Doing Business in the Pandemic

“The market has seismically changed.”

We are at the edge of a full-on depression thanks to COVID-19 virus and our government’s mis-handling of it. Many businesses, restaurants in particular, will not reopen. Some will, but maybe not for long under the new social-distancing reality. “Non-essential” businesses are gasping for air, trying to stay afloat. Highly-leveraged companies such as J. Crew and Hertz are trying to save themselves through bankruptcy protection.

Newspapers, already struggling in the new media landscape, are suffocating from even less income as shuttered businesses stop buying advertising.

Some operations are doing well. Supermarkets’ sales are up. Walmart and Target are enjoying increased business. Amazon is overwhelming landfills with packaging material and is getting closer to becoming the only place we can buy anything. The Amazon overlord may also be the owner of the last operating newspaper.

It probably surprises no one that alcohol sales are up. Sequestered people are drinking more. Alcohol-delivery sales have increased five-fold. That’s good news for the spirits trade. But not for the entire industry. The big guys are doing well; the small producers, not so much. Sales for craft distillers and brewers have fallen precipitously. We may be drinking more, but we’re drinking the cheap stuff. One example: Anheuser-Busch is selling a lot more of its Bud Light “beer.” The local craft brewer is reckoning how to stay solvent.

As a craft-distillery owner put it: “There’s a difference between feel-good booze and pandemic booze. Craft distillers make lovely spirits meant for savoring and sharing with friends. If you’re unemployed or don’t know where your next paycheck is coming from, craft is perceived as a little bit of luxury.”

Support your local craft producer

National brands also have the advantage with beverage distributors. The small guys have little leverage. The nationals can pay for premium placement on liquor store websites and shelves. In the retail business, it’s known as a “slotting fee” and is normal practice for a new product to get shelf space. (In Alan Freed’s era, it was called “payola” and earned him a Congressional investigation and a ruined career.)

The wholesaler has a stranglehold on distribution. In many states producers are not allowed to sell directly to the consumer. Now-archaic post-Prohibition laws mandate a three-tier system: distiller or brewer to distributor to retailer.

Restaurants were an important outlet for craft producers. Now that is gone and is unlikely to come back as it was.

A new world is evolving. We don’t yet know what it will look like.

Deja Vu All Over Again

Plus ça change, plus c’est la même chose

Let’s take a ride in the Wayback Machine. Forty years ago, we saw incessant news reports about Mt. St. Helens, kind of like the non-stop COVID-19 reporting today. For months the mountain had been bulging, and expelling steam and ash almost daily.

Scientists said there was imminent danger and the area should be closed off. Washington-state authorities agreed and put a quarantine in effect, blocking access into the danger zone. Right away noise began about infringing on people’s constitutional rights and the damage to tourism and the economy. The mountain’s burping was the new normal and nothing more was going to happen. (This was the era before patriots paraded in camouflage outfits and brandished combat weaponry.)

Interviews with one crusty old-timer, named Harry Truman, who lived on the mountain and said he wasn’t leaving, were a regular feature on the nightly news. According to Truman’s niece, “He thought (the volcano) would just go straight up and that somebody would be able to come and get him.”

Pressure to reopen the area increased. Officials met to discuss what action to take. Scientists expected reaffirmation of the closures and were surprised that the discussions were about plans to reopen the area. Five days later Mt. St. Helens blew. Mr. Truman and fifty-six other people died. Most died from thermal burns or inhaling hot ash. According to some estimates the death toll may be higher, that many unknown victims were swallowed by the debris flow.

Plus ça change, plus c’est la même chose.

The First Coronavirus Bankruptcy

J. Crew, the purveyor of preppy fashions and a stalwart in malls around the country, has filed for Chapter 11 bankruptcy. (Luxury vendor Neiman Marcus filed for bankruptcy protection a few days later. J.C. Penney’s bankruptcy is expected any day.)

News headlines announce that J. Crew is the first major retailer to fall as a result of the COVID-19 pandemic. Health experts tell us that those most susceptible to the virus are those with underlying conditions: lung problems, including asthma, heart disease, diabetes and obesity, weakened immune systems. The same is true of businesses. J. Crew carried $1.7 billion debt from a leveraged buyout by private-equity firms.

Private-equity firms are in the business of buying businesses and selling them. They typically have no interest in actually running the business other than what can be done quickly to attract buyers. A leveraged buyout is a purchase of a company with borrowed, i.e. other people’s, money. The purchased company is burdened with debt. To service the debt, new owners usually take measures to make the company operate more efficiently, which usually involves employee layoffs and/or selling off pieces of the business. With every deal made, whether it’s good or bad, the dealmakers pay themselves outsized fees for their genius in dealmaking.

Add to this the relentless long-term pressure from on-line retailers, even for luxury goods. The coronavirus was the final nudge, not the root cause. And somebody always makes money with a bankruptcy; ask the current resident of the White House.

For a fun dive into the leveraged-buyout frenzy of the 1980s, read “Barbarians at the Gate.” It tells the tale of the R.J. Reynolds/Nabisco fiasco and the parasites it attracted. HBO made a movie of it in1993 with James Garner.

Another Business Battered by Coronavirus

A Mexican drug cartel’s largest customer base is in the United States, and so much of its revenue is in U.S. dollars. Being a cash business, the next step is to get the money into Mexico and converted to pesos.

As with food and toilet paper, the drug supply chain has also been disrupted by COVID-19. The price of methamphetamines has doubled in just a few months. And the cash has been piling up, literally. The problem is that the pandemic has also messed up the money-laundering business.

Continue reading “Another Business Battered by Coronavirus”

… and the World Keeps Spinning

If there is any side benefit from the Covid-19 pandemic, it’s aiding some research scientists. A concurrent reduction in worldwide vibration, has accompanied the precipitous worldwide drop in human activity.

Automobile, heavy equipment, train and aircraft movement, factory operations, construction activity, all contribute to “crust vibrations.” Scientists monitoring seismic activity have to adjust measurements to account for what they refer to as “background seismic noise.” With the decrease in human noise, they are able to get more precise readings. With the better data they can more accurately predict volcanic behavior or pinpoint the epicenter of an earthquake.

Meanwhile, humans are not the only species inconvenienced by the coronavirus. With restaurants closed, the rat population must travel further afield to find something to eat. With little in restaurant dumpsters and all of us cooking at home and creating more food waste… well you can figure it out.

Earth and the Pandemic

Planet Earth is indifferent to the covid-19 breakout. Wildlife has noticed, though. After many generations of human development pushing animals further into the brush, the pandemic-caused sheltering-in-place is giving the animals a chance to creep back into territory that once was theirs. Coyotes have been spotted checking out the Golden Gate Bridge and wandering along Chicago’s storied Michigan Avenue. Monkeys in India have entered homes, opening refrigerators to look for food.

Griffith Park, home of the Los Angeles Zoo, now has opossums, skunks, deer, bobcats and even a lone mountain lion running around unmolested outside its gates. The absence of automobile traffic has reduced the squirrel, rabbit, snake and toad roadkill in the park to near zero.

The world-wide reduction in vehicle use and factory production has cleared the skies. Air pollution has reduced by half in Paris and a third in Los Angeles. Carbon dioxide levels are still rising, but not as fast as last year. If you believe in unicorns, you may even fantasize a world not being suffocated by burning fossil fuels.

Wild animals aren’t alone in taking advantage of now-deserted streets. Police are seeing an increase in drivers traveling at extremely high speeds. A Washington state trooper ticketed one at 122 mph and one at 133 mph in a day. “So driving 127 mph or 120 mph in a 60 mph zone will definitely get our attention and we will be able to introduce ourselves to you!”

And in Orange County California, city officials, fed up with skateboarders ignoring the “Closed” signs at the skateboard park, dumped thirty-seven tons of sand into the troughs. It worked. Skateboarders were unable to use it. So dirt bikers showed up to replace skateboards with motorcycles.