Q&A: Eric Wallace of Left Hand Brewing

The longtime co-owner and operator of Left Hand Brewing in Longmont, Colorado, shares perspectives on adapting to crises and getting people and businesses safely through this pandemic.

Jamie Bogner Sep 13, 2020 - 17 min read

Q&A: Eric Wallace of Left Hand Brewing Primary Image

The longtime co-owner and operator of Left Hand Brewing in Longmont, Colorado, has seen many facets of the business over the past 27 years. As former chair of the Brewers Association board of directors, he’s taken a leading role advocating for independent craft breweries. In this conversation, recorded back in May, he shares perspectives on planning through crisis, adapting to new business realities, and getting people and businesses safely through this pandemic. As Told to Jamie Bogner.

CBB // This current pandemic environment has given us a new perspective on the interaction among brewpub, taproom, and production brewery, and the place of all these in a business mix for a brewery.

EW // We started off just packaging and distributing and driving beer around, selling it to retailers. That was the game, and there was no other game. You were a restaurant, a brewpub, or you were packaging. And there were only a couple hundred of us in the States working, so that was the way we did it. Over 27 years, the pendulum has certainly swung—we finally figured out we can legally sell pints of beer. Then it was like, “We don’t have enough room in here, so now we need to start expanding.” I think we’ve expanded our tasting room five times. It’s only like 2 percent of our volume, but it’s probably closer to 6 or 7 percent of sales in a normal time, and it’s probably low double digits in margin. It’s important to understand where your margin comes from. Straight packaging has always been a little bit tighter, margin-wise, and the first shakeout really was at least partially attributable to people overexpanding and not ready for distance-selling and shelf-life stability. That was that late 1990s, early 2000s time period when the number of breweries operating, over a five- or six-year period, went down for several years. Six months ago, if you told people that, they’d go, “Oh, yeah, that’ll never happen again.” I’ve always been of the mindset that the curves will cross again, and trying to predict when is like trying to predict the stock market. But it’s inevitable, just from a pure math standpoint. And it took something like this. We’ll see where the numbers show up, but if I were betting the over/under, I would bet that closures will exceed openings this year for the first time since 2000-whatever.

CBB // You mentioned earlier that taproom is driving double-digit margins. And that was a really exciting thing. What kind of margins would you be happy with off the packaging side of your business?

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EW // I was just talking as a relative percentage. The margin contribution from a pint of beer far exceeds the margin contribution of a bottle of beer or a can of beer at roughly equivalent volume. It’s like not even close. As I’ve consulted for others, they’re like, “We want to spend a couple hundred thousand dollars so we can get into packaging.” It’s like, “Dude, do you hear what you’re saying? Run the calculations, run the ROI on it. Why don’t you focus on selling 20 percent more on site rather than having to quintuple your business to get the equivalent margin? Now you’ve got a bigger space, and you’ve got a bigger lease, and you’ve got more equipment that you’re maintaining.” The complexity of going that direction really is a lot. And that is dangerous.

We have always—since the late ’90s, when we almost went out of business during the shakeout—been really, really conservative fiscally. Leverage is a big two-edged sword. It’s either an escalator that takes you up fast, and you can really boost your growth by borrowing heavily; but if it doesn’t play out, then all of a sudden you discover that you’ve got a noose around your neck. It can change very rapidly, as well—when it turns, it turns fast. You better be ready. And you better be building a strong balance sheet. Most people are not thinking about that when they have that drive to start a brewery. It’s just an overwhelming urge and need and passion. I understand that because I’ve gone through it as well. But that’s your first thing—build a strong balance sheet, make sure that you’re overcapitalized so that you don’t run out of cash too early.

CBB // That brings us to another point in talking about pandemic response, when one of the first things that breweries did was furlough.

EW // When you say “furlough,” I hear “conserve cash.” Cash is king right now, when all of a sudden, your business has dropped—or is nonexistent and closed—and how long you can survive is totally a function of how much cash you have on hand and how much debt you are able to access. As you accumulate debt, you are increasing risk—the two go hand in hand. Debt equals risk. So those things are critical. And the first thing you’ve got to do is ask, “What’s my burn rate? How long do I have before I have to declare bankruptcy?” So, furloughing—especially today—it’s not a moral issue. It’s surviving; it’s just a requirement. If you’re going to survive, you have to cut your expenses to match whatever you’re lucky enough to have coming in. So that’s critical.

CBB // If you want a business to be there for employees to come back to.

EW // Our drive has always been, we want to stay independent. We want to continue to contribute to our community. We want to bring people together. We want to address world ills, with beer, and through all the things that beer touches. In 27 years, we’ve actually discovered we flex quite a bit into other spheres that we never intended to be involved with. But it happens.

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I also wanted to go back and say, as we were talking about razor-thin margins and inefficient use of capital through the first shakeout, it was 10 years before we really looked at the situation and said, “Okay, we now have a business.” It was so perilous for so many years.

CBB // What does your draft business look like now? Are you even kegging beer?

EW // In terms of sales of draft beer in March, I think the sales dropped to about $1,700 from six figures. I don’t know April sales yet, but March sales just plummeted. Think about it—we’re a stout brewery. That’s what we’re most known for right now. And we ended up getting closed down in Colorado on the 16th of March. If you could say, “Left Hand, what’s the best way to totally screw you guys? Pick a day when we’re just going to close you down. Let’s do it the day before St. Patrick’s Day. That’ll screw these guys up the best that we can totally screw them up.” Our maximum load in accounts and in distributors in draft is right then, so our view of the world was like, “This really, truly, completely, and totally sucks.” There’s a huge coalition building for perishable food now because Congress doesn’t want to do beer-specific stuff, but the food guys are getting involved—milk farmers, the National Restaurant Association, food distributors association, all these different organizations with strong lobbying presence in D.C. are all getting involved, looking for some kind of recognition and relief. When the government shuts down the main way you make a living and pay your people, you at least have the right to ask for some kind of relief—whether it’s a tax credit, or whatever.

Everyone’s screaming, “What are we going to do with all this beer?” A wholesaler asks us, “Hey, are you going to help us out with all this beer that we’ve got of yours?” And then we turn around and ask, “Hey, are you going to help us out with all the beer that you ordered from us that you didn’t take?” You’ve got everybody pushing in different directions.

CBB // And it’s no one’s fault. It’s just the situation that we’re in. It becomes a thing that can’t be solved through GoFundMe or through a “support your local brewery” campaign alone. It has to be solved in a systemic way and seen as an investment in the future of our economy and the future of these businesses, so that these employers exist in the future, with these opportunities for people to participate in the economy.

EW // I would hope that there are economists out there looking at what’s the cost of maintaining these crazy expensive programs, like PPP [Paycheck Protection Program]. We got a PPP loan, and we’re in the middle of it right now. We brought people on—they’re getting more hours than we would normally give them right now to get projects done. We want to keep the band together because we want to be part of the solution when we come out of this—whenever the hell that’s going to be. I think the government needs to balance, “You want benefits extended. We’re just going to keep giving away money,” or, “We’re going to subsidize the front end where the sales are happening and where people are working. And we’re going to do whatever we can to keep them in business, so that they can relaunch and rehire everyone.” So where are we going to spend the money?

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CBB // Let’s talk a little bit about PPP. For you, as someone who operates part of your business as a hospitality business and cannot have that part of the business open and don’t have a horizon for when that can open—having a program like PPP, which has very specific timeframes and very specific provisions, has to pose a bit of a challenge. Is that going to be enough to get brewing businesses through this? Or is it going to take more?

EW // Is that going to be enough? All right, I’m going to put on my prognostication hat. Let me first say that this program certainly is imperfect. The program was designed for maximum speed of getting money into businesses. Maximum speed, without regard to efficiency and without regard to the excess waste of the program. We wanted to push taking the loan money, we wanted to make sure that we got approved, then we wanted to wait because I’ve got people sitting on the sidelines here until the law allows us to reopen. But that’s not really the intention of the program, right? So, there’s a conflict inherent in the program where you’re telling me to bring my people back on, but my sales crew—they can’t be out doing ride-alongs. They can’t be in accounts. They can’t be doing any of that stuff, really. And so, I can’t really employ everybody. Do I take them off of unemployment, which has been goosed by the federal thing, and screw them financially? Or do I work my way through and try to find the middle ground. Many of us are in that situation, where I’ve got some people working full-time, many people working part-time, and some people not working at all. It runs the gamut based on their personal situation and our ability to cross-purpose them within the company. We’re trying to maximize forgiveness and take care of everyone the best we can—keep the team feeling like a team because sitting at home, not working, drives some people crazy. They want to be doing something.

CBB // In the world of beer, we’re seeing conflicting news and reports. On one side, there is the IRI data that say beer sales in that mass-market retail channel is up as much as 20 percent. On the flip side, there’s an immense amount of draft beer that’s not being sold. And then, of course, all of the taprooms and all of that revenue and all of those direct sales are pretty much shut down, too. From your business perspective, what are you operating at right now, and what does that mean for the business?

EW // I’ve read the IRI data, and I’m like, “Really? Is that what’s happening? Because it doesn’t feel like it.” When we saw the tsunami arriving from our spot low on the hill, just barely above the beach, we said, “All right, let’s see what happens if we run a budget at 50 percent production.” And we’re lucky we’re an established brand—we’re 70 percent-ish package sales, 30 percent draft. Craft overall skews heavy draft. The big guys are running high single digits [in draft]. So, who’s benefitting? People with the best chain relationships, the widest distribution for package, and the least portion of draft sales? I mean, if anyone’s going to benefit, that’s where you’ve got to be. We’re not there. Most of our peers are not there.

CBB // Even Molson Coors’s last quarter showed they were down.

EW //We planned 50 percent. In March—that was like the full shock where everything just stopped—we probably ran near 60 percent of what we expected. In April, we’re running more like 65 percent. Numbers will be out next week, but we’re thinking between 65 percent and 70 percent. But you’ve got to think—we loaded up our pipeline—we skew to the winter months, right into St. Patty’s Day. We’re killing the tail end of our biggest time. It’s going to take a little while for the package sales to work their way all the way through the system now.

Where do we think it’s going to go? We’re still budgeting 50 percent because I think it’s going to be bumpy up and down. I think states are going to open to some extent—some of them might figure it out. Some of them are going to close again. I have no doubt that we ain’t opening and it’s all up. That’s just ludicrous, impossible because not everyone’s going to get it right. I think we’ll trickle through the drafts that we’ve got out there. We’re seeing reorders on package, and we expect to at least run at half in May, from what we see on our order board right now. Going forward, I don’t know what’s going to happen. All I know is that we’re planning based on a 12- to 18-month vaccine availability. We’re planning on two years of hell. And then I’m looking at a three- to five-plus-year dig out? This is going to ripple through the economy. I see the ripples, just spreading through in ways that we can’t even predict yet.

This conversation has been edited for length and clarity.

Tune in to the Craft Beer & Brewing Magazine® podcast Episode 134 for Jamie Bogner’s full conversation with Eric Wallace of Left Hand.

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