When Maria Pearman joined Los Angeles-based Regional Leader GHJ last December as principal and beverage practice leader, she brought with her a wealth of knowledge as a 13-year veteran of an industry currently experiencing some serious disruption.
Pearman was appointed leader of the beverage component of GHJ’s larger food and beverage practice, established 20 years ago, to grow that particular vertical. In addition to bringing on more beverage clients, she also established a client accounting services practice that currently operates in the beverage practice but which GHJ intends to expand firmwide. Pearman has previous experience offering CAS, as well as contract controller and tax services, in her public accounting work within the beverage industry, and GHJ was primed to offer this model to its range of beverage clients.
“Historically, CAS is a very important part of the service I provided to clients, and GHJ was looking for a CAS practice for some time, and building out a CAS practice,” Pearman shared. With so many new players and product types in the beverage industry today, this model is a good fit for the practice’s diverse client base, ranging from companies in the growth phase of their corporate life cycle to those with $50 million in revenue.
Along with traditional tax and assurance services, GHJ’s beverage practice offers “strategic advisory coaching to clients for specific levels — if a client has a goal of x amount of revenue for profitability, or if they are positioning themselves for sale, we coach them up through the planning and strategic advisory practice with transaction advisory services and M&A support,” Pearman explained.
These clients are based around the country, with a heavy concentration on the West Coast, and are mostly in the beer and spirits business, though some operate in more emerging markets such as hard kombucha and nonalcoholic beverages.
“Beverage and alcohol has seen diversification in the industry and so much disruption in the product catalog — we see it with what our clients are getting into,” Pearman said. “It’s a messy place; we serve many different kinds of makers. One company has beer, spirits and cider, across categories. In our client base, there is diversification with different products coming to market in what used to be classic beer, wine and spirits.”
Across all products, clients are subject to the regulations and restrictions of the industry. Businesses can only operate in one of the three go-to-market lanes: as producers, distributors or retailers. And Pearman noted the distribution channel has seen “a ton of M&A activity over the last several years,” which GHJ specifically helps clients navigate.
The firm’s strategic coaching and CAS services are also critical for these clients operating in an explosively growing market. “There is a boom in brewery finance,” Pearman reported. “In our research, the portfolios of distributors have grown tenfold in the number of clients they represent versus 10 years prior. The distributor has a catalog of products and walks into a bar to sell beer and instead of saying, ‘I have 10 products to choose from,’ they have 100 products to choose from. It’s a crowded marketplace, and on the other side, the number of producers has been ballooning for years. Not that long ago, there were 1,000 licensed breweries in the U.S., and today they are closing in on 10,000. And that is only one segment — the spirits companies and number of spirits producers, the trajectory of growth, is growing very, very rapidly. There is pressure with the number of competitors, and the distributor partners are shrinking. The situation is challenging; with the barriers, to cut through all the noise and get on a shelf of a retailer is significantly more challenging than 10 years ago.”
Preventing the hangover
Meanwhile, the pandemic created new wrinkles in the industry that Pearman has helped clients iron out, from producers applying for government assistance to breweries facing the threat of closure.
“The challenges of the pandemic are different depending on the business model,” Pearman said, explaining that the two basic models are the taproom, with a small all-on-premise operation, and the production side that sells off-premise to grocery and convenience stores.
“Most breweries are some mix of those two basic structures, but for simplicity’s sake we can assume those two basic camps, and the ones focused on taprooms got hit harder, as no one could go out, so it cut off their lifeline to the world. It was very challenging,” she reported.
On the flip side, however, “Most production breweries had up years as everyone was stuck at home and going to grocery stores. There was a phenomenon of pantry-loading, buying a ton of stuff, and package sales went through the roof.” But as the world emerges from the pandemic, there is a “hangover effect” across the industry, Pearman cautioned.
“Life is returning to normal somewhat, so comparing year-over-year numbers to such a weird, anomalous high point, that’s challenging. Another thing I’m seeing is the fallout of all the supplementary funds drying out. So now all of that extra cash covered up a lot of sins. Businesses that were smart about it were using it to buoy operations and make smart decisions. Those that were not smart were propping up bad habits. As the extra funds are drying up, we are now seeing the full fallout, and it might be pretty ugly. All the extra money drying out and the market, with what seems an impending recession, could be a double whammy for all those that were not smart about their supplementary funds.”
GHJ was already proactively guiding its clients in making smart decisions, and might soon be helping them take advantage of a few of the pandemic’s silver linings. “One other positive effect, for those that are taproom-focused, is that operating in that three-tier regulatory system, the producer can’t sell directly to consumers generally speaking, but in the pandemic there were a lot of temporary measures to loosen that restriction.”
These measures are on a state-by-state basis, but, according to Pearman, there is an expectation some might become more permanent, offering a golden opportunity for a large segment of GHJ’s clientele. “It could be very positive for producers,” she explained. “It kicks the door open for the opportunity to get the product directly to consumers. The relaxed regulations would be a game changer for the industry.”
As for the more sweeping trend of a tight labor market, Pearman is just as optimistic about GHJ and her practice weathering the Great Resignation, as its specialization and introduction of CAS makes it particularly appealing to the modern accountant.
“CAS as a service line is a wonderful middle ground of working in industry and working in public accounting,” she said. “You’re not working for a small company, but with public accounting firms of all sizes, you are not living as an employee in a startup environment even though that’s where the client might be. It’s a great way to marry the environment of experiencing multiple clients with the chance to make a great impact on the business.”
