A Whole New World
When we opened our new brewpub just under 1 year ago it was without doubt the highpoint of our business so far. We’d identified a business model we felt had real strength and longevity. Sell the majority of our beer via our own taps, reducing the distance between production and our customers' glass, and minimising the costs involved in distribution. There are a whole raft of side benefits to this model that we felt would put our brewery in a great place to weather whatever the economic climate might throw at us in the future. We make more money per litre we sell in revenue over our own bar, and by extension more profit. We can then pay our team more, and reinvest into our equipment, making better beer. We could (in theory) accumulate a pot of money to allow us to purchase shares back from our investors, giving these shares to our employees. We create a greater and closer relationship with the people who drink our beer because we know them and meet them every day. Our customers feel a greater connection to our beer because they can literally see the equipment where it was brewed, and meet the people who brew it. Our team feel fully invested into our business because they are literally owners of the company. All great in practice, and the trade at the Brewpub over the last 9 months has been epic. Busier than we could ever have imagined. In January I really felt like we had passed the danger growth area in our business and had finally established ourselves financially.
Then…….a global pandemic came along and threw a fairly large spanner into our plans. Before I go on I want to say that I appreciate that the Coronavirus is a human crisis first and an economic crisis second. I realise that there are people dying around the globe, and key workers breaking themselves to try to help. We here at LHG realise that the impact being felt in our day to day lives is inconsequential compared to the impact to those infected and those whose loved ones are infected. What is happening around the globe is horrific, and our bars being shut is impactful to us but ultimately is a small thing in the grand scale of the pandemic. We willingly take every action advised to us to try to slow the spread, to in our small way try to save lives and to take the pressure off our NHS. However our awareness of the bigger problem does not reduce the huge impact the measures are having into our business in the short term. This blog really is a log of the impact so far, and the measures we’ve taken to try to mitigate financial loses. As of today, 20th April 2020, this is how the last month has unfolded.
Aim no1 has been to try to find new revenue streams after the loss of both our bars, and around 85% of trade custom. All bars are shut and as such all trade we used to sell to wholesalers and bars direct has dried up. Worryingly very little of the beer we sold on credit through the early part of the year has now been paid for. Most bars and shops that have been shut have closed their books and are unable to pay. So not only have we lost current trade, we are staring at the possibility of losing the revenue generated from sales before the crisis even began. We are still paying our bills so we have hugely negative cash flow. All the money we owed going out, but very little of what’s owed coming in. I suspect that’s a situation echoed throughout the brewing industry. We are to an extent shielded, as over 50% of our production goes through our own taps. As such less than 50% of our revenue is owed to us on credit at any one time. There will be breweries around the country that will be stuck in a massively exposed position, having 100% of their production going out to trade and on credit.. I feel for them, though we are not much better off...We can hope that as the business grants and other government funding begin to come through that businesses begin to clear outstanding debts. In the short term though it is hugely pressuring our cash in bank position.
So far of the government schemes available we are able to access:
The Big Beer Co Ltd (Small Bar)
£25,000 non-repayable grant (due to business rates band)
£250,000 HSBC Business Interruption Loan Approved (cash not expected for 6 weeks).
100% Business Rates relief for year 2020/21.
100% of employees furloughed.
Left Handed Giant Ltd
£300,000 HSBC Business Interruption Loan Approved (cash not expected for 6 weeks).
100% Business Rates relief for year 2020/21 for Brewpub.
80% of employees furloughed.
* Unfortunately we receive no grant for our Brewpub as rateable value is too high.
* No rates relief available for main brewery buildings.
* Our rent has not been frozen on our warehouse buildings or Small Bar.
* Mortgage payments for Brewpub are paused, only kicking costs into future.
* We are being asked to bridge the current losses via loans. These are repayable, and as such we are simply robbing future profit/viability in exchange for long term survival. The repayment of the loans are going to hugely impact us in the future, and there is no current understanding of how long this situation is going to last. As such, we have no idea if the loans are enough to allow us to see the situation through.
* Lack of clarity as to how long the bars will be shut, and by extension how long we will need to cover fixed operating costs with no income.
* Likelyhood that when we do re-open our bars we'll be working under a reduced capacity/reduced income but be carrying the same costs as when at full turnover.
Obviously we are not just looking to the government to help, and are hugely grateful for the help we have received. We are looking at what we do and how we do it, and trying to diversify as best we can. Our online shop (www.lefthandedgiant.com) has always had strong trade, but we have put some serious effort into ramping up our efforts in both marketing it and fulfilment. Initially we began a bike courier service, but quickly realised that the volumes were far higher than was reasonably able to be delivered this way. Now we are using a combination of our own vans (for local delivery) and Parcelforce. We are managing to generate about 50% of our normal business in this way, and are brewing on a 50% of normal production schedule. We hope that we can keep this level of volume up throughout but honestly we have no idea if it’s sustainable, has growth potential or will dry up next week!
We also have our trade webshop (www.lhgwholesale.com) which was set up to try to bridge the gap between ourselves and bottle shops around the UK. We normally utilise wholesalers around the UK who buy our beers and distribute them to bottle shops in their local areas. All of our wholesalers have shut down in the short term, and we have no idea if or when they will begin to trade again. Our trade shop allows bottle shops anywhere to buy cases of our beer for re-sale. We want to support these small businesses that have supported us and our beers over the years. The only way to do that is to create a new way for us to get our beers to them. We saw a massive drop in trade sales for the first 2 weeks of the lockdown but as government guidelines became more clear bottle shops have began to re-open and trade has picked up dramatically.
We are working on the assumption that throughout this crisis people will want beer, so optimistically we’ll be able to keep this level of sales through both online shops until our bars reopen. As it stands our fixed operating costs are minimised as much as possible, but still relatively high. We are still servicing the invoices we accrued through Feb and early March when at full trading, but without any positive cash flow from the invoices generated via sales through this same period. We are also still paying all wages in expectation of Furlough money hitting our account late April. That does mean that our bank account is being ravaged. Furlough cash is due at the end of April, and business interruption loans are not due until into June. In the short term we’re left to try and keep the wheels turning from our cash in bank and webshop revenue, which thankfully hits our account within days of making the sale. Fortunately we were in a reasonable cash position when this began. We (for a change) had money in our bank and had been in a period of accumulation before moving our brewery at St Philips and re-investing cash. This would have cost us around £300,000, and obviously will now not happen for some time if at all. We are using all cash we had accumulated to keep our business afloat and our bills and our team paid. Many businesses will have entered this with very little cash in bank, and I honestly do not know how they are navigating the current situation. My heart goes out to them. If this happened last July, as we were opening our new Brewpub we would have been caught hugely exposed. All our money re-invested, and then the assets we spent the money on unable to generate cash in return. We owned more money than we had, and we would have likely lost our business very quickly. Other businesses will be in that position right now, through no fault of their own. Reinvestment of available cash is part and parcel of growth. If a crisis like this hits at the wrong moment a great business can be brought to it’s knees. We should all try at this time to use our local shops and businesses. Regardless of how strong or established they may look on the surface, you never know the true financial position at their base. If there is a business you love and is still trading in some way, then spend your money with them. Tesco will still be here at the far side regardless, but I fear that many of the small, independent shops and bars that you love may not be.