Economic courage could be defined as a leader, a business, nonprofit and or organization that, while facing economic uncertainty and a radical retraction of “business as usual,” took extraordinary steps to provide a service, a product, and or a support service that made a positive impact to the community and or employees of their organization. These are individuals that took economic risks to continue to provide a service, product and or resource in the face of unprecedented economic uncertainty. Showing the ability to adapt, change and thrive during a time of uncertainty. The Thurston EDC awarded Economic Courage Awards at the Hootenanny on Thursday, July 22. Learn more here: https://thurstonedc.com/hootenanny/.
During the COVID-19 Pandemic, Three Magnets Brewing Co. showed Economic Courage and they have been nominated for an Economic Courage Award.
We asked co-owner Nate Reilly to answer some questions about the past year and how the business took extraordinary steps to impact our community positively. His answers are below.
Thurston EDC: What was your biggest challenge over this last year, and how did you solve it?
Three Magnets: The construction of our brewery went nearly a year past schedule and $100k over budget when all was said and done. We did not have a contract with our general contractor, and as a result, our construction kept getting pushed back. We also didn’t have anything in writing, and as such, there ended up being some “change order” accounting when the final bill came. It was a very, very big lesson learned for us. We essentially opened up in the red instead of having enough money in the bank to cover a couple of years’ worth of losses so that we could dial in our business, put processes into place, and build a solid foundation. So the first six years were HARD.
But after a lot of work and many sleepless nights, we pretty much pulled through to the other side, and 2020 was projected to be our first profitable year. But then, you know… The pandemic. Which, weirdly, we were perfectly suited to take on. We went through six years of grinding. Adapting. Innovating. Whatever it took to make it through to the other side. My mantra throughout it all was from Dory in Finding Nemo – “just keep swimming, just keep swimming.” We have never been complacent with the business. So, when the pandemic hit, it was one more pivot—another set of problems to overcome. We didn’t need to teach ourselves how to handle extreme stress once again. We were already there. So we just had to keep doing what we were already doing—despite the rug completely disappearing from underneath us.
Most restaurants in general struggle through the winter. And then business picks up in the spring. And then we make our money in the summer when school is out, and people are going out more and staying out late. And then we use that money to get through the slow seasons. It’s a cycle. But in 2020, there was almost no summer business. Because of the shutdowns in spring, overnight, restaurants all suddenly had WAY more money going out than coming in. The first few weeks of the indoor dining shut down; it was just the two of us (Sara and me), our chef and brewer working part-time and the occasional hourly worker. We pretty much went from almost 30 Full-Time Equivalent (FTE) employees to around five FTEs. We had to immediately shut down our main checking account so that it wouldn’t overdraft with all the automatic payments scheduled, and we had to pick and choose which bills we would/could pay. We prioritized payroll, other local and/or small businesses, and bills essential to keeping our lights on.
And we didn’t pay for things that we didn’t have to. The money wasn’t there. Our bank account dried out within just a couple of weeks without our regular revenue coming in. Bill collectors called every day, to which we’d tell them that we’d pay them when/if we received financial help. And they pretty much understood and explained that they were doing their job. It’s a very, very weird position to be in – telling so many people that you flat out won’t pay them. Or, more accurately, that you CAN’T pay them. But we didn’t feel ashamed. It was all out of our hands. Meanwhile, in our personal lives, just before the pandemic hit, we had taken two teenagers into our household in addition to our two little kiddos. So we needed to utilize all the government assistance we could qualify for to put food on the table to focus all of our revenues on keeping the business alive and bringing our employees back to work in a safe environment.
Thurston EDC: What was the most significant change in your business?
Three Magnets: Fortunately, we had our tinfoil hats on. I had been following the progression of the pandemic as it evolved and migrated. And I had a very strong feeling that it would get worse. So, we were ready to pivot to online ordering on day one of the shutdown. We painted the curb in our parking lot blue and instituted our Blue Curb Pickup program for to-go food. While we were about 70% down in revenue, it was still truly amazing how much business we got. Eventually, we purchased a bunch of picnic tables, rented a porta-potty, set up an outdoor speaker, put out a hot water hand washing sink each day at open, and offered on-site outside dining – with 100% contactless service. So, for the first nine or so months before we could allow customers back in, we were essentially a 5000 square foot food truck with stupid high overhead.
In early 2021, this eventually transitioned to indoor service as well, utilizing the same business model. We installed industrial fans and four HEPA filters, and we would keep our bay door open during business hours. We monitored our CO2, and it remained low, indicating that we had good airflow from outside – one of the most effective ways to keep COVID from spreading inside. Our chef built a wall of windows (from Ikea shelving glass doors – it was WAY more cost-effective than custom glass!) between the dining area of the pub and the staff, with an order window on hinges that we could open and close. Folks would order online, we’d call their name to pick up their food at the counter when it was ready, and then we’d slide it out the window. Not only did this allow us to reduce labor costs, at a time when we did not have enough money coming in for a full workforce, but more importantly, it allowed us to keep our employees completely safe, who, at the time, were unable to get vaccinated, since for some bizarre reason many other industries were prioritized for vaccination before restaurant workers who worked face-to-face with the unmasked public for eight hours a day.
But keeping our workers safe also meant that we were keeping our customers safe. And we’re super proud that none of our employees to date have contracted COVID-19. We did a couple of cool things early on to bring business in. First, we had brewed a beer with Georgetown Brewing out of Seattle just before the Pandemic hit. After the shutdowns and before the beer canned, we had rebranded that beer label to “Trickle Up Economics,” and half of all sales went directly to our hourly, non-management employees who were either laid off or had their hours cut. And our customers came out to support. We ended up raising over $10k, split based upon hours worked over the 12 months leading up to the pandemic.
Additionally, we started selling Interfaith Works boxed lunches for people in need for $10 each, which we prepare every Thursday. This allowed us to bring in a little bit of revenue and keep more jobs while helping people out in their time of need. Though sales of the Interfaith Works meals have slowed considerably compared to the first few months of the pandemic, we’ve prepared more than 2,000 meals to date. We also started some completely new lines of business. These weren’t so much to cover the immediate losses from the pandemic shutdowns, as it’s tough to build a profitable business model overnight. We did it more to put new revenue drivers in place to pay back all the accumulated debt and unpaid bills over the next ten to thirty years. Early in the pandemic, we had applied for an Emergency Injury Disaster Loan (EIDL) on the first day they became available. Still, unfortunately, that came with a 3.75% interest rate over the next thirty years, at a time when the federal interest rates were at 0%. And while that is an excellent rate for a business loan to purchase equipment or otherwise use to generate new business, it sucks when you are just using that money to pay the day-to-day bills. The difference between a 3.75% loan and a 0% loan almost doubles our monthly payments. So we’re hoping that there is some legislation in the coming years to reduce that rate back to 0%, as it seems weird for the feds to be making money off of small businesses during a pandemic.
All that being said, we aren’t ones to look a gift-loan in the mouth. So we took the loan. So first, we started Garden Movement Meal Delivery (www.gardenmovement.com) – a service where we sell prepared family meal kits that are mostly heat and serve, with minimal assembly required. We also offered essential grocery items, beer, wine, cider and other local provisions (this was when there was a toilet paper shortage!). This line of business is still going strong, and we’ve recently added a 2-person option in addition to the 4-person meal kits. The next hurdle was trying to get our beer direct to consumers throughout Washington State since we were not in chain stores (grocery). Most of our resale partners were small mom-and-pop bottle shops that were also negatively affected by the Pandemic. So, we started Porch Drops (www.porchdrops.com), where folks could build their case of Three Magnets beers or choose from a selection of beers curated by our head brewer from our friends’ breweries have it shipped directly to their porch. Also, we could offer free local delivery with this service because we were already delivering Garden Movement meal kits three times a week! Last, we started brewing non-alcoholic beers toward the end of 2020 in a series of releases we call “Self Care.” Because these beers contain less than half of a percent of alcohol, most states do not regulate these beverages like alcohol. Which meant we could ship directly to 42 states without jumping through a bunch of hoops or paying for expensive licensing.
So, we took all of our new e-commerce experience and started another web store, www.drinkselfcare.com, and are now shipping these beers all over the country. These beers are quickly gaining an excellent reputation in the non-alcoholic beer community, and to date, we’ve released 11 different Self Care beers, with two more in the tanks right now. The cool thing about all of these new lines of business is that they all appeal to entirely different demographics. Yet, behind the scenes, they are all quite incestuous, and we’re able to share a lot of resources between them. That being said, it’s just a tiny handful of us that manage all of these lines of business. It’s rather amusing that people will email us with questions, assuming we’re a massive operation like Blue Apron or Hello Fresh when in reality we’re just a small mom and pop operation with a couple of fancy websites.
Thurston EDC: Will these changes be permanent, or will you go back to the way things were before?
Three Magnets: Yes, for the most part, most of these changes will be very permanent, though they will adapt to whatever the new “normal” ends up being. Though not many places in Olympia offer online ordering from the table, since the pandemic, it has become quite common in bigger cities. We’ve found that many of our customers prefer it to the old fashioned way once they get used to it. Plus, we make all of our food from scratch, so we’ve always struggled with labor.
This is why we tried to open up initially with an order-at-the-counter business model like many of our favorite places in Seattle and Portland to put our effort into quality food while keeping affordable prices. But people in Olympia weren’t ready for it at the time (and admittedly, with our limited resources, we made many mistakes too). Within just a couple of months, we needed to switch to becoming a full-service restaurant. However, now that it’s seven years later, and counter service/online ordering has become more and more accepted, the pandemic has allowed us to switch back to this. Now our margins are much more in line with where they should be, and we can focus on quality food and beer. As such, we don’t plan on going back to full table service any time soon.
Thurston EDC: What is the biggest thing you learned during the last year related to your business?
Three Magnets: I really can’t say that there’s an overarching lesson that we’ve learned throughout the last year. People seem to think that the pandemic is over for restaurants since we can now “open to 100% capacity” because people occasionally see us busy on a Friday night. But we’re still in the very early stages of the ramifications that this pandemic will have on the restaurant industry. I still see restaurants across the state closing every week, and we’ll be seeing this for the next few years. We’ve all fallen way behind on bills, and many of us have taken on a seemingly impossible amount of debt – even after getting total Payroll Protection Program (PPP) forgiveness.
I don’t think most people can fathom what it’s like to lose 70+% of your income overnight when your monthly fixed costs are close to $100k. You can put safeguards in for many unexpected circumstances when running a small business. But there are no safeguards for something like this. And insurance sure as heck doesn’t cover it. So it may turn out that we have made the best decisions possible given our circumstances. Or maybe the worst. Or, more likely, it will turn out to have been somewhere in between. But we won’t know for years if what we did will ultimately end up saving our business or if it will have contributed to an earlier demise. One thing we do know, however, is that if we don’t make it through, at least we’ll have gone down fighting. That’s certainly the type of failure that I can handle. And we’ll pick ourselves up, brush ourselves off, and do what it takes to navigate the rest of our lives. And we’ll have a lot of valuable experience and lessons learned to apply to that.
Thurston EDC: Please share a story or words of wisdom from your experience over the last year.
Three Magnets: Rather than words of wisdom, I’d like to finish this interview with a call to action. The one thing that is almost guaranteed to pull us out of this, and set us back on track to have our first profitable year, is if congress finds the money to reinvigorate the Restaurant Revitalization Fund. The bill initially requested a $120+ billion fund to cover restaurants’ COVID losses but ultimately ended up being passed at only $28 billion. When they first announced it, it took me a couple of quick google searches and about thirty seconds of math and understood that this would not nearly be enough money for everyone. Chuck Schumer even called it a “down payment” on the help that would eventually be provided for restaurants. And while I’m thrilled that most of that money went first to socioeconomically disadvantaged business owners, the fact remains that over two-thirds of the restaurants were left out to dry. Us included. Getting a second round of funding to the tune of $60 billion (which would be enough to fund all the restaurants that applied) was at one point practically a sure thing. But then, as the vaccination rates went up and restaurants across the country were open to 100% capacity, there seemed to be this idea that everything was back to normal and that the additional money would not be necessary.
And now that second round is in serious jeopardy. But business is not “back to normal.” Not even close. And it won’t be for a long time for the restaurant industry. Paying an extra $2500 per month in disaster loans over the next thirty years, with our business only back to about 70%, is not “normal.” The over $100k we owe in bills we were unable to pay is not “normal.” Restaurants need that money. And if our country can bail out big banks who bring failure upon themselves with their greed, then we indeed can find the money to bail out small businesses who are suffering due to no fault of their own. Primarily since the restaurants that were the most compliant and helped protect the most people are the ones who suffered the most.
So, my words of wisdom are to email your local representatives and make sure to tell them that your community’s culture is made up of thousands of small, local, family-owned businesses. And tell them that the culture of your community is at stake. If the small businesses go under, there is no shortage of corporate-owned chains waiting to jump in and take that market share. And co-opt and homogenize your community’s culture. That’s not a community I signed up for when I moved to Olympia 25 years ago. That’s not the community Sara signed up for when she, a fifth-generation Olympian, decided to create a career for herself in her hometown. The mega-corporations do not offer community – it’s more strategic marketing to appease shareholders. We love our eclectic and compassionate downtown community, and we want it to stay that way.
*Photos Courtesy Three Magnets Brewing Co.