Current Problem in Business Paraphrasing Check
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A Current Problem in Business – Draft Example
Background
Specialty and gourmet food and beverage production is a major revenue producer for small business people in the U.S. Craft distilleries are a growing subset of this group. From 2014-2019, revenue growth for all distillers in the U.S. grew by 3.5% annually to $14.3 billion although profit margins fell by 4.7%.1 Craft distillers generated $3.7 billion of sales in 2017.1 According to IBISWorld, “more than 60% of craft distilleries employ fewer than five people,” but the industry employed 18,300 people as of 20172. As of August 2018, California had the most (156) active craft distilleries, which was an increase of 5.4%.3
Craft distilleries – like wineries – make money in two main ways: by selling their products wholesale to grocers and restaurants and by generating retail sales in tasting rooms. Many such production facilities have been affected by the implementation of social distancing to slow the spread of COVID-19, and they have been affected in multiple ways. First, their products and services may not be deemed essential, in which case the business is forced to close. Second, their tasting rooms (which generate an average of 44% of sales for craft distilleries)4 must be closed for the previous reason and for social distancing and sanitation purposes even while liquor stores can stay open.2 So the two places where craft distilleries sold their products are now shuttered. Third, craft distilleries may have to rearrange how production is done in their facilities (or work with fewer workers, and thus, create less output) to ensure six feet of space around each person. Fourth, the wholesale market for their goods may have disappeared since restaurants are closed except for takeout, and much of restaurant revenue comes from sit-down meals with the drinks that are ordered. Finally, retail distribution may be diminished or halted depending on the retail outlets the producer works with. Because these businesses are so small, and because these changes due to “sheltering in place” occurred very quickly – within about a two-week period – business owners did not have a chance to foresee and create relationships with new outlets that might be deemed “essential.” Another stressor is that it’s unclear how long this period of social distancing will last, so
1 IBISWorld database. 2 Swarts, Kyle. 2020. “How Can Craft Distilling Survive The Coronavirus?” Beverage Dynamics. 24 March. Retrieved from https://beveragedynamics.com/2020/03/24/how-can-craft-distilling-survive-the-coronavirus/ 3 American Craft Spirits Assn. 2018. “Annual Craft Spirits Economic Briefing.” American Craft Spirits Association. September. Retrieved from http://dsihiv6ixzmam.cloudfront.net/pdf/2018_Craft%20Spirits%20Data%20Project_092418%20FINAL.pdf. 4 Kell, John. 2020. “The liquor industry faces an uncertain future. But if it survived Prohibition, it can survive the coronavirus.” Fortune. 27 March. Retrieved from https://fortune.com/2020/03/27/coronavirus-liquor-industry- jobs-business/
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businesses don’t know whether they should just try to ride out this demand shock.
In one survey, two out of three craft distillers said that they would need to close their doors if the social distancing measures lasted longer than three months . . . and because of regulations, alcohol manufacturers can’t sell their goods directly online5. This has craft producers scrambling to find new ways of generating income and staying in business. Distillers are at a disadvantage compared to brewers and some wineries. For example, in New Jersey, home- delivery was recently approved for breweries but not for distilleries.6 Given all of this, some gourmet food and beverage producers have been able to “pivot” their production or distribution. In particular, this report focuses on the craft distilling industry, which generates approximately 938,000 cases in production per year.7
Case Studies
Tripp Distillery, in Pacifica, Calif., produces craft gin and bourbon in its small warehouse with a tasting bar at the entry. It has been in business since early 2017 and mainly sells to local markets, bars, and restaurants. Without the restaurant sales, however, Jason Tripp, the proprietor, would lose a substantial portion of income. Recently, however, a local hospital asked the distillery if it could switch to producing hand sanitizer. The distillery was happy to oblige, and also began producing it for the community. To attract customers, he has also given away limited amounts of hard-to-find goods, such as one roll of toilet paper, or one bag of pasta. In addition, he’s teamed up with a restaurant in the Sunset District of San Francisco to deliver premade drinks along with their barbeque meals, and is getting publicity for his wares by creating new mixed drinks based on current trends, such as the Tiger King. All of this has allowed him to re-hire his team8, who are working to continue making hand sanitizer for hospitals9 and the community along with producing as much of the award- winning vodka and gin as possible. However, according to the distiller, while
5 Kell, John. 2020. “The liquor industry faces an uncertain future. But if it survived Prohibition, it can survive the coronavirus.” Fortune. 27 March. Retrieved from https://fortune.com/2020/03/27/coronavirus-liquor-industry- jobs-business/ 6 Saulsbery, Gabrielle. 2020. “Brewers rejoice as home delivery is okayed in NJ, but distillers still shut out.” NJBIZ. 31 March. Retrieved from https://njbiz.com/brewers-rejoice-home-delivery-okayed-nj-distillers-still-shut/. 7 American Craft Spirits Assn. 2018. “Annual Craft Spirits Economic Briefing.” American Craft Spirits Association. September. Retrieved from http://dsihiv6ixzmam.cloudfront.net/pdf/2018_Craft%20Spirits%20Data%20Project_092418%20FINAL.pdf. 8 Tripp, Jason. 2020. Facebook post. 8 April. Retrieved from https://www.facebook.com/trippdistillery/?__tn__=%2Cd%2CP- R&eid=ARDS1rv1iCH54IWt5I6jOukOvSr8_WwdOQyGKrc7ATJI4GXmhA-cB-bEA2G_HIsl9I9uigHqNbI7QyOi 9 Tripp, Jason. Personal Communication. 2020, March 22.
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they are producing more this year, producing hand sanitizer is more expensive than producing vodka, and while they could theoretically produce “ten times” what they are currently producing and increase their revenue dramatically, that would require an additional capital investment in equipment and space, and the demand could dry up just as quickly as it rose. Ultimately, he believes revenue will be about the same as last year given that they’ve ramped up their production10 Most of Tripp Distillery’s pivot is low-tech, with all of the publicity done by Facebook and word of mouth.
Distiller 291, in Colorado Springs, Colo., is taking a more high-tech solution and not changing production. This craft whiskey distillery moved to internet broadcasting by hosting local bartenders who teach viewers how to make cocktails on IGTV, and providing virtual distillery tours, all while promoting their whiskey. They are also hosting comedy nights.11 Of course, one must still purchase a ticket for these events, and they are hoping orders will come out of it. They also have been able to get around the no-direct online sales laws with a partnership with a small bar that’s acting as a distributor. Like Tripp Distillery, Distillery 291 is handling a lot of its day-to-day marketing through Facebook. It’s good reputation in the world of craft whiskey (“World’s Best Rye” from the 2018 World Whiskey Awards) gives it an advantage over some of the craft distilleries that have recently begun business.12
Potential Solutions
What both of these award-winning distillers have done that seems to be working is to help take care of local needs by partnering with restaurants and bars for promotion and distribution. They have also been promoting themselves continually on Facebook and other social media platforms relevant to their target markets to keep themselves in the local public eye.
Performing some public service, whether giving away a free basic need or providing materials for hospitals, also creates good will, which helps build customer bases. Many distilleries have pivoted to making hand sanitizer for hospitals and local clients. In some cases, this production is purely volunteer or at cost while others are making some money off of it. In fact, a recent Southern Methodist University study by data science graduate students mapped the location of all craft distilleries in the U.S. and many around the world to the closest local hospital to help hospitals source what they need (see map).
10 Tripp, Jason. 2020. Personal communication. 16 April. 11 Swarts, Kyle. 2020. “How Can Craft Distilling Survive The Coronavirus?” Beverage Dynamics. 24 March. Retrieved from https://beveragedynamics.com/2020/03/24/how-can-craft-distilling-survive-the-coronavirus/ 12 Distillery 291. https://distillery291.com/awards/. Website.
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Source: https://www.distilleriesfightingcovid.com/.
Those distilleries that are able to build their clientele locally through these channels may end up with a larger share of the market in the future. Those that had just begun business or that may not have the same marketing/partnership acumen may have to close their doors.