Part of our You Belong in Business podcast
Can you recession-proof your business for the new year?
What an upheaval.
On top of 2020’s public health tragedy, business owners saw what Bob Baur, soon-to-retire chief global economist at Principal®, calls its “vastly different” financial recession. It was different because it was:
- Severe—the worst in about 80 years.
- Short—a few drastic months.
- Obvious—the COVID-19 threat helping to rally monetary and fiscal policy.
- Targeted—the service sector and small businesses harder hit.
Just before the pandemic we recorded a podcast conversation with Baur and two business leaders from Urban Chestnut Brewing Company in St. Louis: Jon Shine, partner and vice president of wholesale sales, and Michael Tessier, chief financial officer. Our topic was “recession-proofing” a business—could it be done, and after a decade-long economic expansion, when might it be needed?
Then the pandemic struck. We shelved the episode. Now we pick up our conversation at the end of the year to compare our earlier expectations with the reality of navigating 2020.
The challenge: How can businesses better prepare for the new year, without knowing when or how another downturn may arrive?
Instead of expanding its sales force as planned in 2020, Urban Chestnut in the pandemic shed 30% of its staff and lost $2 million in barroom revenue. The brewery pivoted by expanding its to-go/curbside menu, building out its website, and more actively communicating with customers across social media.
“All that played a key role in us being able to maintain some sort of a steady revenue in our on-site business,” Shine says.
Urban Chestnut’s restaurant business typically relies on a healthy 25% margin on draft beer, but early in the pandemic they saw how sales would shift massively to grocery. (They lost more than half their restaurant business.) So the brewery beefed up its packaging production.
They worked with creditors on deferred payments and sought other relief through the Small Business Administration.
Urban Chestnut intends to prepare for the new year and hedge against the next downturn by continuing to adapt with:
- a more permanent hybrid of both on-site dining and to-go service,
- expanded brewing capacity within their 70,000-square-foot production facility in St. Louis to contract for smaller breweries—businesses that may rely on outside production when tighter lending makes it harder for them to build their own facilities,
- raising another round of capital that could be attractive to those looking for investment options outside of volatile markets, and
- monitoring Paycheck Protection Program loan forgiveness policy and the next round(s) of federal stimulus.
Baur adds that while globalization encouraged cheaper and far-flung just-in-time supply chains, the pandemic showed how that supply might need to be closer to your business production to remain reliable and under your control.
Baur also suggested two good sources of online information for all business leaders:
- The New York Federal Reserve’s Weekly Economic Index of 10 daily and weekly indicators of real economic activity.
- The Opportunity Insights Economic Tracker at tracktherecovery.org to monitor the economic impacts of COVID-19, including consumer spending.
Baur expects long-term interest rates to return to normal and inflation and wage growth to pick up by 2023. In other words, some of the economic trends delayed by the pandemic will rear their heads, and business owners will need to be prepared.
But that’s what business owners do, Baur says. They look around, look ahead, and find opportunities.
Urban Chestnut isn’t affiliated with any company of the Principal Financial Group®
This communication provides educational information only with the understanding that Principal® and its employees are not offering legal, accounting, investment or tax advice. Business owners should consult with their counsel or other professionals when making business decisions.
Guests may be compensated for their appearance and Principal does not endorse the businesses of its guests. Some guests may own Principal products or use our services. Unless noted otherwise, none of our guests are affiliated with Principal, Des Moines Iowa.
The commentary by Bob Baur represents the opinions of Principal Global Investors. It should not be considered investment advice. No forecast based on the opinions expressed can be guaranteed and may be subject to change without notice. No investment strategy, such as diversification, can guarantee profit or protect against loss.
Principal Global Investors leads global asset management and is a member of the Principal Financial Group®.