to receive the loan.

[00:45:47] Jessica Infante: So, you know, when you look at this project and you look at the whole situation with craft breweries and PPP loans, what's your overall conclusion on how this program played out?

[00:46:01] Platform Beer: That's a great question. So I think viewing our single study and seeing what other papers have come out about the PPP, and we're actually working on another follow-up study on the PPP and craft beer, is that we see that a lot of money was thrown into this loan program. Nearly $800 billion was put towards the PPP. And like we had already talked about, there were some of these equity concerns saying it was an expensive program, might not have been the most effective way to spend $800 billion. But we do in this study see this positive relationship between receiving one of these PPP loans and your overall small business performance, the fact that you are more likely to remain in operation, experience a smaller decline in production. So while some studies have suggested that Again, it was an expensive program. We're seeing some, at least it appears to achieve some of its desired objectives of helping out the small business, mitigate some of those early economic turmoil. And now in this follow-up study, we're trying to look at some employment effects. So basically this PPP was an employment package. It could be used for other things, but that was really the central driver was unemployment rates are skyrocketing in food and beverage service industries. We really need to keep workers on payroll, keep unemployment rates a little bit lower. So we want to try to directly assess some employment effects. So once you receive one of these loans, were you more likely to keep your workers on payroll? So did it achieve its objective that way? We're still working through those studies, but we're seeing some positive impacts there as well.

[00:47:47] Justin Kendall: Awesome. And Aaron, you're going to be done with your program in the spring. I look forward to being able to call you Dr. Staples, but how much do you expect craft beer to be in your future? Is this something you want to keep studying?

[00:47:58] Platform Beer: Please just keep calling me Aaron. No need for the doctor. Yeah, craft beer is still going to be a fair chunk of my research portfolio. So I have developed some good relations within the industry. I look forward to continuing those relations. I'm going to be down in Tennessee after this program. So if you're a brewery, winery, cidery, distillery in the Tennessee area, I would love to hear from you and get to know you and think about some interesting research topics we could explore. We'll see you at CBC.

[00:48:30] Zoe Licata: Yeah. Graf Verus conference, Nashville, Tennessee this year.

[00:48:34] Platform Beer: Yeah.

[00:48:35] Justin Kendall: So where can people find you if they want to learn more?

[00:48:38] Platform Beer: Sure, so I'm on Twitter at Aaron J. Staples. LinkedIn, same thing. My email is staple71 at msu.edu if you want to reach out that way. My website is also Aaron Staples.

[00:48:59] Justin Kendall: Perfect. Well, Aaron, thank you so much for joining us. We know how busy you are, so we really appreciate the time.

[00:49:04] Jessica Infante: Yeah, thank you for having me. It's been a pleasure. And that's our show for this week. Thanks to our one man audio team, Joe. Thanks to Jess and Zoe for holding it down here. And thanks to all of you for listening. We'll be back next week.