Whether it's gone completely flat or simply reached its maturity, one thing is abundantly clear: The Minneapolis-St. Paul craft beer industry took a turn for the worst in this past year. Multiple, well-known establishments called it quits, including the Eastlake Craft Brewery and Clutch Brewing. Others, like Fair State Brewing Cooperative, recently filed for bankruptcy to reset their financial liabilities and attempt to survive in the new marketplace. Multiple others teeter on the precipice of financial disaster. Despite the tough financial conditions facing these Twin Cities establishments, these businesses may access strategies and tools that can allow them to adapt, survive and thrive.
While each craft brewery will encounter some problems unique to themselves, the recent downturn in the Twin Cities craft beer industry has its roots in industry-wide problems that do not discriminate. The COVID-19 pandemic, and with it the need and availability of government loans and credit, unsurprisingly led to a downturn in business for craft breweries and the creation of further debts to the U.S. government and lenders. However, despite the end of quarantine, business has generally not returned to pre-pandemic levels while loan payments have come due, leading to a lack of cash and subsequent loan defaults. Craft breweries are also victims of their own social success. With many breweries opening operations and taprooms in up-and-coming (and thus cheap) locations, their success brought in other businesses and residences to their immediate areas. The subsequent gentrification raised the price of rent for all. With the aforementioned downturn in business and lack of cash, these higher rents can and have become insurmountable. Finally, many brewery owners or leaders, while innovative brewers, may not have the experience or intricate financial training needed to successfully traverse their financial distress and thrive in their new market.
While this perfect storm of unfortunate circumstances already claimed multiple victims, there is still time and options for breweries to address these issues and continue to be a pillar of local business. First, breweries can (and should) attempt to negotiate forbearances or payment plans with their lenders. Such negotiations, if successful, can provide breweries with necessary breathing room and free up cash to keep the business operating and generate new revenue to better pay off its outstanding obligations. While lenders may hold security interests in a brewery’s assets and personal guarantees of its owners, their best opportunity for repayment still lies in the brewery continuing to operate, and so the potential for a deal exists.
Second, breweries can negotiate new lease terms with their landlords. Such terms can also provide immediate relief for cash-strapped breweries and allow them to reduce their long-term debt projections. While rent prices have exponentially risen in recent years, maintaining a current tenant still typically remains more lucrative than opening up business space for other potential tenants, particularly where the tenant has been in the space long term. Unless a new tenant is already in hand, landlords may be more willing to keep a brewery on terms more favorable than current market instead of risking having no tenant with ample commercial space available throughout the Twin Cities.
Third, breweries can, and as a last resort should, hire experienced business, financial and/or legal professionals. Business and financial professionals can assist in business strategy changes, streamline financial reporting, and identify potential efficiencies, all while allowing brewery owners and brewers to focus on their product instead of running their business. And, if business and financial assistance is not enough, legal professionals can assist in taking the lead on negotiations with lenders, landlords, and creditors and, if necessary, restructuring under either federal bankruptcy or state law. The right professionals may be initially costly; however, bringing in the right professional assistance will best increase the likelihood that a brewery won’t face financial ruin.
No silver bullet exists to fix the problems in the Twin Cities’ craft brewery industry, and it appears the industry may never revert back to its pre-pandemic highs. But by meeting the industry’s problems head on and taking control of their financial situations, breweries can survive to tap the next keg.
- Shareholder
Sam represents businesses, commercial lenders and individuals in the areas of debtor/creditor law, bankruptcy and complex commercial litigation. He works closely with clients to understand their specific financial and ...