Business in the Time of COVID - Part 2

It’s hard to believe that five months have passed since our last blog about what it was like as a business owner in the early days of COVID-19. A lot has changed, but, sadly, a lot has remained the same. We’re still fighting the pandemic as a country, with higher rates of infection than there were in April. We still don’t have any sense of how the future will play out. Government support (for both small businesses and individuals) has ended in spite of still not being able to fully function.

I wouldn’t choose to go back to April of 2020 again, ever, but at least it felt like everyone was working together and doing their part to work their way out of a really tough situation. Now it feels like the hard work and sacrifices we all made didn’t really achieve anything, and the only way to navigate our business forward is to pretend things are back to normal and hope our customers will do the same.

Most every small business owner I work with in Indianapolis (which is a small sample of mostly brewery, restaurant, and other hospitality-minded folks) feels the conflict of trying to capitalize on local support, pent-up demand, and extended patios for the time being while looking a couple months into the future and seeing the dreaded winter months barreling toward us. January and February are bleak, not just because of cold weather, but because folks are dieting, giving up alcohol and spending less after over-indulging during the holidays. Most bars, restaurants, and breweries rely on busy summer and fall months to create a cash cushion to sustain losses in January and February. Part of what made the timing of COVID so bad is that we’d just all just gotten through the tough months and were low on cash and then had to shut down for the months that usually help us build back our reserves. Now, we’ve mostly made it through the best parts of our year with limitations on dining and operations, and are headed back into the bleak winter days.

Who wants an ice cold cider?

Without big changes and improvements, we’re in for many more permanent closures in the coming months. I don’t want to end this by saying, ‘So support your local small businesses if you don’t want them to go under!’ because I feel like the government should be stepping in with either a solid plan to get us out of this mess quickly OR with support for families and small businesses (ideally both) and they’re doing neither, but…if you have the means and you care about your neighborhood businesses, they will need help.

Once again I’ve written a blog very different than the one I planned on writing! It’s a much more macro versus micro view, so I’ll get off my soapbox and share some information about how we, specifically, are doing as a business and some of the interesting things we’ve had to manage over the last 5 months.

1. Our team is mostly back and we’re all healthy. First and foremost, we’ve been able to hire most every full-time staff member back that we had to furlough, as well as the part-time staff who have expressed an interest in coming back. We’ve had to navigate how to handle employees with fevers or coughs, but for the 15-20 COVID tests taken among our staff over the last several months, no one has tested positive. We’re very grateful for a staff full of people who have taken our COVID precautions seriously and have been relieved every time someone’s cold turned out to be just that.

2. We were really lucky to receive government funding, but it’s gone now. We were truly lucky in that we received PPP funds as well as an Economic Injury Disaster Loan. We used the PPP to keep our production staff and tasting room part-time crew paid and to cover a couple months of rent. We used the EIDL funds to cover other operational expenses. Without both, things would have been MUCH more difficult for us, and we are grateful that we received them. I’m not sure how other businesses who received only one or neither of these funds will be able to navigate the next few months.

3. Our loyal customers showed up in droves! We’ve always felt like our customers are some of the best around, but the last few months have proved it. When some segments of our revenue dropped to near zero in March, April and May, (distribution sales), other revenue streams increased greatly, especially carryout package. We sold four times the amount of packaged cider out of our tasting room from March to May than we did in those same months in 2019, and it was all one-by-one as customers came in to stock up their cider stashes. We were able to keep from using too much of our cash cushion because of you guys.

4. Sometimes getting a breather is a good thing. Right before the pandemic, we were anticipating big growth in 2020 (see…DOMINATE). We had paid for 50% of a new fully automatic canning line that would help us quadruple our canned cider output with the goal of expanding into other states regionally and into more grocery stores. We were able to get the canning line delivered to our cidery in early May, and because so many of our revenue streams had ground to a halt, we actually had time to get the canning line up and running smoothly. We moved everything out of the space, treated the floors, installed new plumbing and electrical work and air compressors and CO2 tanks, all in between cider batches, because we had TIME to do it. If we hadn’t had the pandemic, it is truly possible that the canning line would have arrived, we’d have set it up quickly without the right tools because we needed to use it, and we’d still be running it rough-shod today. Having a moment to breathe in the midst of our usually-busy schedule really helped get us into a good place by the time June rolled around. Which is a really good thing because….

5. We’ve had three of our biggest months ever all in a row. I almost feel bad talking about it because I know that this isn’t really the norm, but we’ve had bigger revenues the last three months than we’ve ever had before. Part of it is making up for our worst month ever in May. Part of it is that when every restaurant and bar and liquor store is opening again for the first time in months, they all need your product at the same time. A big part of it is that we were already on a serious growth curve and with a semi-return to normalcy, we’re simply catching up to where it would have been without the pandemic. And I think another part of it is that we’re making some of the best ciders we’ve ever made - our Cider of the Month program has blown up this year with great flavors like Mango Lassi, Margarita (so popular we had to apologize to our customers for how nuts things went, we ran out a few times, and we’re doing a re-release next week!), Strawberry Lemonade, and Watermelon.

So here we are. We’re doing okay. Our team is doing okay. We are optimistic about our growth as a business and what the future holds in the short and long term, but the medium term is still murky. Support your local small businesses, take care of each other, and don’t forget to VOTE in November!

How Canning Changed Our Business - Part II

In the last post, we talked about how there were some unintended consequences of releasing our cider in cans. After a year of canning - exposing more folks to our cider and growing our sales - we realized that we’d been losing money because having our cider available in a package format affected people’s purchasing patterns.

After taking some time to check our work and make sure it was really true, we had to jump into action to stop the bleeding. These are the steps we took to turn things around (and, spoiler alert - we did! Things are going great! Phew!)

1. We bought a canning line ASAP - I mentioned last week that canning lines are super expensive. That’s for the big guys that do the work for you. If you get an old, used, manual canning line, you can find them for a lot cheaper. We found one of those canning lines for $10,000 from Northern Indiana and snapped it up quick. Once we cleaned it up, replaced some parts, and got it running, we made twice as much on each can of cider than we did before (remember, before was a negative number. So…this sounds wildly better than it really is. But, from -$.05 per can to +$.10 per can is a huge swing when you sell a lot of cans!).

   This was the biggest and most important change we made to fix our situation. However, a manual canning line is exactly what it sounds like: a human being stands in one spot and literally fills each can by hand. In one minute, it takes two people to package 8 filled and sealed cans of cider. It takes three people a full day to package 100 cases of cider. For comparison, when we had the mobile canning people helping us, it took three people one hour to package 100 cases.

   Around the time we started using our new canning line, we had a big, organic jump in sales. A great thing! But instead of using that canning line once a week or so to maintain our supply, we use it 2-3x more often. So, while getting it was transformational and 100% the right choice, it is a temporary solution. We need a bigger line already so we can keep pace with our growing sales.

2. We adjusted our pricing structure. Introducing our cider in cans led to several of our accounts switching from our cider on draft to carrying it in cans. In an effort to encourage folks to keep buying draft cider we actually lowered the keg price so it would be the better deal.

   As a quick aside about that point I just made - it wasn’t as simple as just saying, ‘Hey, we’re lowering our prices!’. We had to think really carefully about how to send out that message and what unintended consequences it might have. It might make an account feel like they were getting ripped off the previous few years and leave a bad taste in their mouth. It might make them think we’d secretly switched to lower-quality ingredients. Plus there’s the whole thing about leaving money on the table - if people were willing to spend this before, why accept less? We finally decided honesty was the best policy - we told folks that instead of pricing our cider per ounce regardless of the vessel, we are adjusting our prices to hit a specific profit margin. It seemed to go over well and made them feel like they were getting a great gift (which they were! Cheaper cider!)

3. We Released Draft-Only Options. One of our mistakes on the distribution side was putting everything we offered on draft into cans. In other words, for every possible cider available to a bar or restaurant, they could get it in either kegs or cans. But one thing that we knew and somehow didn’t think about enough is that bars like to rotate their tap handles ALL. THE. TIME. Even if they have a draft line dedicated to cider (not that common), they never want to put the same one on twice. I suppose we thought that having 4 flagships and one seasonal at all times would cover our bases for the rotation issue, but it turns out that bars really love limited edition, specialty kegs that ONLY THEY can get. Which…I don’t blame them. But we didn’t prepare for that. So, looking to 2020, we are going to be continuing our very popular Cider of the Month Club, where we put a new cider out in our tasting room for one month only, and set aside 5-10 kegs for accounts that want the special stuff. We’ve dipped our toe into this already, and have started getting more and more requests for these specialty ciders, so we’re making it an official thing next year. If an account wants a special cider they can get it! But only on draft.

These three changes really worked. We still sell way more cans than draft cider to accounts, but we aren’t losing our draft accounts any more. We’re selling way more cider in cans, and now, instead of losing a bit of money each time, we’re making a decent profit margin each time. We also have a path for how to continue making upgrades to our production equipment that will continually bring the costs down of getting our cider out the door, so our profit margins will continue to go up without increasing the price.

Owning a business has been a really interesting experience, and I’m sure it will continue to be. What seems so obvious at the time (buy the dang canning line!) takes a lot of waffling to get to. And what seems unimaginable (lower prices to make more money!) can be the ticket to profitability. We’re still figuring it out, but this experience was really helpful. It was a chance to do some real-time, high-stakes problem solving, and at least for now, we’ve solved the canning problem. Onto the next!

How Canning Changed Our Business

Almost two years ago, we decided to put our cider into 12 oz cans and release them into the wild. We wrote about why this was a complicated decision and how distributors work. We also talked about the decisions we made leading into the release. We put a lot of thought and effort into the decision. But, even with our over-the-top spreadsheets, calculations, and forecasts, there were still effects on our business that we didn’t anticipate. Here are some of the biggest changes - both expected and unexpected - that came about as a result of canning our cider.

Is it worth risking your business to have cans this beautiful? Maybe.

1. They exposed us to new people and accounts. This is the whole point, right? We put our cider in cans so that we could sell it at liquor stores and restaurants that have limited draft options. We put our cider in cans so that, someday, grocery stores and sporting venues could carry them. And with each new store or venue that becomes an account, a new batch of people see the name Ash & Elm Cider Co. and become aware of our business. And all of this happened! Yay brand-awareness! Yay new fans!

2. Traffic to our tasting room declined. We anticipated this a bit, but it was still a bummer when it happened. Before cans, if someone wanted to drink our cider at home instead of at a bar, they had to come to the tasting room and get a growler fill, which would last them for a couple nights, max. Now, they had a more options: they could come to our tasting room and buy enough cider in cans to last them for a month or two. They could go to the liquor store next to their workplace and never step foot in our tasting room at all. We expected a dip in sales in our tasting room, but we hoped that the greater exposure (see #1) would eventually lead to more people finding out about us and checking out our tasting room. That did happen eventually, and tasting room sales recovered, but for those first six months or so, the difference was hard to miss.

3. It changed our product mix. This one was a biggie, and we should’ve seen it coming. We’ve talked before about profit margins. Our best margins come from draft cider - filling kegs has a much lower labor and equipment cost than canning cider, but the retail price is about the same. If it were up to us, every bar and restaurant would carry our cider on draft (heck, multiple draft lines per bar! CIDER FOR EVERYONE!!).

   One thing we didn’t anticipate is that a lot of our draft cider customers didn’t do what we thought they might - keep carrying our cider on draft and add new styles in cans. Instead, they took all of our cider off of their tap list and replaced them with cans. While we’re definitely happy to be in more bars and have more of our styles represented, we didn’t expect to lose so many draft positions when we offered our cider in cans. In fact, our draft sales have been about level year over year: our draft cider sales were up 18% this year and 23% last year. Cans, on the other hand, are increasing rapidly: our canned cider sales are up 119% compared to last year.

   Similarly, our growler sales (that precious high-profit-margin liquid) are down since we started offering cans to go in our tasting room. We anticipated more sales overall with cans, but we didn’t adjust our draft options down, and we should have.

4. It didn’t make us any money... We used a mobile canning service for the first year that we offered cans. We did this because canning lines are SUPER expensive, and we wanted to test the market first. The trade off, of course, is that we’re paying someone to perform a service for us, which eats into the profit margins. We already knew that using a mobile canner would make our profit margins razor thin, but that was with the assumption that draft sales and tasting room sales would continue to grow at the same pace instead of decreasing in velocity.

   At the end of 2018, we did some number crunching and realized something sobering: we were losing money on every can of cider we sold. OUCH. We were working harder, longer hours, putting stress on ourselves and our production staff, and we had less to show for it! How could our calculations have been so off? Well…see points one through three above. Each account that took off a draft line and added in cans cut into our profit margins. Each customer that bought cans instead of a growler did the same. Multiply that by every bar and every customer for an entire year, and you end up working harder for less money. Not a sustainable business strategy.

   This blog is already creeping up on length, so I’m going to stop it here and will write another blog soon about what we did to stop the bleeding that canning introduced into our business model. Stay tuned!