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!

What's the Goal for 2020? Dominate.

Back in October, I wrote a blog about some of the big things that happened in 2019 and how they had affected our business. In case you need a refresher, 2019 was a really big year for us. We started canning our own cider (each can filled by hand!), released Fleeting Youth as a permanent seasonal on draft and in cans, and saw massive growth on the distribution side. All of these things combined to make us profitable, a huge milestone for any small business. 

2020 is shaping up to be another really big year for us. My word for the year, when it comes to the business, is DOMINATE. I shared it with our staff at the holiday party, and I’m sharing it here: we are going to DOMINATE in 2020. Here’s how we plan to do that, and we hope you’ll come along with us for the ride!

1. Move our tasting room to The Assembly development on E. Washington Street. Along with moving our physical location, we’ll also be expanding our kitchen and our food menu so we’ll be a full-service restaurant instead of one that focuses mostly on sandwiches, snacks, and salads, as we currently do.

   The new tasting room will have about twice as much space, twice as many seats, and a beautiful, European-style patio. We’re excited to be closer to downtown, even if just by half a mile. We’re excited to have more built-in traffic with the TWG offices sharing the space with us and three stories of apartments above us. While we’ve loved our spot in the Neidhammer building, parking has always been a problem for our customers, and not having a built-in customer base kept us just off the radar for a lot of folks. We can’t wait to put ourselves on the map in a bigger way through this tasting room, and for the challenges and opportunities having a full-service restaurant will bring.

2. Grow our distribution footprint by 50%. Our distribution sales have been really healthy year-over-year. To grow by 1.5x is a pretty serious goal at this point. In fact, we may not be able to do it just within Indiana. While it’s outside of our full control, we hope that you’ll find Ash & Elm Cider products in more grocery stores in Indiana in 2020, and that you may be able to find us in some surrounding states by the end of the year too. In order to do this, though we’ll have to…

3. Increase our production capacity. Again. Even though we got a big new fermentation tank in early 2019 and bought a canning line, we’ve already maxed out our capacity. We recently got three new fermentation tanks up and running and literally just sealed the deal on a new automatic canning line. This means we actually have the physical capacity to make all the cider we want to sell in 2020, and our labor won’t have to increase too much to do that. In other words - increased efficiency! Always a good goal for a business.

4. Open an online store for people who can’t make it to our tasting room! This has been a goal for a while, but I’m putting it in writing - we are going to start selling our cider online in 2020! There are lots of legal hoops we need to jump through, but our goal is to put our special bottled ciders and our Cider of the Month ciders online for folks who want to get a taste of some of our special releases. We’ll start small - just in Indiana - but as we get our bearings, hope to add on additional states. It’s going to be a great way to share some of our really special ciders with our far-away friends!!

5. Do a better job of sharing our story. We’ve been open for almost 4 years now (can’t believe it!!), and in retrospect, there are aspects of the Ash & Elm Cider Co. story that we need to do a better job of sharing. We want people to know what makes our cider different from anyone else’s. We want you to know where we get our apples, how we work with local orchards, and who the people are who make our business run. 

2020 is shaping up to be a banner year. As always, we so appreciate everyone being a part of the ride, and appreciate your patronage, interest, and excitement. Cheers to the new year!

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!

Distribution, Part II

In Part I of our Distribution blog series, we outlined the difference between self-distribution and working with a distributor. In Indiana (and in most states), cideries fall under wine legislation, so we haven't been allowed to sell our cider outside of our tasting room without a distributor.

Okay, so here we are. We have a distributor (Craftroads Beverage)! Things are about to start happening! We both have the same goal: sell a lot of cider to bars and restaurants in town so that people know about us and become fans. Here's how the work breaks down:

The Distributor's Role

The key things we want from a distributor are a commitment to quality, education, and us. Some bigger distributors would have a bigger footprint from the outset, but they'd also have more brands to sell. We were worried that we'd never get much of their focus. We went with Craftroads because they plan to have a relatively small book of business and want to work closely with their brands. We're kind of hands-on people, so this is music to our ears. 

The key job is for them to have a camaraderie with bars and restaurants and build trust with bar managers. Yes, selling our products is important, but knowing which accounts have the kind of customer bases that would buy craft cider and selling to them is more important. Selling our cider to a bar that can't sell it to their customers isn't a good thing. Placing our ciders at 20 good accounts is more important than placing it at 100 bad accounts.

Finally, there are a lot of logistics that the distributor has to manage - they coordinate and deliver multiple brands to multiple places, need to clean restaurant draft lines (surprisingly, this falls on the distributor, not the restaurant), and maintain accurate records. A good sales rep should know every bar manager in town, what time she likes to meet with reps, when she does inventory, places orders, likes deliveries to arrive, what products she normally orders and at what velocity she goes through product. Phew!

Our Role

Our job is to find the delicate balance of making enough cider to sell to our distributor while also having a good stock for our tasting room. We have to anticipate the growth curve so we aren't sitting on a bunch of inventory or running out of product. We also have to make each of our ciders consistent with the last batch, so that customers always get the same thing if they order a Sunset Tart Cherry, regardless of the bar.

We do sales support as well - the more we get out and check on accounts that keep our ciders on tap and visit new accounts we'd like to work with, the better. We can work directly with restaurants to do fun events like tap takeovers or pint nights. We can work with liquor stores to do samplings. All of these things are ways we can make sure a customer tries (and therefore, buys) our products. 

Your Role! 

Last but not least! You have a job as well! If you've been to the tasting room and can't wait to get some Ash & Elm Cider closer to home, start asking at the bars and restaurants you frequent. Ideal accounts are those that are locally/regionally owned, as usually bar managers get to decide what they put on tap. For example, it'd be a hard sell to get our products at Applebees; it'd be much easier to get us as the craft beer bar in Broad Ripple. When you see us on tap somewhere, order a cider! Tell your bartender that you love our ciders and you're so glad they carry us. The more consistently a product sells, the more likely an account is to order it again. 

We're really excited to be able to start this phase of our business. We've been working on getting distribution up and running since before we even opened, and now that we're here, we can't wait to see how our business grows around Indianapolis. 

Distribution, Part I

Folks that come into the cidery usually have a set of questions they progress through when they’re here:

1. How long have you guys been open? (6 months)
2. What did this building used to be? (A pharmacy. A meeting place for the Oddfellows. A strip club).
3. Where else can we get your cider? (Nowhere. Yet…)

That third question always leads to more questions. The answer is – of course – more complicated than it seems. Here’s our attempt to explain the situation, in a two-part blog! Today is Part 1, which outlines the difference between self-distribution and working with a distributor.

First of all, the USA’s alcohol system is a ‘three tier system’, thanks, of course, to laws set up after the disaster that was Prohibition (where most weird alcohol laws come from). For more information about this system and its history, check out this great article over on Serious Eats.

• Tier one is the manufacturer of the product – these are your breweries, wineries, distilleries, and cideries. Us!
• Tier two is a distributor. These are companies that buy product from manufacturers at wholesale prices, and then sell them to retailers. In Indiana, we have Monarch Beverage, Cavalier, Zink, etc. who play this secondary role.
• The third tier is then the retailer. This is where you as customers can come to get a drink. Think bars, restaurants, liquor stores, grocery stores, etc.

Every state has different liquor laws. In Indiana, micro-breweries can cut out the distribution tier up to a point (based on volume). If you’re familiar with Indiana alcohol laws, last year, Sun King Brewing Co. fought to raise the limit so that microbreweries can self-distribute a greater volume of beer before having to work with a distributor. So, microbreweries can self-distribute, and while most of them start with self-distribution, many of them decide to sign on with a distributor well before they hit the self-distribution ceiling in Indiana. There are some great reasons for that:

Why You Would Self-Distribute

Self-distribution sounds like a great deal, especially at the start. You can hop in the car, put a keg or two of your product in the back seat, drive to a bar, say, “Hey, want this?”, and if the answer is yes, you can pick up a check and leave the beer. Bam, you’re on tap at a local restaurant and are already growing the market for your product. You get to collect the retail price for your beer and take it home to the bank. As a startup, that extra profit can help you expand a lot faster than selling at the wholesale rate. Also, in brand new businesses, one or two people could probably handle all the distribution needs.

Bottom Line: Quick way to reach more customers, higher profit margin for the business.

Why You Would Work with a Distributor

Eventually, if things go well, you’ll need quite a team to keep up with the demand for your products. A fleet of vehicles, someone on staff who visits accounts with the sole purpose of cleaning draft lines, sales people to bring in new business and keep current customers happy, and multiple delivery drivers, not to mention someone to handle all of the logistics that come along with so many moving parts. A distributor would handle all of that for you in exchange for a portion of your profits. They will also likely expand your footprint because they have a wider reach and access to more varied accounts because of the multiple different brands they represent.  

Bottom Line: At a certain point, most breweries will end up working with a distributor because the extra reach will make up for the chunk of profits and the staffing needed to support self-distribution.

So, Back to Us…

              We tricked you – none of these laws actually apply to us because we aren’t a micro-brewery! Our legal classification is a Farm Winery, and in Indiana, Farm Wineries aren’t allowed to self-distribute at all. This explains why you can’t find our ciders on tap at bars and restaurants yet.

              Since we opened, we’ve known that we’d need a distributor to grow. We’ve met with many, sussed them out (this is an important partnership, after all), and negotiated contracts. As of TODAY, we have finally signed the all-important paperwork, which means that the time for us to start popping up around the city is near. Like…a few days away!

Next week, we’ll post a blog about what YOU as a cider fan can do to help us grow our business.

Thanks for coming along on this wild ride with us!