A Trend No Longer, Zero-Proof Spirits Rise to Any Occasion

By: Tracey L. Kelley

Crafting with spirits is an art that provides endless possibilities for the maker and mixologist alike. But the growing demand for spirit alternatives also demonstrates there are even greater opportunities to present flavor complexity and style.

  Whether through herbal tonics such as those found at Dr. Andrew Weil’s True Food Kitchens throughout the U.S.; spirits “for those partaking” and non-spirits “for the whole family” at Vena’s Fizz House in Portland, Maine; special juice and botanical potions at Shine Restaurant in Boulder, Colorado; or booze-free craft cocktails at the Modernist in San Antonio, Texas; producers of zero-proof options seek to expand the marketplace to allow consumers a bounty of choice.

  “There’s a knee-jerk reaction in some people when they hear about spirit alternatives. I get it — I love spirits too! I promise we’re not here for your guns,” Marcus Sakey, founding partner of Ritual Zero Proof in Chicago, told Beverage Master Magazine. “Our products aren’t meant to replace liquor. It’s a complement, a way to enjoy when you’re driving, dieting, training, making a baby, looking for balance or just have [stuff] to do tomorrow. The need goes way beyond the sober-curious. It’s like almond milk or the Impossible Burger — 90% of purchasers aren’t vegetarian or vegan. People want options, ways to mark a moment without the alcohol or calories.” Ritual produces high-rated gin, tequila and whiskey alternatives.

Tapping Into What Consumers Want

  As Sakey points out, there are numerous reasons why someone might choose not to have alcohol on a particular day, but frequently don’t have alternatives when going out with friends or wanting something to accompany dinner. So while movements such as Dry January or Sober October might have planted the initial seeds for alcohol-free selections, abstinence isn’t the only reason for their popularity.

  “We’ve received great support and encouragement from the sober-curious movement since day one, but we’re seeing the trends becoming habits amongst the 75% of drinkers who switch between alcoholic and non-alcoholic drinks,” said Mark Livings, co-founder and CEO of Lyre’s Non-Alcoholic Spirits, a London-based company with production facilities there as well as Melbourne, Australia and Montreal, Canada.

  “Over time, people are reducing consumption, so for a venue to retain patronage, it’s important to have a quality range available when a drinker inevitably looks for a non-alcoholic option.” Lyre’s extensive award-winning non-alcoholic spirit line includes American Malt, Dry London Spirit, Italian Orange, Dark Cane, Apéritif Rosso, Coffee Originale, White Cane, Amaretti, Italian Spritz, Orange Sec, Spiced Cane and Absinthe.

  Formerly the bar director of chef David Chang’s famous Momofuku Restaurant Group and mixologist for the speakeasy PDT in New York City, John deBary, creator and CEO of Proteau, wanted to solve another problem for customers. “Drinks that didn’t rely on alcohol were always a challenge. Drinkers tended to think of overly sweet and simple ‘mocktails,’ and finding zero-proof drinks that paired well with food was almost impossible.” Also the author of the cocktail book Drink What You Want, deBary crafted Ludlow Red and Rivington Spritz as ready-to-drink, zero-proof botanical options.

  “From a technical standpoint, zero-proof drinks are a fun challenge to a bartender because alcohol, since it’s a solvent, is a great base for flavors. Plus, we have access to thousands of uniquely-flavored products: gin, whiskey, liqueurs, fortified wines – to name a few,” he said. “These challenges are what led me to create Proteau as a way to test my abilities as a bartender/mixologist, and to find a way to create delicious beverages that everyone — not just alcohol drinkers — could enjoy.”

Intent Focuses on Taste and Versatility

  “A well-made cocktail is about taste and mood as much as it’s about alcohol, maybe more so. I wanted to introduce some balance to my bar cart; to be able to enjoy evening cocktails and a morning workout,” Sakey said. “Echoing the taste, smell and mouthfeel of spirits was incredibly difficult. Distillation turned out to be a rabbit hole — the cost was impractical, but more than that, it wasn’t possible to get the flavors right while still keeping it truly non-alcoholic.”

  Sakey said Ritual’s solution was to treat the process like cooking, building upward and layering tastes with quality ingredients such as all-natural botanicals. “The trickiest part was trying to replicate the kick of spirits. Over 500 iterations, we crafted a complex blend of ‘mouth-punch’ botanical elements — some spice, some cooling, some tingle, a few exciting additions I’ll keep under my hat — that work together to trick your taste buds,” he said.

  “Throughout the process, we worked closely with some of Chicago’s best mixologists and chefs. After more than a year of development, one of them said, ‘You know, in a cocktail, I’m not sure most people would be able to tell the difference.’ That was when I knew we had it,” Sakey said. In 2020, the industry-standard Beverage Testing Institute gave all of Ritual’s products three top honors and ranked its Tequila Alternative as the highest-rated non-alcoholic spirit in the world. It also has plans to roll out another spirit alternative in early 2021.

  Livings’ interest in zero-proof options evolved from his personal wellness journey, combined with an awareness of how friends’ and colleagues’ deliberate drinking choices. “They all expressed a common problem: they missed the drinks they knew and loved, and they weren’t impressed with the available alternatives.”

  With a long career in the beverage industry, he had the resources to pull together a team of bar staff, liquor marketers and liquor salespeople. “We figured that if anyone was going to change the way the world drinks, it should be a group of people who have plenty of drinking experience and would never compromise on taste. The big breakthrough was the ‘ah-ha’ that you didn’t have to take the alcohol out of a spirit product to produce a non-alcoholic spirit.”

  The single most important challenge, Livings said, was to provide true non-alcoholic versions of each classic spirit. “The flavor, aroma and appearance of each Lyre’s variant had to meet our high standards and basic test of, ‘Does it feel like I’m having a drink with booze in it?’” he said. “Over two years were invested in breaking apart flavors of the classics. It was very important that each was as close as physically possible to the classic spirits we are paying homage to. We don’t distill our products, as it’s not required when you craft the flavors using essences, extracts and distillates on a non-alcoholic base.”

  Proteau isn’t distilled either, as deBary chooses instead to blend a proprietary mix of botanical extractions with clarified fruit and artisanal vinegar for a low-sugar beverage. “For me, the eureka moment was when I sampled test batches with friends and colleagues, and they didn’t believe there wasn’t alcohol in the recipes. This is when it really dawned on me that the sensation of drinking a complex, intellectually-engaging drink wasn’t reliant on alcohol, and if we could disentangle that, we could open up a whole new world for people.”

Crafting a Solid Future

  Data points to a consistent rise for hand-crafted or small-batch zero-proof spirits, even if on-premises sales are skewed by 2020 pandemic repercussions. Future Market Insights in London indicate key demographics for spirit alternatives — considered part of the functional beverage market — includes 18 to 24 and 25 to 39, with product growth projections of nearly 3% each year for the next five as individuals seek “a multi-sensory drinking experience.” So innovation in the bottle must extend into well-positioned partnerships for marketing and promotion, and our makers know this all too well.

  “Again, people want options. This isn’t just me saying it — sales data bears it out,” Sakey said. “Across 90 days, we have a reorder rate of greater than 40% from major players like Binny’s Beverage Depot, Total Wine & More and ABC Fine Wines. If you extend the period to 120 days, it jumps to 70%. Better still, because Ritual Zero Proof is an ‘and’ product, it leads to higher sales, while serving a set of customers that liquor retailers often couldn’t otherwise capture.”

  Sakey and his team rely on integrated efforts to attract attention. “We’re cocktail aficionados, both leaded and unleaded, and so we love to work closely with mixologists. Some of our favorite Ritual recipes, like The Green Go-Go, have been created by artists like Carley Gaskin [of Hospitality 201 in Chicago], who was selected as The World’s Most Imaginative Bartender in 2018,” Sakey said. “But one challenge we often find is that retailers aren’t sure how to place spirit alternatives. We work closely with them, sharing best practices and providing POS materials. By showcasing a set, including components and mixers to create no- and low-ABV beverages, our partners see notably higher cart rings. It’s a win all around.”

  Livings said the company produces much faster now due to experience and “what the ‘rules’ are of non-alcoholic flavor architecture.” This enables the brand to span the world, broadcasting “an unparalleled range of drinks that you can make with Lyre’s. We have over 20 brand ambassadors, all classically-trained bartenders, so their expertise is the perfect base to help educate and collaborate with other bar staff and mixologists,” he said. “We’ve also worked closely with influencers, bloggers and passionate supporters.”

  In keeping with virtual outreach as venues’ occupancy ebbs and flows, Livings said the company offers one-on-one mixology classes through video chat programs. “When you purchase Lyre’s via our e-commerce site, we set up a private, 15-minute class with one of our brand ambassadors to demonstrate how to make delicious non-alcoholic cocktails at home,” he said. “It’s a unique offering, and we love the opportunity it gives us to meet our Lyre’s drinkers.”

  The primary message deBary reinforces with customers is “they don’t need to lift a finger to enjoy Proteau as intended.” But he trusts what his colleagues can do to provide a unique drinking experience. “Bartenders are naturally creative and experimental people, and we’ve been really happy with how they’ve used Proteau in their recipes and will continue to support that.”

  He also understands the unique value of providing people with a range of selections to fit their desires. “When I was bar director for Momofuku, and we would expand the non-alcoholic drink options at one of our restaurants, we noticed an overall increase in beverage sales,” he said. “The expanded options didn’t cannibalize from any other category and showed us, in real numbers, that we were reaching people who had previously been left out of the conversation. Accessibility is the core of hospitality, and it’s not just the right thing to do; it’s also great for business.”

Raising Capital for Craft Spirits Through Crowdfunding

By: Becky Garrison

Since its founding in 2013, Seattle-based Copperworks Distilling Company developed an award-winning portfolio of spirits with accolades such as the 2018 Best Distillery of the Year award from the American Distillery Institute. Yet, according to Jason Parker, Co-Founder and Presi-dent, they found themselves at a crossroads in growing their distillery last year. Even though they had more than 260 barrels of whiskey aging in inventory, the current demand for their American Single Malt whiskey exceeded their supply of mature whiskey.

  “The only way to win sales in the whiskey market is to have whiskey to sell,” Parker told Beverage Master Magazine. “If we are only growing through cash flow generated by vodka, gin and a little bit of whiskey sales, we won’t have the whiskey to compete in the market against those businesses who received capital investments to produce whiskey. In essence, we must produce whiskey faster than our current cash flow will allow.” 

  Rather than resort to traditional ways of generating capital, they wanted to explore a way to ex-pand their business that would get their friends, family, customers and other supporters involved as brand ambassadors. “We wanted to give them an opportunity to own a little piece of the work and be with us as we grow,” said Parker. 

Choosing Equity Crowdfunding

  Copperworks decided to raise money via equity crowdfunding through the WeFunder website. In Copperworks’ estimation, this approach enables individuals to become part-owners of a privately held company by trading capital for equity shares. This method of generating capital became available in 2016 with the passage of a new law called “Regulation Crowdfunding.” This shift made it legal for anyone to invest small amounts of money in startups.

  Copperworks chose equity crowdfunding over more established crowdfunding platforms like Kickstarter, Indigogo or GoFundMe because, with equity crowdfunding, a company issues equi-ty, such as shares of company stock, to participating investors. A company like Copperworks may also choose to offer perks, but the major incentive is the opportunity to become shareholders in the company.

  In comparison, traditional crowdfunding is more rewardsbased, whereby those who contribute to the campaign receive a perk, such as a discount or an advance copy of the product, but they have no equity in the company. Furthermore, a traditional crowdfunding campaign often offers their products at a discount to generate interest. Should the campaign take off, companies can find themselves unable to meet market demand at this low price point.

  According to Parker, a key advantage of equity crowdfunding is the company’s opportunity to utilize its investors as brand ambassadors. While this component of Copperworks’ strategy has been put on hold due to COVID-19, they are currently in the process of building a brand ambas-sador kit for their investors. In this kit, investors will be given the details of how to approach a restaurant, bar, grocery store or liquor store on behalf of Copperworks.

Challenges of Using Equity Crowdfunding

  Parker acknowledges the need for a distillery to ascertain if equity crowdfunding is the right ap-proach. For example, this approach to raising funds may not work for a business that has only been around for a year or less and has yet to build up a loyal following. “Equity fundraising is a good thing when you’re mature enough for the company to attract the appropriate investors for the valuation,” he said.

  From a company’s point of view, equity crowdfunding requires more upfront costs and financial discipline. The company’s records need to be reviewed professionally, an expensive process that took Copperworks three months to complete. In addition, WeFunder takes 7% of the funds raised, unlike a bank loan where one receives the entire amount upfront and then pays interest over time. Depending on the terms of a loan, a company may pay more in interest through a traditional loan. However, for those companies needing the full amount upfront, a bank loan may be their best option.

  Also, with equity crowdfunding, Copperworks had to be totally transparent with their financials, a process that included having this information readily available for public viewing. For Parker, this transparency fits in with their business model. “We believe transparency is one of the things missing in businesses today, so we want to model that behavior.” In the issue of transparency, they chose to share with their investors why they needed to raise money and how they intended to use these funds.

Promoting and Implementing the Equity Fundraising Campaign

  Copperworks promoted their campaign through their mailing list of 12,000 individuals. In addi-tion, they reached out to the 3,600 folks who liked their Facebook page because they had a high rate of customer engagement on this platform. They were also featured for five weeks in the American Distilling Institute newsletter. Their campaign, which ran from the end of February to April 2020, netted a total of 409 investors and $776,480 in funds.

  Parker admits to the challenges of raising funds right as COVID-19 began impacting the econo-my starting in mid-February. “It’s not very easy to ask people to spend money on a company when they may not have a job, their life savings may be losing 30% of its value, and they don’t know who around them is even going to be alive in a few months.”

  However, he said that since Copperworks had been around for a long time, many people emerged who really liked the company and their products and were looking to support something they cared about. 

  Regardless of the amount of their investment, each investor receives an annual report along with an invitation to every quarterly meeting. For those who invested $1,000, they get 10% off all Copperworks goods for life. Other perks were offered to those investing at higher increments, such as an offer to pick a single cask whiskey, a free event rental or an invitation to be on the board of directors.

  As per the SEC regulations, Copperworks disclosed to their investors the risks associated with capital works. While some of the risks noted are associated with investing in any company, others are specific to the distilled spirits market or Copperworks in particular. For example, the cur-rent distilled spirits market growth could slow or stop in the future. Along those lines, due to the threetier distribution system in the alcohol industry mandated by U.S. law, Copperworks is reli-ant on distribution companies. The distribution system has experienced consolidation in recent years, and should this consolidation continue, distilleries may face difficulty in expanding the distribution of their products.

Outcome of Equity Fundraising Campaign

  Copperworks successfully raised enough money to continue production during the COVID-19 shutdown and produce whiskey at their all-time maximum rate. All employees kept full-time hours, even though the tasting room was (and remains) closed. Therefore, the distillery could de-vote some of its resources to producing hand sanitizer, a product badly needed at the start of the pandemic. 

  Even better than simply raising money, which a bank loan could have accomplished, Copper-works was able to fully engage the support of their loyal fans. Customer engagement through social media, email and quarterly calls increased the opportunity for Copperworks to share their story and their customers to become brand ambassadors. New customer acquisition, which is much more difficult while the Copperworks tasting room is closed, increased through word-of-mouth, and online sales increased due to these outreach efforts.

  As Copperworks looks to expand their production area and event space, they have solicited their new investors’ network to help them find even more opportunities to grow their business. Copperworks is truly building an army of brand ambassadors and getting new talent and ideas through the use of regulation crowdfunding.

Continuously Improving Your Incentive Program

By: Nichole Gunn, Vice President of Marketing & Creative Services, Incentive Solutions

The first years after launching an incentive program are an exciting time for craft beer producers: supply chain trading partners, drawn by the excitement of new promotions and an improved channel partner experience, are more responsive, more motivated and more likely to recommend the brand’s products to restaurants and retailers. During this time, craft beer producers often experience a period of rapid sales growth or improvement in other KPIs the program was designed to target, such as improved partner data profiles or increased referral business. The incentive program’s ROI grows exponentially.

  However, often after 12-30 months, growth begins to stagnate and the ROI curve starts to flatten. If left unaddressed once an incentive program’s novelty starts wearing off and supply chain trading partners become habituated to the program’s value proposition, the incentive program’s ROI may start to decline, leaving craft beer producers scrambling to find ways to replicate the program’s success.

  The good news is that by planning ahead, craft beer producers can anticipate this drop off in interest level and continuously improve their incentive program in order to sustain a competitive advantage in their channel.

Keeping Incentive Programs Fresh

(and Profitable!)

  In order to stay relevant, a channel incentive program has to be able to evolve with the interests of its participants, scale its value proposition over time and respond rapidly to the tactics of the competition. Below are several factors that craft beer producers can focus on in order to continue to drive ROI once program growth begins to stagnate:

•  Evolving incentive program technology.

•  Incorporating elements of gamification.

•  Adding new, richer reward-earning opportunities.

•  Personalizing brand interactions to build loyalty.

•  Re-launching the program with updated features and branding.

  Ideally¬, these are all elements that craft beer producers will consider from the inception of the program, with plans for program expansion at certain intervals. However, these factors can also be incorporated to bring new life to existing programs.

Evolving Incentive Program Technology

  Today, incentive programs are a technology platform, and craft beer producers should be as mindful in selecting incentive program technology as they are in selecting any B2B software platform. From an administrative standpoint, this means choosing an incentive platform that integrates with existing CRMs and other business software and provides streamlined admin tools and generates detailed reports on engagement and ROI.

  However, perhaps more importantly, craft beer producers should focus on selecting incentive software that is fully supported and will be continuously updated to improve the user experience for their supply chain trading partners. More and more, B2B customers expect a seamless B2C-style user experience. Partners will be less likely to engage with a rewards program that uses stale, outdated software, no matter how exciting the reward offering.

  Additionally, agility is key. Craft beer producers should look for incentive software that allows them to quickly go to market, adapt to the tactics of the competition and launch new promotions. These factors will offer an edge when it comes to maintaining engagement throughout the lifetime of their program.

Incorporating Elements of Gamification

  Gamification is the use of game-like elements – such as points-scoring, interactive leaderboards and other competitive components – to increase engagement with a web-based application, such as an incentive program. Gamification is a powerful tool that supply chain trading partners already seek out in their day-to-day lives, from collecting likes on their Facebook page to scoring achievements on Peloton bikes.

  When interest in the program begins to stagnate several years after launch, adding gamification features can give the program new life. Interactive trivia, spin-to-wins, badges and achievements, personalized leaderboards and limited-time point bonuses make the program more compelling and can give a sustainable boost to the program’s effectiveness over time. Additionally, by not relying strictly on reward value to drive engagement, craft beer producers can help lower program costs to increase their ROI.

Adding New, Richer

Reward-Earning Opportunities

  As mentioned earlier, one of the reasons an incentive program can lose its effectiveness overtime is that participants become habituated to the program’s value proposition. Top performing supply chain trading partners may have already redeemed for their most coveted rewards and find themselves with more points than they know what to do with. The competition may have launched their own reward program with comparable, or even more compelling, rewards.

  It’s up to craft beer producers to constantly up the ante with their program’s value proposition. For instance, launching a points-based merchandise reward program alongside an existing debit or gift card program will offer new value for participants. Elevate a points-based program by offering top performers a concierge service to redeem for custom rewards – using their points to buy a new truck, renovate their home or pay for their child’s college tuition will personalize the reward experience and boost the program’s value proposition in a way the competition will struggle to match.

  Additionally, incentive travel promotions can be added onto any program type, giving craft beer producers an opportunity to connect with their supply chain trading partners on a deeply personal level. Given recent restrictions, the demand for incentive travel is projected to be particularly high once it is deemed safer.

  If minimizing rewards cost is a concern, try setting higher qualification thresholds for these more exclusive reward opportunities. Doing so can also help tap into supply chain trading partners’ competitive drive, keeping them more engaged as they compete for a limited number of higher tier rewards.

Personalizing Brand Interactions

to Build Loyalty

  In their early stages, incentive programs are typically geared toward growth. However, if well designed, the program will be able to convert that initial interest and motivation into brand loyalty over time. Loyalty is about more than rewards; rewards appeal to self-interest while loyalty is rooted in creating mutual interest. Craft beer producers can create this loyalty by using their incentive program to provide a highly personalized experience and to help their channel partners become more effective salespeople.

  This personalization should extend through every phase of the incentive program, from designing program communication to be relevant to each segment of their channel partners to basing reward selection on participant lifestyle and interests. Craft beer producer can use engagement metrics from their incentive program to identify which of their supply chain trading partners have a high level of buy-in and which of their partners might need a little more help. They can provide enablement to their partners by providing online courses and certifications and using their incentive program as a platform to educate partners on their brand and product lines, equipping them to more effectively sell their products.

  By using personalization and focusing on partner experience, craft beer producers can build loyalty with their supply chain trading partners in ways that make extrinsic rewards less important. This makes trading partners drastically less likely to lose interest in the program.

Re-Launching the Program with Updated Features and Branding

  Finally, when the growth of an incentive program begins to stagnate, it might be a sign that it’s time to re-launch the program. A program re-launch gives craft beer producers the opportunity to step back and figure out what their prior program did effectively, as well as what they can do better. During this time, craft beer producers should also explore other pain points they would like their new program to target.

  A pause between programs can help build anticipation, as supply chain trading partners realize the value proposition of the previous program that they had begun to take for granted. Once the new program launches, with updated branding and new features, supply chain trading partners will enthusiastically re-enroll and craft beer producers will experience a renewed period of growth. Better yet, by using the knowledge gained from the previous program, craft beer producers can make their re-launched program even more effective than the first.

Planning Ahead for Program Management

  Additionally, craft beer producers can enlist the help of incentive companies to design and manage their programs. Just like crafting an excellent brew requires years of experience, so too does managing an effective incentive program. Working alongside an incentive company with a proven track record can help craft beer producers avoid potential pitfalls and take advantage of decades of experience in managing successful programs.

  Whether a craft beer producer is looking to launch their first program or improve a program that is currently underperforming, the initial investment of partnering with an incentive company can pay dividends down the road.

  Nichole Gunn is the VP of Marketing and Creative Services at Incentive Solutions (www.incentivesolutions.com), an Atlanta-based incentive company that specializes in helping B2B companies improve their channel sales, build customer loyalty, and motivate their employees. Nichole Gunn can be reached at ngunn@incentivesolutions.com.

COVID-19 Continues to Impact Canadian Craft Beer Industry

By: Briana Doyle

The COVID-19 pandemic continues to reshape the craft beer landscape in Canada. Unlike in the spring, when businesses closed from coast-to-coast, what breweries are experiencing to-day is very different depending on where they are in Canada.

  Breweries in the Maritime provinces — Nova Scotia, Prince Edward Island and Newfoundland and Labrador — are almost back to business as usual, thanks to the Atlantic Bubble. Strict mask-wearing and sanitation rules, along with aggressive contact tracing, have left this part of Canada with some of the lowest rates of COVID-19 in the world.

  Like Australia and New Zealand, the remote Maritime region has benefited from its isolation. This region has almost completely eliminated cases of COVID-19 thanks to strict travel re-strictions that require anyone entering the region — including fellow Canadians — to self-quarantine for 14 days. The only other Canadian region with a similar requirement is the Northwest Territories, which also has a low number of cases.

  Even here, however, festivals and events have been canceled, restaurant and pub seating ca-pacities are reduced and gathering limits have been imposed to reduce the risk of super-spreading events that could lead to a resurgence of COVID-19.

  In Quebec, by contrast, breweries and brewpubs, like bars and restaurants, were forced to close again this fall as partial lockdowns were reimposed to quell the spread of COVID-19. When this column was written, it appeared that other provinces, including Ontario, British Co-lumbia and Alberta, were heading in the same direction.

  For breweries in Canada’s COVID-19 hot spots, the playing field is far from even. Each prov-ince has responded differently to the pandemic. In Ontario, for example, home delivery has emerged as an important sales channel for craft breweries. Taprooms that were focused on servicing their local community are now launching full-fledged e-commerce websites and ship-ping beer anywhere the rules allow.

  The province has relaxed certain rules around alcohol delivery, which has opened up new op-portunities for brewpubs to sell beer from other breweries — something the craft beer industry has been lobbying for over many years. Dominion City in Ottawa, for example, is now offering a “Friends of the Dominion” variety pack featuring a handpicked selection of Ontario beers. The package comes with a bag of chips — the token “food” item to meet the restaurant license re-quirements.

  In areas hit hard by the second wave of the pandemic, many breweries are struggling to stay afloat. To offer some of these producers a little lift, Canadian brewery supplier, Hops Connect, created a pandemic beer called Isolation Nation, a light and refreshing ale with notes of man-darin, lemon and tea. The company provided the hops and malt required to produce it, at no cost, to 45 breweries from coast-to-coast to help them make a little extra cash. The beer is made from Canadian-grown malt and locally produced Sasquatch hops.

  The first brewery to launch its version of Isolation Nation was the New Maritime Beer Company in Miramichi, New Brunswick. The brewery opened in 2020 and brewed its inaugural batch of beer just two days before the first pandemic shutdowns in March. Co-founder Adam Lordon told CBC News that it was hard to think of worse timing for the shutdown. “It was pretty much at the beginning and the worst possible timing. The startup phase is certainly challenging enough and can be stressful enough in the best of times,” he said. To pay it forward, the brew-ery is donating a portion of profits from the sale of this beer to the local food bank.

  New Maritime Beer Company is still in business, for now at least, but many other Canadian craft breweries are closing operations or seriously considering it. After six years in business, Ontario’s Abe Erb Brewing announced in October that it would shut all four of its locations in Waterloo, Kitchener, Ayr Village and Guelph.

  In Alberta, Mill Street Brewery announced in late October that it would close its Calgary brew-pub due to COVID-19. Mill Street’s other brewpubs in Toronto, Ottawa and St. John’s will re-main open.

  In British Columbia, Central City Brewers + Distillers also closed one of its Red Racer Tap-houses in downtown Vancouver after five years.

  In April, a survey of craft breweries conducted by the Canadian Craft Brewers Association found that 44% reported a year-over-year drop in revenue of 50% or more when the pandemic hit in March. 

  Most breweries who responded to the survey reported having cash reserves for only three months or less. Although the federal government has introduced financial support programs for businesses, many craft breweries did not meet the requirements for financial aid. Establish-ments in business for less than a year did not qualify for many programs, for example, while other programs specifically excluded alcohol-based enterprises. 

  With restaurants and bars closed in many parts of the country, more Canadians are eating and drinking at home these days. A poll released in June by the Canadian Centre on Substance Use and Addiction found that one in five Canadians who drink alcohol and have been staying home more since the pandemic drink more often than before the onset of the pandemic. About 20% said they have a drink every day.

  “It is reassuring to see that for the majority of Canadians, alcohol use has either decreased or remained stable since the onset of COVID-19,” said Dr. Catherine Paradis, senior research and policy analyst at CCSA. “However, from a gender perspective, there is concern. On average, female consumers of alcohol are reporting 2.4 alcoholic drinks per occasion — which is above the low-risk alcohol drinking guidelines — and about 12% are reporting they consume alcohol in excess when they drink. By doing so, women are putting themselves at risk for short- and long-term negative health consequences.”

  As awareness grows of the negative health impacts of alcohol, a growing number of millennial beer-lovers are now looking for low- and no-alcohol beer alternatives. Between 2013 and 2018, nonalcoholic beer sales increased more than 50%, and over the past year, the category has grown 12% in total volume.

  In a press release announcing the launch of alcohol-free Budweiser Zero in Canada this fall, the company noted that consumer data reveals the 19-to-34-year-old age group, including mil-lennials and older members of Generation Z, led all demographic groups in consumption vol-ume of nonalcoholic beer.

  These “sober-curious” consumers aren’t necessarily teetotallers but are seeking responsible alternatives when they do not wish to drink booze, whether for health reasons or because they don’t want to drink and drive.

  According to Budweiser’s research, 64% of no- and low-alcohol beer is consumed by those in the 19-to-34 bracket. Women most often choose nonalcoholic beer as an alternative to sugary drinks, and men see it as suitable for a variety of social occasions.

  It isn’t just big breweries that have noticed this consumer trend. This fall, Beau’s Brewing in Ontario joined a growing number of breweries offering lower-alcohol options for customers, with the introduction of Lug Tread 2.5% — a lighter version of its flagship brew.

  Beau’s designed the layered ale to mimic the taste of the company’s most popular beer, Lug Tread, with a blend of barley malts and wheat delivering fresh grain flavor and a satisfying mouthfeel. The brew has mild herbal and orchard fruit notes and a clean finish. 

  “This is no watered down, bland ‘lite’ beer,” company co-founder Steve Beauchesne told Na-tion Valley News. “We’ve put time and care into developing this recipe, and we’re super happy with the results. This is a low alcohol beer that actually tastes like craft beer.”

  The beer is available in single 473mL cans at provincial liquor stores and the brewery, and will also be in the brewery’s six-pack winter sampler.

  In the spring, Toronto-based Rorschach Brewing also launched a nonalcoholic offshoot, Free Spirit Brewing, which debuted with the 0%, low-calorie Adventure IPA. The beer is available in cans and on tap at the brewery.

  Microbrasserie Le BockAle, based in Drummondville, Quebec, has gone even farther. The company has made a name for itself producing nonalcoholic craft beer, which it distributes throughout Quebec and Ontario. In June, the company also launched an e-commerce website offering free shipping across Canada. Le BockAle offers three core beer varieties, Découverte IPA, Berliner Sonne Berliner Weisse and Trou Noir Stout, as well as occasional limited-edition releases.

  Likewise, Toronto-based Partake Brewing has developed a line of five low-calorie, nonalcohol-ic craft beers that have proven popular in Canada: a red, IPA, blonde, pale ale and stout. Now the company is getting set to expand into the U.S. In September, Partake announced that it raised $4 million of Series A capital in a funding round led by San Francisco-based CircleUp Growth Partners.

  The new funds will accelerate the company’s growth, specifically in the U.S. market, by allowing the brand to secure key hires, grow its distribution and retail network and build consumer brand awareness. This growth will support Partake Brewing’s expanding coverage with retailers such as Total Wine & More and Whole Foods Market.

Intellectual Property for Beverage Manufacturers

By: Brian D. Kaider, Esq.

While many people are familiar with the four main types of intellectual property: patents, copyrights, trademarks, and trade secrets, often they don’t know the distinctions between them or what they are meant to protect.  This article is meant to cut through the confusion and explain these distinctions and how each property right applies to the beverage industry.

Patents Protect Ideas – sort of

  Most people have a general understanding that a patent protects an “invention” or an idea.  In a very general sense, that’s true.  But, even though the Congressional authority to grant patent rights comes directly from the U.S. Constitution (Article 1, Section 8, Clause 8), exactly what is patentable is the subject of tremendous confusion among the U.S. population, examiners at the U.S. Patent and Trademark Office, lawyers, and even judges; sometimes requiring clarification from the U.S. Supreme Court.  The purpose behind the grant of a patent is to encourage innovation by granting exclusive rights to one’s discoveries for a limited time.  In other words, it gives the patent holder a short-term (20 years from the date of filing) monopoly on his invention.  Generally, new machines, chemicals, electronics, methods of production, and in some cases, methods of doing business, are eligible for patent protection.

  But, not all ideas are patentable.  In fact, ideas alone cannot be patented.  They must first be “reduced to practice,” meaning that either you must have actually created your invention or have described it in sufficient detail that someone skilled in that area could follow your disclosure and create it themselves.  So, you can’t get a patent on a time machine, because (at least for now) no one has figured out how to defy the time-space continuum.  In addition, to be patentable, ideas must be novel, meaning that no one else has ever disclosed that idea before, and non-obvious, meaning that your idea cannot be an obvious variant on someone else’s invention.

  Given that humans have been making beer for thousands of years, one might think that coming up with something novel in the brewing process would be impossible.  Not so.  In preparation for this article, I ran a quick search of patents containing the word “beer” in the title and got 491 hits.  Some recent examples include U.S. Patent No. 10,570,357 – “In-line detection of chemical compounds in beer,” U.S. Patent No. 10,550,358 – Method of producing beer having a tailored flavor profile,”  and U.S. Patent No. 10,400,200 – Filter arrangement with false bottom for beer-brewing system.” 

  Improvements in any area of the alcoholic beverage industry may be patentable including, new types of bottles, cans, growlers, and kegs; new types of closures and caps; improved methods of separating hops from bines and leaves; new processing equipment, improved testing procedures and equipment, improved packaging, etc.  Essentially, anything that lowers costs between the farm and the consumer, improves the quality of the beverage, or enhances the consumer experience is worth considering for patent protection.

  One word of caution, however; time is of the essence.  The America Invents Act, effective March 16, 2013, brought the U.S. in line with most other countries in being a “first to file” system, meaning if two people develop the same invention, the first to file for patent protection wins, regardless of who first came up with the idea.  Also, any public disclosure of your idea (such as at a trade show) starts a 1-year clock to file or you may lose your eligibility for patent protection.

Copyrights Protect Creative Works

  The authority for copyright protection stems from the same section of the U.S. Constitution as patent protection, discussed above.  Our founding fathers recognized the valuable contribution made to society by authors and artists and, therefore, sought to encourage creative expression by providing protection for artistic works.  Examples of copyrightable materials include, books, paintings, sculptures, musical compositions, and photographs.

  Unlike inventive ideas, which are only protected when the government issues a patent to the inventor, copyrights attach at the moment the artistic work is “fixed” in a tangible medium.  So, for example, if a composer develops a new musical score in her head it isn’t protected, but the moment she translates that tune to notes on a page or computer screen, it becomes protected by copyright.  In order to enforce that copyright in court, however, it must be registered with the U.S. Copyright Office.  While it is possible to wait until an infringer comes along before filing for registration, doing so can severely limit the damages that may be available to the author of the creative work.  So, early registration is the better course. 

  In the beverage industry, copyright issues often crop up with regard to labels and advertising materials.  But often disputes arise relating to who owns the artwork contained within a label, for example.  Generally, the author of a work owns the copyright.  But, if an employee of a brewery, acting within the scope of their employment, creates an image that the brewery owner incorporates into its labels, that picture is considered a “work made for hire” and is owned by the brewery.  Where disputes often arise, however, is if the brewery hires an outside artist or a branding agency to develop the artwork.  In that case, the brewery should include language in its contract requiring assignment of all copyrights to the brewery for the created artistic works.  The same would apply for any artwork commissioned for use inside the brewery tasting room or for marketing materials.

Trademarks Protect “Source Identifiers”

  People generally associate trademarks with the protection of a brand.  In fact, I have often described trademarks as an “insurance policy for your brand.”  But, in more technical terms, what a trademark protects is a “source identifier.”  The purpose of trademark law is to protect consumers from being misled or mistaken as to the source of a product.  So, for example, if a consumer sees a pair of shoes with a certain famous “swoosh” image on the side, they should be reasonably able to assume that pair of shoes was manufactured by Nike, Inc. and was made with the same degree of workmanship and quality that they have come to expect from that company.  That “swoosh” symbol, therefore, acts as a source identifier to tell the public that the product was made by Nike, Inc. 

  What may function as a trademark can be quite broad, including: the name of the business (e.g., Triple Nickle Distillery®), a logo (e.g., the “swoosh”), a color (e.g., the Home Depot orange or the UPS brown), even a scent (e.g., Verizon owns a trademark on a “flowery musk scent” it pumps into its stores to help distinguish them from competitors’ environments).  Not everything can be trademarked, however.  Slogans, words, and images that appear merely as decoration as opposed to a means of identifying the supplier will not qualify for protection unless the applicant can demonstrate that the item has achieved “secondary meaning,” i.e., that the public has come to associate that item with the manufacturer.  As an example, in the 1970’s McDonalds used the slogan, “You deserve a break today” in its commercials and other advertising.  People came to associate this phrase with McDonalds and in 1973 they were granted a trademark registration.  Incidentally, McDonalds briefly let this trademark go abandoned in 2014, but quickly re-filed and the mark is still active today, more than 45 years after it first registered.

  In general, marks also cannot be descriptive of the product or geographically descriptive of the source in order to be registered as a trademark.  For example, one could not obtain a registration for just the words “India Pale Ale.,” because it simply describes the product and does nothing to differentiate it from every other IPA on the market.  Similarly, an attempt in 2019 to register the name “Philly City Brewery” was refused as “primarily geographically descriptive,” because the applicant could not demonstrate that people had come to associate that name with its business as opposed to the many other breweries in Philadelphia. 

Trade Secrets Protect Valuable Confidential Business Information

  Unlike other forms of intellectual property, there is no registration system for trade secrets, because, by their very nature, they must be protected from all unnecessary disclosure.  Trade secrets can be just about anything that is confidential to your business and gives you a competitive advantage.  Some examples, include recipes, client lists, manufacturing processes, marketing plans, and client lists.  These are things that, if publicly disclosed, would harm the competitive position of the company and, therefore, must be vigorously protected. 

  One of the most famous trade secrets is the formula for Coca-Cola.  This formula has been protected for more than 130 years, sometimes through extraordinary measures.  In 1977, The Coca Cola Company withdrew its product from India, because in order to sell there, they would have had to disclose the formula to the government.  They decided it was more prudent to forego sales to one of the biggest populations on earth rather than risk disclosure of their secret recipe.

  Protecting trade secrets requires constant vigilance in two ways.  First, the information should only be disseminated to people within the company, or outside consultants, who need the information in order to perform their duties for the company.  In other words, the information is on a strictly “need-to-know” basis.  Second, those few people who are given access, should sign non-disclosure agreements with harsh penalties for breach of their duty of confidentiality.  Once the information gets out, it’s nearly impossible to un-ring that bell, so there must be severe financial consequences to someone who leaks the information.

  Brian Kaider is a principal of KaiderLaw, a law firm with extensive experience in the craft beverage industry. He has represented clients from the smallest of start-up breweries to Fortune 500 corporations in the navigation of regulatory requirements, drafting and negotiating contracts, prosecuting trademark and patent applications, and complex commercial litigation.

For more information please contact Brian Kaider at…
240-308-8032; BKAIDER@KAIDERLAW.COM; www.KaiderLaw.com

Varieties of Gin Botanicals in the Pacific Northwest

By: Becky Garrison

The recent sale of Aviation Gin to Diageo in August 2020 put the Portland, Oregon, distillery scene, and gin in particular, back on the national map. Aviation’s history can be traced back to 2004 when Christian Krogstad and his wife, Christina, launched House Spirits Distillery intend-ing to make American single malt whiskey. However, as whiskey requires a significant time in-vestment, they decided to generate some revenue by redistilling a neutral grain spirit-based gin that could be brought to market relatively quickly.

  They chose to deviate from the other gins on the market at the time, which they found to be juni-per heavy. They began experimenting with different botanicals and spices in a quest to manufac-ture a truly American spirit.  

  “When I started a beer business, I learned from my brewing experience that you really have to innovate. You can’t just do what other people are doing,” Krogstad said.

  A year later, Ryan Magarian joined the team and came up with the term “New Western Dry Gin.” The first taste of Aviation’s new style of gin was not juniper, but a balanced blend of bo-tanicals that included cardamom, coriander, French lavender, anise seed, sarsaparilla, juniper and two kinds of orange peel.

  These botanicals are steeped in neutral grain spirit for about 18 hours and then combined with water and distilled in a steel still for about seven hours. The resulting product is 142 proof initial-ly but cut to 84 proof for bottling.

  The name Aviation came from the iconic Aviation Cocktail created in the early twentieth centu-ry. Their bottle design, Krogstad noted, is “almost reminiscent of the Chrysler building in New York City,” and brings to mind the style of the TV series “Mad Men,” circa 1960.

  In 2016, owners Christian Krogstad, Thomas Mooney and Ryan Magarian sold the Aviation brand to Davos and put their money and energies toward expanding production of Westward Whiskey. (Incidentally, Westward Whiskey is also partly owned by Diageo).

Cask Finished Gin at Copperworks Distilling Company

  Jason Parker, first head brewer at Pike Brewing Company and co-founder of Copperworks Dis-tilling Company in Seattle, Washington, took a somewhat similar route to Krogstad when he founded Copperworks in 2013 with fellow craft beer maker, Micah Nutt. They began distilling their small batch gin so the proceeds could keep their business afloat until their American single malt whiskey matured and could be marketed. Their gin is distilled from a base of Washington-grown malted barley with a balance of juniper and hints of coriander, citrus and other exotic bo-tanicals.

  They also began experimenting with cask finished gins. Copperworks New Oak Cask Finished Gin is finished for roughly three months in charred, new American Oak barrels, the same barrels used to age Copperworks’ single malt whiskies.

  Cask finishing brings forward floral, coriander and cinnamon notes and softens the juniper. Also, the presence of caramel and vanilla comes from the barrel. “The other spices really pop forward, and you get this kind of burnt character to the orange. It’s really delicious,” Parker said.

  This venture led to an experimental cask finished gin series that includes limited-edition gins fin-ished in casks that previously held spirits such as Laphroaig Single Malt Scotch Whisky and Caol Ila Single Malt Scotch Whisky.

Surveying Other Gins in the Pacific Northwest

  In what appears to be a trend, Freeland Spirits in Portland, Oregon, founder Jill Kuehler also be-gan distilling gin while waiting for their bourbon to mature. Named in honor of Kuehler’s grandmother, Meemaw Freeland, this women-owned distillery seeks to capture the flavor of Meemaw’s garden gin. Kuehler’s team combines traditional heat distillation with vacuum distil-lation to turn fresh Pacific Northwest grains, ingredients such as cucumber, rosemary and mint, as well as other dried botanicals, into the small-batch gin. They also produce an award-winning canned gin and tonic cocktail, and Geneva, a spirit inspired by genever that showcases Oregon-grown rye with savory botanicals.

  Scratch Distillery in Edmonds, Washington, was born out of Kim Karrick’s passion for making gin– from scratch–using locally sourced organic ingredients. Scratch Gin is crafted from the dis-tillery’s organic, non-GMO, wheat-based vodka, and vapor infused in the still using a gin basket. Customers can choose from a barrel-finished, martini-style or gin-and-tonic-style gin, depending on their taste preferences. Knowing that each person has a unique palette, Karrick also developed the GINiology program. Here, participants choose from more than thirty different botanicals, spices and other flavors to create a personalized gin to take home.

  AJ Temple of Temple Distilling Company in Lynwood, Washington, distills his gin using a cus-tom stainless steel and copper bain-marie style pot still. This double boiler heating method lends an even and soft heat to the botanicals. Temple Distilling’s first and flagship spirit, Chapter One London Dry Gin, was made to showcase a love for old world-style gins. Other offerings include Navy Strength gin, aged in once-used bourbon casks, and a limoncello. Since Temple discovered citrus oils play better at higher strengths, they use fresh lime peel and dried grapefruit, as well as cassia bark for added body, when making their Navy Strength gin.

  Rusty Caldwell, co-owner at 503 Distilling in Oregon City, Oregon, views gin like a calling card. Every distiller tells their story by showing what they find tasteful and elegant through their choice of botanicals. “Like wine, our Circa 17 gin tells the story of terroir,” Caldwell said. “Our use of Oregon juniper, fresh-cut spruce tips, gardened rosemary and other herbs represents a taste of our environment in the Pacific Northwest.”

  Distilled in Seattle, Washington, Big Gin is named after founder and third-generation distiller, Ben Capdevielle’s father, Big Jim. The juniper, sourced in Italy, Albania and Macedonia, along-side cardamom, cassia, and Tasmanian pepperberry, gives the gin a complex peppery or spicy flavor, while the angelica, coriander and bitter orange peel add citrus and savory flavor. Now owned by Hood River Distillers, Big Gin offers a London Dry gin, along with Big Gin Bourbon Barreled, Big Gin Peat Barreled and other Big Gin Single Barrel releases.

Aria Gin: Dry London Gin Infused With the Pacific Northwest Spirit

  In response to this ginned up craze, Aria Portland Dry Gin, established in 2012, set out to pro-duce a top-shelf classic dry London gin. As much as co-owner Ryan Csanky loved gins like Avi-ation, he found they did not work when he would make a classic martini for his older clientele. 

  “Distillers would use all these innovative and creative flavors like prickly pear, spruce tips and lavender, and build a drink around them. But they don’t always plug directly into some of the classic gin cocktails that people like,” Csanky said.

  Rather than push the boundaries of flavor even further than Aviation, Csanky decided to pursue another route. “We had this aha moment where we decided to take a big step back and shift our focus to doing something that is not being done. For us, that was a high-quality, independently-made alternative to the mass-produced gins.”

  They experimented with traditional English botanicals, searching for the right harmony and bal-ance in crafting a classic dry London gin. “I didn’t want the gin defined by a single ingredient or a single component of the flavor profile,” Csanky said. “The art of this gin is all about how we paint the picture with the botanicals.”

  Two years into product development, they realized they did not need to use nearly as much product. So they moved away from the heavy-handed, intense flavors Csanky found were present in many independent gins, in favor of flavor combinations that were bold but also delicate. Even-tually, they settled on a recipe that combines the ten-ingredients they list on the bottle: juniper, coriander, angelica root, grains of paradise, cubeb berry, orris root, lemon zest, orange zest and cassia bark. 

  Presently, Csanky does not plan on distilling other products. “I don’t want to make a little bit of everything and do it all kind of decently. I want to make one thing and be known for doing it well.”

  Moving forward, Caldwell of 503 Distilling offers a reflection on the future of gin. “One of the things I love about gin is that within recent years distillers–and consumers–have opened their minds to appreciating gin like they would whiskey. Until recently, gin has always been given the distinction of a mixer spirit, which means that it must be neutral enough to be blended into an-other substance. However, among craft distillers, there is now the trend to treat botanicals like a brewer treats hops.”

Pike Brewing Company Cofounder Rose Ann Finkel Leaves Behind Pioneering Legacy as Seattle Food-scene Entrepreneur

Rose Ann Finkel with her husband, Charles.

By: Becky Garrison

After the July/August issue of Beverage Master Magazine featuring an article highlighting the 30th anniversary of The Pike Brewing Company went to press, news broke of the death of Cofounder Rose Ann  Finkel. She died on Tuesday June 16, 2020 at the age of 73 from Myelodysplastic syndrome blood cancer.

“We have had a wonderful experience for almost 52 years,” Charles says of Rose Ann. “She had a lot of friends, a lot of people who loved her. She made a really great impression on everyone she met. I miss her, obviously. But I’m very happy she died in peace surrounded by people who loved her.” (Forbes, June 17, 2020).

As reported by the Seattle Times, It’s impossible to talk about Seattle brewery history without mentioning Rose Ann Finkel. From her arrival in Seattle in the mid ‘70s, she helped shape the way this city ate, thought about beer and how the two best complemented each other.

Jason Parker, Co-Founder/President Copperworks Distilling Co., who served as Pike Brewing Company’s first head brewer, reflected on Rose Ann’s legacy.

Rose Ann was the perfect dance partner to Charles in life, love, and in business, which for the Finkels, were one in the same. Though frequently in the spotlight with Charles, Rose Ann also worked behind the scenes to pull deals together and lead the business of their endeavors, from importing containers of malt to picking out tee shirts for the staff. Transcending her contributions to helping the company succeed was her influence on folks, and especially women, in the industry, who looked at Rose Ann as a role model for enjoying life, getting things done, and encouraging others, all at the same time. 

After finding Merchant du Vin in 1978, the Finkels became known in international beer circles due to their success introducing Americans to specialty beers brewed by family-run breweries from England, Germany, and Belgium, as well as other places throughout the world including the United States. Along with this commitment to craft culture, Rose Ann championed community causes through events such as Pike’s Women In Beer. This annual cerebration of craft beverages, local foods, and the women who make them, benefits the Planned Parenthood of the Great Northwest & Hawaiian Islands.

When asked how Women in Beer tied in to Pike’s company philosophy, Rose Ann offered this response.

Pike’s community mission is focused on being good and doing good. Whereas brewing great beer is in itself a laudable goal, it is our mission is to provide employees with a happy, artistically driven, and soul satisfying experience. To build a team of diverse employees who share our vision to be good community citizens, supporting non-profits whose mission is in concert with ours.

As an example of the Finkels’ commitment to building a better world, the aforementioned Forbes article noted how Charles concluded a phone call. “He didn’t elaborate on how he wants to get back to work at the agency (he does) or lament that COVID is keeping his family from holding a proper funeral for his wife (he hopes a memorial service will happen at some point in their home garden) but enumerated more than half a dozen civil rights movies he recommends. There may not be a more illustrative example of the Finkel spirit: forward-looking, optimistic, pragmatic, gracious and genuinely working for the betterment of the community – not just their own but everyone’s.”

People have inquired about her favorite charities. They include The Weizmann Institute of Science, Fred Hutchinson Cancer Research, Planned Parenthood, The Southern Poverty Law Center, and College Success Foundation

Brewery Financial Statements 101:

How to use Financial Reports to Improve Results

By: Kary Shumway, CPA, CFO, Numbers Guy

Financial literacy is the ability to read and understand the numbers of your brewery business so that you can improve financial results. Improving financial results may include growing sales, improving gross margins or increasing cash flow. In today’s uncertain times, financial literacy is more important than ever.

  The numbers of your brewery business are reported on the financial statements – the income statement, balance sheet and statement of cash flows. Each of these reports provides vital financial information to understand what’s going on in your business.

  In this article, we’ll review the basic components of brewery financial statements and provide examples of what these reports should look like. We’ll also dig into the mysteries of the brewery chart of accounts – the building blocks of the financials – and provide tips to make sure your financial reporting is as good as it can be.

  We’ll close out with a list of best practices to follow so that your financial information is accurately reported. These best practices are summarized into a handy checklist of month end procedures to follow.

Brewery Financial Reports

  The numbers of your business are organized into reports called the financial statements: the income statement, balance sheet and statement of cash flows. Each statement provides useful information about a different part of your brewery business.    Below is a brief review of each report.

  Income statement (Profit & Loss Statement or P&L): The brewery income statement reports on sales, margins, operating expenses and shows whether the business had a profit or loss. This statement measures results over a period of time – the month, the quarter, or year to date, for example.

  It’s important to understand that the income statement measures transactions but does not measure cash flow. The income statement records sales when earned, and expenses when incurred, regardless of whether cash was received or paid out. 

  Balance sheet: The brewery balance sheet lists assets, liabilities and equity.  Assets are things you own, liabilities are things you owe, and equity is the difference between the two.  If assets are larger than liabilities, you have equity.  If liabilities are bigger, you have a deficit.

  While the income statement measures results over a period of time, the balance sheet measures numbers as of a specific point in time – at month end, quarter end or year end, for example. 

  Statement of cash flows: This financial report measures the flow of cash coming into and going out of the brewery business.  It tells you where cash came from (collections on sales, for example) and where cash went (payments to vendors, for example).  The income statement measures transactions, not cash. The statement of cash flows shows picks up where the income statement leaves off and records the flow of money through the business.

Brewery Income Statement (P&L) Examples

  Now that we’ve covered the basic financial reports, let’s look at examples of what brewery income statements should look like.

  We’ll begin with a summarized version of the P&L.  Shorter reports are easier to read and allow you to see important information quickly.  The summary report includes sub-totals for each major P&L category: sales, margins, operating expenses and profit or loss.

  The simple P&L shows the summarized results for a period of time (Year to Date, in this example) and presents each category as a percentage of sales. P&Ls don’t need to be five or ten pages long to be good. In fact, shorter is better. Shorter is easier to read and makes it more likely that you actually will read the report. Start with a summary P&L like this one, then expand the report by adding more details. Here’s an example:

  This P&L shows sales, cost of sales, and margins by package type. This type of presentation makes it easy to see the margin percentage by package type (kegs, cans or bottles) which is useful in analyzing portfolio profitability.

  An alternative to this P&L is to present the information by line of business. This might include sales through the taproom, self-distribution and wholesale distribution. Regardless of which method you use, it’s helpful to mirror the sales categories within the cost of sales and margins categories. For example, have a separate account for taproom sales, taproom cost of sales, and taproom margins.

  Financial literacy is the ability to read and understand the numbers of your brewery business so that you can improve financial results. The income statement, balance sheet and statement of cash flows are reports that summarize those numbers. Each report gives you different information about the business, and each is important to review on a regular basis.

Brewery Chart of Accounts

  Accountants use the term Chart of Accounts to describe the listing of all the things you want to track and report on in your business. These include all of the assets, liabilities, revenue and expenses. The purpose of this listing is to provide organization and structure for your financial reporting. The Chart of Accounts serves as the building blocks of your financial statements.

  The level of detail in your chart of accounts listing will depend on how much information you want to see on your financial reports. For example, you may have three different sales accounts, as shown earlier: Sales-Kegs, Sales-Cans, and Sales-Bottles.  Each captures the sales specific to a type of package.

  Alternatively, you may have any number of different sales accounts to show sales by market and package type. For example, Sales Self-Distribution Kegs, Sales Self-Distribution Cans, Sales Self-Distribution Kegs, etc.

  Be purposeful about the level of detail in your chart of accounts. More detail may be preferable, however this will take more time for your bookkeeper to record the transactions into the proper accounts. Start with the kind of reporting you need to see in your financial statements and build the chart of accounts accordingly.

  For an example of a full brewery chart of accounts, visit www.craftbreweryfinance.com and enter chart of accounts in the search box.

Brewery Financial Month-end Process

  We’ve covered the basics of how to read the financial statements and understand the chart of accounts. Next, we’ll review a month-end process you can use to make sure your numbers are complete and accurate. A process is defined as a series of steps, followed in order, that will lead to the right outcome. In this case, the right outcome is accurate numbers in the financial reports.

  The month-end process should be clearly written and used as a document to train your bookkeeping staff. An accounting manager should periodically audit the work of staff to ensure that the process is being followed. 

  The process can be presented in the form of a checklist, indicating what task to do, when to do it, and who is responsible for completion.  Below is an example of a month-end financial checklist:

  The process checklist should contain all the necessary steps to close the books for the month in order to ensure the accuracy and completeness of the information. For example, all payroll journal entries should be made on the 1st day of the new month and all bank statements should be reconciled by the 5th business day of the month.

  To create your month-end process checklist, have your bookkeeper write down all the actions they take to close the month. Compile this list of actions and assign due dates and a responsible person. Each month when it’s time to close the books, use the checklist as a guide to make sure each step is done and completed on time.

  The best way to make sure you have good financial information is to follow a good process consistently. To download a full month-end process checklist, visit www.craftbreweryfinance.com and enter month-end process in the search box.

Wrap Up + Action Items

  Financial literacy is the ability to read and understand your financial statements so that you can improve results in your brewery business. Improved results may be sales growth, margin increases or positive cash flow. You define the result you want to achieve and use your financial literacy to make it happen.

  Use the summary income statement templates presented here or create your own so that you can monitor financial outcomes. Review your chart of accounts and compare to the template at www.craftbreweryfinance.com to identify any needed changes.

  In today’s uncertain business environment, financial literacy is a competitive advantage. Use this advantage to drive increased financial performance in your brewery business today.

    Kary Shumway is a Certified Public Accountant and has been working as a CFO in the beer business for the past 15 plus years. He creates financial training courses for beer wholesaler owners so that you can build a more profitable business.

For more information please visitwww.craftbreweryfinance.com.

Beyond the Mask: Rebuilding after COVID-19

By: Tracey L. Kelley

  At press time, details about the future economic impact of the pandemic are in constant fluctuation. However, most forecasters are certain greater challenges loom large. 

  It’s not for a lack of effort. There were many expedient pivots in the craft beverage industry, from the much-lauded manufacturing of hand sanitizer and flipping stale beer into whiskey to crafting subscription boxes and extending off-premise sales.

So, now what? We asked business consultants to provide their perspectives, and they eagerly offered frank but encouraging relaunch and repositioning action steps we hope spark ideas. Our experts include:

  Jacob Halls, partner, and Rick Laxague, partner, Craft Beverage Consultants in Columbia, Missouri. Halls advises in areas of business strategy, compliance and marketing and distribution. Laxague provides plans for distribution, operations and sales and marketing. Laxague said, “Our experts have a combined 150 years in the alcoholic beverage industry, with deep knowledge in everything from sales and distribution, production and regulatory compliance to marketing, package design, event planning, IT, (social) media, hospitality and even values-based executive coaching.”

  Scott Schiller, managing director of Thoroughbred Spirits Group, which specializes in helping new and established spirit companies. Schiller said, “Since 2009, our Chicago-based company has helped launch more than 30 distilleries, designed over 50 spirits brands and facilitated three exits.”

  Beverage Master Magazine (BM): Right now, there’s still considerable uncertainty in the beer, cider and spirits industries. Is this a time to wait and see what happens, or an opportunity to take proactive steps?   

  Jacob Halls (JH): Be proactive—successful companies see their environment and adapt to it. Waiting to see what happens to you takes you out of an element of control of the direction of your company. See the changes in the hospitality climate and take note of how they’re not going to be going back to how they were anytime soon and adapt accordingly.

Consider:

1.  Were your on-premise sales 80% of your business? Find a way to team up with your prime on-premise accounts to set up partnered order pairs if the state allows curbside/delivery alcohol sales. For example, if you have 200 kegs, sell them directly from the taproom.

2.  Slow down production in the areas where your sales drastically diminished, and shift to areas that have picked up. 

3.  Are you currently doing curbside sales at your taproom to supplement that revenue generation? Have you created a gift card program? Have you developed an online sales system and where legal, delivery/distribution program for your products and merchandise? Have you explored every option of new streams of sales? How have you maintained connection with your customer base?

Adapt—or Get Ready to Sell Your Equipment

  Rick Laxague (RL): Be proactive now! If you’re not analyzing your business right now and what the new normal looks like for your brand post-COVID, chances are you won’t recover from this.

Scott Schiller (SS): The spirits business is recession resilient, not recession-proof. I’m not an economist, but at the time of writing this, I don’t foresee the economy recovering quickly. As such, there’s no better time for the well-prepared—whether existing or those in the wings to enter the industry.

  I take no pride in writing this, but there are many distilleries, and companies in general, at risk before COVID. Unfortunately, COVID is forcing their hand. The knowledgeable, well-financed, nimble and diversified—such as those with a healthy combination of on- and off-premise ratios and affordable price points—have the potential to flourish. For the distiller in planning, there’s likely to be less competition and a healthy offering of used equipment.

  BM: In your estimation, how much of a shift do you think the pandemic and its aftermath will make in the industry?

  JH: I don’t want to sound grim, but the taprooms, bars and restaurants will take the largest hit, which passes to the alcohol producers for a decrease in on-premises sales.  Walking around or dancing shoulder-to-shoulder in a club for three hours isn’t going to be viewed as normal for a while. If an establishment’s happy hour was its primary earnings time-of-day, and it could seat 200 people with the average space between seats being two feet, how many people concerned about this will want to sit that close to someone? 

  As businesses adapt, seating space becomes less per square foot. In order to earn the same dollars-per-hour, something has to change in the pricing or the amount of staff—both of which can drastically change customer flow and demographic of the restaurant. Service may go down with fewer staff, causing a less-positive experience and fewer return visits. 

  If the prices have to go up in order to maintain the same level of staffing, then some customers may now be priced out of the establishment, as they’re financially affected by the pandemic as well. 

  The brands of alcohol purchased by the establishment may also change: a package by the smaller craft producer that’s normally $45 per case or $200 per keg may be passed over for a cheaper $23 case and $60 keg in order for the establishment to maintain its customer service level of staffing and pricing. 

  Something will have to give. Bars, restaurants, wineries, breweries, cideries, meaderies and distilleries will suffer and, in many cases, cease doing enough business to survive their existing debt loads.

  RL: It’s obvious that all segments of the industry have seen growth from new entries—that is, companies and brands opening in the past eight or more years. Some of these segments have triple-digit growth. This caused the glass for the consumer to be overflowing with overloads in brand, flavor, style and marketing. There’s no loyalty to a brand in the new 21–28 age range due to the influx of offerings. To stop the glass from overflowing, you have the following options:

1.  Get a bigger glass.

2.  More space in retail stores, as the stores aren’t getting any bigger. B: More stores, but with the cost of real estate and larger corporate retail stores the “A locations” are gone and a “C location” won’t deliver a ROI.

3.  Turn off the faucet. Stop the “overflow abundance.” The thinning of the crowd needed to happen, but it’s unfortunate that a worldwide pandemic life scare is what it took. Think of Mother Nature and our farmers who produce ingredients to make these beverages. They burn off their fields after harvest to create new healthy growth for the coming year.

  SS: The mid-size and larger distillers will benefit from this pandemic. Part of what has hindered their typical growth patterns is the number of new entrants and the plethora of local distillers who often gain favor.

  The second tier puts an incredible focus on companies that provide their quickest pathway to recovery/profitability, which will likely cause some brands to have even less attention. I believe some brands will be delisted before that dance plays out.

  Once we reach the third tier, the on-trade will rely on brands that provide value and support. Off-trade is doing very well, but I don’t foresee these profits being poured into unsupported/unknown craft brands, as consumer confidence isn’t likely to be there to warrant the investment to carry them.

  BM: In what ways is a relaunch plan essential now, and how can a producer formulate one? What might it entail?

  JH: I tend to have three or more plans for almost every situation—you can never be too ready, but you can always be underprepared.  One may ask how to prepare as a producer. In order to plan, know your business history:

•    Where have you struggled before?

•    Where were you suffering most recently?

•    How agile is your marketing team to communicate your company’s changes, and in a tone that maintains a positive message? 

•    How agile is your production team in shifting from kegs to package? 

•    How able is your operations team to facilitate the changes that need done: ordering disposable growlers, cans, contactless delivery material, etc.

•    How able are you as the proprietor to manage the economic responsibilities needed to maintain changes in your company?

•    Are you able to make hard decisions as needed?

•    Laying off or furloughing a long-time employee is incredibly hard to do. Do you have a support system yourself for this?

  Account for everything that has happened and can happen. 

  RL: What is the saying: “You have one chance to make a good impression?” Well, now you have a second chance! Look at your original business plan and model and select all the positives—then write a new one. You can remove things you did wrong and implement those you thought of after the fact. You know more now, but not everything. So source out what you don’t know, a.k.a, “phone an expert.”

  SS: No matter how this pandemic is influencing your business, it’s vital to create a strategic plan with several pathways and outcomes, for there is only one who is all-knowing in this unknown, and that is neither you nor me.

  With plans in place, financial models need to be built to ascertain how much time you have, and along with an awareness of critical decisions and time periods. Assigning weights to the various outcomes also allows you to make a calculated risk assessment on what should even be attempted.

  BM: What top three action items do you recommend to producers right now?

JH:

1.  Don’t produce just to produce unless you need to burn through raw materials already purchased. If you can, barrel-age or delay the release dates to maintain the production/release rate to sales rates.

2.  Take a cold look at your finances. The hardest part of that is being honest with yourself. Don’t let ego make the decisions.

3.  Be as proactive in your community as possible. If you can, develop a T-shirt that’s available online or curbside with 100% of the proceeds going to support your furloughed taproom staff or a local community cause. Work with your distributors in other communities outside your own to be supportive there as well. Be part of the community, even if you’re not local—keep your face seen in a positive way.

RL:

1.   Evaluate finances. What can you afford to do, and what can you afford not to do, have or upgrade?

2.   Branding. What can you improve upon from a brand perspective—as in, how to reach the consumer and engage with them? Get them to stop scrolling, and “like” (buy) your brand. I think virtual happy hours will be a popular thing moving forward for friends and families apart.

3.   Distribution. Improve your relationship with the distributor network. This also means having adequate sales-brand representation to work with your distribution network to secure those placements.

SS:

1.  Center yourself and get extra clear on your definition of success.

2.  Develop a rock-solid strategic plan and financial model.

3.  Get your team informed and aligned, from front-line workers to investors. Prepare them mentally and emotionally for what’s at hand. Ensure that you have the right warriors, and that you have the leadership and wisdom to see them through.

  BM: In what ways can producers work within their communities and develop new marketing strategies to rebuild their businesses?

  JH:  As mentioned above, team up with distributors, businesses that supported your brand well, and charities and causes that are positively helping communities during this pandemic. 

  RL: Thank the community for the support during this crisis. If you have a loyalty program, use an email marketing platform to send a direct thank you letter to the zip codes where members reside. Make it a bounce back: “Thanks for the support, bring this letter in for a ½ off item,” or a similar promotion.

  SS: Every business is in this together, and every business is going to need help. Distilleries and other craft producers have always been important members of communities, from supporting other local businesses such as farms and utility companies; to offering dependable and well-paid jobs from production to sales to executives; and of course, providing extensive tax revenue for their municipalities and states.

  Distillers switched gears during world wars, and are doing so now during the pandemic. This is an amazing time to be a leading light in the community and an essential economic engine in a town’s rebirth. We often say “support local.” This is a two-way street and right now, distillers can lead.

  BM: Finally, “no revenue” is an obvious answer to the question, “Should I close?” But in the current over-expanded market, what other answers might a producer consider?

  JH: SKU reduction. If you have a brand that’s working and some that are lagging, but they’re being produced to fill out the portfolio to make your brand more attractive to distributors, grocery, C-store sets or franchise restaurant chain mandates—cut them! Focus on what’s working and do it well.

  RL: Be humble. It’s more admirable to ask for help than to never build a new door to walk through. Also consider:

1.   What’s your quality of life? Health, stress levels, missing kids’ activities because you must run the business and so on. This pandemic has brought families together. More meals in groups, board game conversation and outdoor life vs. a face in a phone all the time.

2.   Are you staying true to the mantra, integrity and goal of why you opened the business? Some people will say no—they’re just trying to keep up.

  SS: This pandemic will hopefully be the toughest business challenge you’ll ever face in your lifetime. As such, it presents an excellent opportunity to confirm your commitment to your business:

1.   Is it your life’s calling/purpose?

2.   Do you have the energy and resources to start back from where you were in the early years?

3.   What will your personal and financial well-being look like if it takes two years to get to where you were at the end of 2019?

  If you have the fortitude and the wisdom, you can work through this. And the field will likely be even greener if you can make it through the next 730 days.

BEER FINANCE: Covid-19 Cash Tactics & Strategies

 By: Kary Shumway, Founder of Craft Brewery Finance

  The Covid-19 pandemic is wreaking havoc with our emotional and financial well-being. Now, more than ever, cash flow planning is a survival skill.  In this article, we’ll review tactics and strategies to keep more cash in your business during this crisis. And I’ll share the cash flow templates that I use to monitor cash flow in our brewery.

  We’ll also cover how to build a new financial plan for the coming weeks and months to make sure you are properly tracking revenue, expenses and cash flow. This crisis will end, but the brewery financial skills you learn today will benefit you and your business forever. Use them to survive now and thrive into the future.

Short-Term Planning: Survival Mode

  First things first, let’s focus on cash.  Financial survival requires cash on hand, access to capital, and a tool to project near-term cash flows. Start with how much cash you have on hand, and list potential sources of additional capital.

  Next, calculate expected cash flows for the upcoming week. List out expected collections from accounts receivable, and payments to employees, vendors and the bank. Use a simple tool like this to summarize the numbers.

  This cash flow tool will show you cash on hand, and upcoming flows of money in and out of the business. It’s a tracker you can update quickly and regularly to keep a close eye on short-term cash flow.

  Next, dig in a little deeper on accounts receivable (A/R). These are your uncollected payments from customers and must be monitored closely during this crisis. Use the detailed A/R aging report to monitor any overdue customer invoices. Accounts receivable represents future incoming cash flow and is critical to the financial survival of your brewery.  Communicate with any overdue customers, work out new terms if you must, and keep the cash flowing in.

  Likewise, review the details of your accounts payable (A/P). These are your unpaid invoices to vendors and suppliers. Identify those invoices that must be paid on time, and which can be pushed off. Communicate with key vendors and ask whether they will accept extended terms. For example, if a vendor offers 30-day credit terms, they may be willing to extend to 60 or 90 days. The goal is to slow down the outflow of cash, while maintaining a good relationship with key vendors. Monitor your accounts payable, communicate with vendors, and keep more cash on hand.

Change Your Cash Process

  One important skill to learn during this financial crisis is how to aggressively manage cash flow. Specifically, learn where cash leaves the brewery and how you can adjust quickly to keep more cash in your bank account.  Cash on hand means you’re in business. Running out of cash means big trouble.  To aggressively manage cash flow, I use a three-step process that looks like this:

1.   Find out how and where money leaves your business.

2.   Insert yourself into the money-out process.

3.   Review past spending … and adjust.

Step 1:  Find out how and where money leaves your business

  To start, make a list of the ways that money flows out of your brewery. The usual cash outflows are:

•    Accounts payable

•    Payroll

•    Manual checks

•    Electronic Funds Transfer (EFT)

•    Automated Clearing House (ACH)

  Pay special attention to the last two bullet points. These are deductions directly from your bank account and may go unnoticed in a time when you’re trying to turn off cash outflows.

  Which of these cash outflows apply to your business? Take your list and move on to the next step.

Step 2:  Insert yourself into the money-out process

  Put yourself directly in-between your money and the expense to be paid. In other words, sign every check that goes out through accounts payable, review every manual check before it is mailed, look over the payroll report before it is processed, and get a listing of all the EFT or ACH payments that have been processed through your bank account.

  This is the only way to slow or stop cash from flowing out of your business. You need to be directly involved, and directly in-between your money and the expense to be paid.

Step 3:  Review past spending

  One of my favorite financial reports, in good times and bad, is the general ledger (G/L). It records every transaction that flows through your business. The G/L can serve as a road map to reduce the outflows of cash in an emergency.

  Print a copy of your detailed general ledger for the past 12 months and review all the expenses. As you look over the figures, ask questions: What cash outflows are recurring? What can be shut off immediately? What upcoming payments can be delayed or deferred?

  The general ledger isn’t just for the bookkeeper, it’s a tool for brewery owners and managers to identify and shut off cash outflows.

Use these cash flow tactics

  In addition to the 3-step process, there are several specific steps you can take right now to improve cash flows during this crisis. These include communication with your beer wholesaler, bank, insurance company, key vendors, and landlord. The primary goal of this communication: Build a plan so that you don’t run out of cash.

  Market changes are happening daily, and this requires regular communication with your wholesaler partners. Ask what they are seeing for sales trends. This will help inform expected sales volume as well as production and packaging plans. Ask your wholesaler what they need, and how you can help. Your wholesaler is your biggest customer, and biggest source of cash flow. Stay close, be supportive and responsive to their needs to keep the cash coming in.

  If you have business debt, you have monthly payments of principal and interest due to the bank. In this crisis, your lender may have the ability to reduce your monthly payments to interest-only. This can be a significant cash flow savings.

  Take for example, a brewery with monthly debt payments of $10,000 per month. The loan payment schedule shows the $10,000 payment represents $8,000 of principal and $2,000 of interest. Therefore, reducing the payments to interest-only will save $8,000 per month in cash flow.

  If you have business interruption insurance, reach out to your insurance company to determine coverage. While this type of insurance usually excludes pandemics (go figure) it is still worthwhile to understand how the claim process works. Legislative rules are changing every day, and it’s possible that insurance companies will be required to cover losses. Learn about your coverage, file a claim, and you’ll be ready if the rules change.

  Your key vendors may be open to extending payment terms to 60 days, 90 days or longer. Some larger vendors may reach out to you and negotiate new terms. Other vendors you have to ask. The takeaway is to be pro-active, communicate with your vendor partners and negotiate new terms that you both can live with. Any credit extension you can get will improve short term cash flow.

  This same approach can be used with your landlord. If you have a lease, you have monthly rent that needs to be paid on time. Your landlord may be open to a rent deferral in exchange for extending the back end of the lease. For example, no rent for the next two months, in exchange for the lease end date to be extended two months. As with the other ideas in this section, this might not work. But if it does, it will help short term cash flow. 

Re-forecast Your Financials

  The cash flow tool shared earlier is useful for a quick look at short-term cash flows. The financial re-forecast tool that we will cover next provides a longer-term look at expected results.

  Thanks to the financial crisis, your original forecast for this year is no longer relevant. However, it can still be used as a starting point for the financial re-forecast. Adjust the numbers up or down depending on changes to the business, new information that arrives daily, and trends in the market.

  To start this process, take the annual plan and spread it out over the 12-months of the year. The financial re-forecast model that I use looks like this:

  On the left side of the model, summarize sales, margins and operating expenses. Across the top of sheet, list out each month in the year and whether the information is based on actual or forecasted numbers. For example, if you have January, February and March financials completed, input those actual results in the sheet. For the remainder of the months in the year, mark these as forecasted numbers.

  The financial re-forecast tool is intended to be a one-page plan that is quick and easy to update on a regular basis with new information as it becomes available.  Use this tool to combine all the information you are gathering from wholesaler partners, key vendors, and changes to legislation (such as the excise tax deferral). 

Wrap Up + Action Items

  Cash flow planning is a financial survival skill and is needed now more than ever. While we don’t know when this crisis will end or what business will look like when it does, we do know how to aggressively manage cash to keep our business going as long as possible.

  Use the cash flow template presented here to keep a close eye on cash balances, access to capital and expected money flows into and out of your brewery. Take an active role in managing this most important asset.

  Use the financial re-forecast model to build a simple, one-page plan. Keep the numbers high-level to start – sales, margins, and operating expenses.  Update the plan on a regular basis as changes happen. And changes are happening every day.

  The brewery financial skills you learn today will benefit your business forever. Build your skills to survive now and thrive into the future.

  Kary Shumway is the founder of Craft Brewery Finance, an online resource for beer industry professionals. He has worked in the beer industry for more than 20 years as a certified public accountant and a chief financial officer for a beer distributor. He currently serves as CFO for Wormtown Brewery in Worcester, Massachusetts.

  Craft Brewery Finance publishes a weekly beer industry finance newsletter, offers online training courses on topics such as cash flow planning, financial forecasting, and brewery metrics. During this crisis, Craft Brewery Finance is offering a Free 60-Day Subscription. Visit www.CraftBreweryFinance.com for details.