Coronavirus Diaries at Five: Gigantic Brewing
Five years ago, during the acute phase of the Covid-19 pandemic, I collected reports from several Oregon breweries as they struggled to navigate the crisis. This week I will have some follow-ups from the same breweries on what has happened since. Today we’re going to hear from Gigantic, with a searching report on the difficulties of the past five years.
Van Havig is the co-founder of Gigantic Brewing. The brewery opened in 2012 with an idea of being primarily packaging-first, but Van and co-founder Ben Love were surprised to find that their industrial-area taproom was packed. They have since opened a satellite taproom and full-service pub. In his post, Van offers a broad-scale look at the challenges in the industry. I have added some context to his post with [italized text in brackets].
Frankly, I’ve been thinking about this five-year anniversary lately. I remember writing in 2020 that Covid felt like a boxing match with small breweries and that it had won the first round. It now feels like we’re in round 6 or 7 and we’ve lost most of them. There have been so many after-effects that were unforeseen five years ago, and other changes that may or may not be related to Covid at all. It’s hard to see any positives coming out of it.
Let’s start with the big picture. Gigantic is worse off now than in February of 2020. There’s no question about that. The more interesting thing is the why and how.
To get the Covid-specific things out of the way, I think that the pandemic fundamentally changed Portlander’s habits of going out and eating and drinking. Everyone that we’ve talked to in the bar and restaurant space hasn’t fully recovered. Maybe the absolute top restaurants (the Kanns and whatnot) are doing fine [Kann is one of Portland’s hottest new restaurants], but those restaurants don’t sell beer anyway. It’s a little disheartening to go to other places in the US and see restaurants and bars lively and full of people and then to come home to Portland and never have to wait for a table or find a seat at a bar. I know there are other factors at play, and I’ll get to those, but I think the big West Coast cities are still suffering from self-inflicted wounds.
In 2021, once vaccines came out, I think everyone in the food and drink space thought that we’d enter into a “new roaring ‘20s,” with people out there celebrating and spending all of that pandemic relief money. That optimism is really why we opened Robot Room on Glisan in the heart of the pandemic in late summer – knowing that eventually we’d get a vaccine. And whereas Robot hasn’t been a smashing success, it’s done fine. It was even making a trickle of money in 2020-2021. That early glimpse at a brighter future led us to purchasing the Hawthorne pub in late 2021. We thought that going forward, the best way to have a stable brewery business was to sell as much beer direct to consumer as possible, and therefore we should have three locations which we’re allowed under our Oregon Brewpub License. But even after the 2022 Covid wave subsided, and the pandemic was declared over, Portlanders seem to have turned to Door Dash rather than go out. Taproom and draft sales are bleak right now.
Covid also brought us that large inflationary spike in 2022. That hurt us in so many ways. It made the Hawthorne buildout probably 30% more expensive than it should have been, maybe more. That has put long-lasting pressure on our cash flow. As prices went up, I think people have been reinforced in their decisions to not go out – making that situation worse, particularly in Oregon where the pandemic also drove up an already high cost of living. All of those inflationary pressures have really reduced how many people and how often they’re going out.
Furthermore, we’ve been seriously hit by inflationary pressures on our cost side. I understand that people don’t think of these things, but energy prices and wages have gone up significantly, and that has made margins quite thin. I don’t think anyone hardly has thought about the fact that Ukraine previously grew 30% of Europe’s barley crop, and Russia grew 25% of it. In a global commodities market like barley, that affects all prices, including for North American grown malt. In 2022 malt prices went up 30%+ nearly over night, and they have only come down a little less than half of that since.
The wage pressure is particularly intense, with state-mandated increases in the minimum wage pegged to inflation. [Portland’s minimum wage is currently $15.45 and will rise in July; there are no exemptions for servers.] I’m all for people getting paid a decent wage – we try very hard at Gigantic to have good pay and benefits. But due to inflation, the wages for our tap room employees has increased so much that we haven’t been able to give equivalent raises to other parts of the business – namely the brewery and sales.
I know that prices at the bar have gone up a lot since 2019, but those increases are mainly to pay for increased rents and labor – the kegs now only cost the bar about 10 cents a pint more than they did in 2019. Breweries are making less money per barrel on draft beer (in nominal dollars, let alone inflation-adjusted dollars) than we were in 2019. And at the tap rooms, those increases in beer prices get used to pay for higher wages, increased insurance premiums, and they help pay for cost increases in the rest of the operation. There’s nothing left over to give raises to the brewers because revenue per-barrel hasn’t gone up nearly enough to cover our cost increases.
Another way in which I think Covid has hurt breweries is in terms of American’s relationship with alcohol. Early in the pandemic, the media kept reporting how much people were drinking at home – painting a picture of a booze-fueled vacation from life, responsibilities and reality. The truth is much more complex. All that information came from IRI scan data – basically reporting by grocery and liquor stores from all the purchases made there. Absolutely no information about sales of alcohol at bars and restaurants was included. So shut down all the bars and restaurants, and suddenly people buy all their alcohol in a different way and it looks like there was a big spike. The truth is that breweries saw barrelage at best stay steady, and most of them saw a drop. This is particularly true for craft breweries that typically sell 2/3 of their beer as draft. Wine and liquor sales did increase, but beer’s drop-off basically compensated for that. There was probably a small uptick in drinking, but not the drenching that was reported.
As a result, the media kept talking about the huge amount people drink – despite well-known data showing that Americans are (and have been) drinking significantly less than in previous decades. This played right into the hands of the anti-alcohol set, who took the opportunity to beat that drum even louder. The noise is now deafening. How much of the population now thinks one drink a day is too much? We’re the only mammal in the world that has a liver that can process alcohol. Alcohol is a reason that humanity has been able to survive and flourish despite so many water-borne diseases. But using marijuana every day seems to be ok because it’s “natural” – as opposed to fermentation which never, ever happens in nature. Ugh. [That’s sarcasm, folks—natural fermentation is common in nature!]
Which brings me to my last after effect of Covid, which is demographic change. I think this is inevitable, and we were never going to remain cool forever. For young people today, craft beer is either what their parents (or older siblings) drink, and therefore not cool, or is just something they’re not interested in. The rise of canned cocktails, seltzer, legal marijuana all cut into the beer space. And the anti-alcohol messaging has a lot of young people convinced they shouldn’t ever drink. I think Covid also really affected young people in terms of risk aversion (they’re really risk averse) and socialization. Let’s face it, part of drinking alcohol when you’re young is taking risks and socializing, and that’s off the table. I don’t know, maybe the current 18-year-olds are looking at their older siblings and thinking that they’re really boring, and when they go to college and/or turn 21 they’re really going to party. Who knows.
So long story short, it’s been a very tough five years and I don’t know when it’s going to get any better. I’m most concerned about inflation at this point. That will most likely decrease sales and increase cost pressure, and we’re already struggling. Gigantic isn’t that big, but we may have to downsize to be able to compete. I know that wages are so low in brewing right now, and the time it takes to become a skilled brewer is so long, and young people have no interest in it anymore, that I’m worried that soon we’ll have a major exodus of working brewers. We may see a hollowing out of the small brewing industry soon, with the larger brewers able to compete with their economies of scale, and the very small owner/operator breweries being able to make it on direct to consumer sales, but the rest of the breweries just barely making it or going under. It’s scary out there.
At Gigantic we’ve made some structural changes that, if they work and we can keep sales up, should keep us going. But it’s very scary right now for a lot of breweries. It was life or death for Americans five years ago, but it’s kind of life or death for the small brewing industry right now.