COVID-19 Virus (Quelle: Fusion Medical Animation on Unsplash)
02 April 2020

Coronavirus carnage

Corona crisis | Covid-19 took just weeks to overwhelm the world and grind commerce to a halt. No one knows if the lockdown-triggered recession will be short-lived or sustained. But brewers already see mayhem.

Take AB-InBev, the world’s number one brewer. It has witnessed nearly half of its value being wiped out since the beginning of this year (until 27 March 2020): its share price has declined by over 40 percent. Heineken and Carlsberg’s have suffered too, yet far less. Heineken’s stock is down in the mid-20 percent, Carlsberg’s in the mid-30 percent. That AB-InBev’s stock took more of a beating than its rivals’ was to be expected: market leaders, not least global mones, are always the first in the firing line.   

On 24 March, AB-InBev issued a profit warning, saying that it was scrapping its 2020 outlook altogether. In plain English, it does not know how the year will pan out. It also rushed to draw down its USD 9 billion revolving credit with its banks.

For its part, Heineken on 25 March issued EUR 1.4 billion of notes, after Carlsberg, on 4 March, placed EUR 500 million of notes. Both firms said the money would be used for general corporate purposes.  

The last global crisis – The Great Recession of 2008 – didn’t change the brewing world. But this one could.

“The worst of the crisis is yet to come. Covid-19 cases and deaths have not yet peaked. The outbreak may drag on for longer than we have yet grasped, or it may return. Pretending that life could be back to normal by Easter is delinquent. If the 1918-19 flu pandemic is a guide, the Covid-19 virus may be with us for a year,” Martin Kettle, a commentator with the UK Guardian newspaper, argued on 26 March.

Bars hit hardest

The first casualties of the lockdown are pubs and bars. Even at the best of times, many pubs struggle to pull through. Of course, plenty will reopen once the curfews are lifted, but plenty will not. In the meantime, massive layoffs in the on-premise sector have led to long queues outside the unemployment offices. So much for “social distancing”.

To support their struggling publicans, in Belgium, brewers AB-InBev, Heineken-owned Alken-Maes and Haacht are said to have suspended rent payments. Brewer Haacht, which is privately owned and controls a huge pub estate, was actually the first to offer rent relief until the end of June.  

Elsewhere, larger brewers have offered to take back keg beer from pubs forced to bolt their doors. For example, Australia’s biggest brewers Lion, Carlton & United Breweries and Coopers, on 23 March, said that they will take back unused kegs at no cost or charge and offer publicans a credit. These brewers are lucky insofar as the bulk of their sales is packaged beer rather than kegs, so they may be able to maintain output levels as consumers have started to stockpile beer at the off-licences. What the discontinuation of keg beer will mean for their bottom lines remains to be seen.

Craft brewers may not be so fortunate. In the UK, it is feared that thousands of small breweries may go out of business soon because the government decided to collect alcohol duty payments as usual on 25 March. Brewers had asked for a suspension of quarterly payments after pubs and restaurants were closed.

Curbside sales

Although many craft brewers have since ramped up online sales and offer beer-to-go at their premises, the present situation is still going to have a profound impact.

The Brewers Association estimates that 40 percent of US craft breweries’ volume sales are in the on-premise. Following the on-premise shutdown, thousands of craft brewery employees nationwide have been laid off in recent weeks. Last year, craft breweries provided for about 150,000 direct jobs.

Oregon’s craft brewer Deschutes, on 25 March, told The Oregonian/OregonLive website that with all of its tasting rooms and pubs closed, Deschutes was forced to lay off 300 of its 490 employees. Although Congress and President Trump have worked out a stimulus bill, it could take weeks if not months to make its way all the way down to a small brewery, so there will be a lot of pain, Deschutes said.

A tough year

It is feared that one consequence of the pandemic will be a shakeout among craft brewers, including permanent closures and swift acquisitions at bargain prices, not to mention a further concentration in the on-premise.

No doubt, the brewing industry will survive. How and in which shape is still unclear.  

More worrisome are the social consequences of a lockdown lasting for months. The question to ask is this: will consumers flock back to taprooms and pubs once the shutdowns are lifted, or will the new practice of social distancing turn into learnt behaviour that will make us shy away from previous forms of human interaction?

If BrewDog’s online bar, opened on 27 March, becomes a hit, it could launch new forms of dating and socialising that circumvent bricks-and-mortar pubs altogether. Now that is a worry.

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