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.  

SUPPORTING “TRADE” DURING COVID-19

By: Ryan Malkin

  Does the rulebook go out the window during a pandemic? As the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) and states weigh in via guidance and industry advisories, the resounding answer is no. Still, brands seek to support bartenders with, by and large, pure intentions. That is, brands have money and bartenders may not. Bartenders and brands establish important and long-term relationships over the course of, in some cases, decades. If your friend needed a meal, you’d certainly oblige. However, when the funds are coming from an upper tier (manufacturer, supplier, wholesaler) member’s pockets, we must consider whether and how funds can go towards trade. As a threshold matter, we should consider whether the bartender is employed or unemployed. If a bartender is unemployed, arguably that person is no longer considered a retailer within the meaning of the rules. If that’s the case, the rules with regards to how a brand may engage with that person may also go out the window.

  By way of very brief background, it is unlawful to induce a retailer (an on-premise or off-premise licensee) to purchase your brand to the exclusion in whole or in part of another brand’s products. In particular, the federal and most state rules note that, subject to exceptions, “the act by an industry member of furnishing, giving, renting, lending, or selling any equipment, fixtures, signs, supplies, money, services, or other things of value to a retailer constitutes a means to induce within the meaning of the Act.” In short: unless there is an exception, you may consider the giving of any “thing of value” to be impermissible.

  That means, but for exceptions, it is impermissible to acquire or hold any interest in a retail license, pay or credit a retailer for advertising, guarantee a loan to a retailer, require a retailer to purchase a certain amount of products, or provide any items that are not allowed under an exception. Those of us in the alcohol beverage industry may not realize it, but we largely play in the world of exceptions. The exceptions are where you find it permissible to offer point-of-sale materials, conduct tastings/samplings, provide displays, offer educational seminars to retailers, and stock/rotate your products.

  Federally and in many, though not all, states the providing of the “thing of value” must also lead to exclusion. Exclusion is when the practice “puts the retailer’s independence at risk.” To determine that, the TTB will look at the practice and consider, among other things, whether it required an obligation on the part of the retailer to purchase or promote the brand, and whether it resulted in discrimination among retailers. That means the brand did not offer the same thing to all retailers in the area on the same terms without business reasons for the difference in treatment.

  Now that we’re on the same page with regards to the rules, we want to consider whether the person we want to assist is employed by a retailer or unemployed. If the person is employed by retailer (remember that means on-premise or off-premise), the brand will be more limited in how it may engage with that person. In short, follow the pre COVID-19 rules. TTB’s recent guidance on this topic specifically states that “the furnishing of business meals or entertainment to a trade buyer is an inducement under the Act” if the inducement results in the full or partial exclusion of products sold by that brand in the course of interstate or foreign commerce. In other words, according to TTB, “the furnishing of business meals or entertainment to a trade buyer is not by itself a violation of the Act.” In fact, providing retailer entertainment is quite common and many states have specific regulations that permit the practice.

  Typical states rules will require that the brand’s representative be present, that the entertainment be reasonable, and not conditioned on the purchase or agreement to purchase any of the brand’s products. Retailer entertainment rules are how you often see brand’s take bartenders and liquor store owners to ballgames, concerts and dinner.

  Given the social distancing rules, it is impractical and unsafe to get together with working trade. Instead of going to dinner and discussing business, it may be worth considering whether a brand feels comfortable doing so online via, say, Zoom or FaceTime. The brand can send drinks and a meal to the bartender. When the food and drinks arrive, the brand and the bartender can hop online and eat together. The brand representative would be as present as one can reasonably during this time. Of course, the brand should analyze this against the rules in the applicable state(s) and with its own attorney.

  However, if the bartender is no longer employed, one should now consider him or her as just a regular consumer, albeit with above average mixology skills. Now the brand may feel comfortable entering into an agreement with the person to be a brand consultant to perform any number of services. For instance, to create how-to cocktail videos or conduct virtual tastings. The brand would then pay that person whatever the two agree as reasonable. The brand should consider putting an agreement in place with that out-of-work bartender. The agreement should include basic provisions, perhaps paying particular attention to intellectual property (we own it, you’re using it with our permission and we own what you create) and representations around the unemployed bartender’s status. This compliance section should require the person being hired to acknowledge that he or she does not have any direct, or indirect, ownership in any retailer, and, at minimum, that the fee being paid is not conditioned on or being used to induce any retailer to purchase the brand’s products to the exclusion of any competitive products.

  Now that you have a solution for supporting both employed, though perhaps struggling, bartenders and those out-of-work, go out there and keep your brand alive and relevant during these unprecedented times.  Be careful out there.

  Ryan Malkin is principal attorney at Malkin Law P.A., a law firm serving the alcohol beverage industry. Nothing in this article is intended to be and should not be construed as specific legal advice.

For more information contact Ryan Malkin at…

Malkin Law, P.A.

260 95th Street, Suite 206

Miami Beach, FL 33154

Office: (305) 763-8539

Mobile: (646) 345-8639

Email: ryan@malkin.law

Website: www.malkinlawfirm.com

Brewery Start-Up Tips for a Successful Launch

By: Alyssa L. Ochs

  In the United States, there are currently over 7,000 breweries, but that isn’t stopping entrepreneurs from opening even more in cities, small towns and rural areas. Fortunately, craft beer lovers are plentiful across the country, loyal to their favorite brands and curious to try new brews.

  When making plans to open a new brewery, there are a few things to keep in mind. 

Initial Considerations

  Many things go into starting a brewery, even before searching for a physical location. You’ll need to choose a business structure for your brewery to operate within, such as an LLC with an operating agreement, which is often preferable to a brewery corporation because it’s quicker, easier and more affordable. You may choose to hire an attorney to handle these matters for you or give it a try yourself with online legal resources for a DIY approach. Insurance is also an important consideration to protect the business with liability, property and casualty coverage.

  When it comes to the legalities of opening a brewery, things can get complicated quickly. Permits and licenses must be filed at the local, county, state and federal levels. Depending on where you live, regulations, licenses and permits vary, so be careful to do thorough research to eliminate surprises in this regard. Be aware of when to file permits as well. Filing permits in the wrong order can lead to delays or stymy plans altogether. State liquor licensing and a federal brewing permit from the Alcohol and Tobacco Tax and Trade Bureau can take several months to process, so file those as soon as possible.

  You must also consider if you want a simple taproom or if you will include food in the business model. Those choosing to include food will face more permitting and costs for equipment and location modifications. The overall cost of opening a brewery is often between $250,000 and $2.5 million, and much of that money goes towards equipment.

Physical Location

  The location you choose makes a huge difference in the type of customers you will attract and how your brand will grow in the future. At this stage of development, there is also the need to weigh the pros and cons of opening up on a busy street with lots of foot traffic versus opening in a more isolated industrial park with space to grow and more affordable rental prices.

  Remember that you’ll need to secure the proper zoning for your new brewery and meet all the necessary legal requirements in your jurisdiction. Zoning laws matter because you want to create a favorable community gathering space that’s welcome with local neighbors.

  While searching for a storefront, you must have at least enough funds for the first month’s rent and the security deposit for the lease. Also, consider any construction that will be needed to outfit the building for brewery purposes. For example, you will need a sturdy floor in your physical space that can withstand the beer-making process. Also, take into consideration the plumbing and electrical capacity of the building and start getting quotes from local contractors for any work that needs doing before opening.

  Space requirements for your location may be based on equipment needed, but consider whether it’s in your best interest to secure a location with space to accommodate future fermentation tanks and storage needs.

Brewing Equipment

  Equipment is, by far, one of the biggest financial hits for a new start-up brewery. Equipment costs can range from $100,000 or less for a very small-capacity brewery, to over $1 million for a brewery that uses a new 30-barrel system.

  The brewing equipment you need will primarily be based on the number, category and style of beer you plan to make. There are significant differences between a brewery that will only brew a couple of types of beer compared to one that is looking to launch eight to ten styles right away. Unless you have ample support staff and financial resources, most new breweries find it in their best interests to start small and build up their offerings and services over time.

  The list of equipment needed for a brewery can be very overwhelming at first, but do your best to take it one step at a time. Some of the equipment to start thinking about and budgeting for early-on are kettles, kegs, boilers, bottling and canning lines, conveyors, cooling systems, storage tanks, fermentation tanks, filters, labeling machines, piping and tubing, refrigeration equipment, cleaning equipment, waste treatment systems and tap handles.

  Now is also the time to learn about the differences in piping, tubing and brew pump equipment so you can make informed decisions about buying peristaltic, diaphragm or centrifugal pumps. Fermentation tanks and temperature gauges will be needed for beer storage. Meanwhile, immersion wort chillers and counter-flow chillers are essential for cooling systems, and brewing kettles and boilers are necessary for heating processes.

  Andrew Ferguson, sales manager for Codi Manufacturing, told Beverage Master Magazine that packaging is more important than ever in today’s rapidly evolving beverage market.

  “Codi manufactures complete canning systems that scale to meet the demands of our growing customers,” Ferguson said. “Codi’s counter-pressure filler allows for a high temp caustic CIP and over four CO2 vols, giving you the ability to package seltzers or other beverages.”

  Ferguson said that a common mistake among brand-new breweries in the start-up phase is buying on price and speed instead of function and quality. He recommends always finding others who own the equipment you are looking at and asking for their advice.

  “You can have the best hops, malts, yeast, water, recipe and brewer, but a bad packaging machine will ruin all your hard work,” he said.  He also recommends buying spare parts to decrease your equipment’s downtime and avoiding machinery made with aluminum and cheap plastic materials so you can CIP with caustic at 180-degrees Fahrenheit.

“Form solid relationships with suppliers and stay in touch to get the latest updates and functionality out of the equipment you purchase.”

Ergonomics

  Stocking up on all the necessary equipment is often the first goal of a start-up brewery. According to Ron Mack, the regional sales manager for Bishamon Industries Corporation, one of the most common mistakes that new breweries make is being “laser-focused on production equipment and often forgetting to consider ergonomics that increase worker safety and productivity.”

  Based in Ontario, California, Bishamon Industries Corporation specializes in quality, innovative, ergonomic products that enhance worker safety and productivity. The company offers a wide array of ergonomic assist lift equipment, including the EZ Loader Automatic Pallet Positioner, that are useful for craft breweries that hand-palletize cases of beer.

  “This product keeps the top of the pallet load at waist height, eliminating worker bending, which can lead to back injuries,” Mack said. “The EZ Loader also features an integral rotator ring like a lazy Susan that enables near-side loading and eliminates reaching, stretching and having to walk around the pallet to load or unload. For breweries that do not have access to a fork truck for loading or unloading, we offer products that are pallet jack accessible, like our Lift Pilot and EZ Off Lifter.”

  Bishamon products can significantly help reduce the risk of worker injuries related to lifting, bending, reaching and stretching while loading or unloading cases.

  “Another great benefit is that the EZ Loader also significantly increases productivity, as pallet loading and unloading can be accomplished in much less time with much less effort,” Mack said.

  Mack said breweries should “think about how to make the work environment, especially in the packaging area where the heaviest lifting is done, more ergonomic and efficient for the employees.” From ergonomics to scheduling and operations, making your employees’ needs a priority from the very beginning is a positive way to launch any type of new business.

Other Early-Stage Planning

  Once you’ve gotten a handle on these aspects of opening up a new brewery, think about the customer experience and how your staff will work onsite starting on opening day. An efficient, friendly front-of-house staff can make all the difference for a brewery’s reputation, particularly in areas with a lot of competition. Start picking out and ordering glassware and growlers that reflect the brand image you want to create. Keeping the brewery hygienic and sanitary is essential to its long-term success, so make a list of cleaning products you’ll need and narrow down your list of suppliers. Before you get too entrenched in your operations processes, invest in a POS system to track inventory, outline your staff management system and begin thinking of ideas for a loyalty reward system to entice new customers.

  Building a clear brand identity early-on to help you stay focused, and establishing a robust online presence as early as possible can spread the word about your new brewery.

  Also, consider your relationships with vendors. Ferguson from Codi told Beverage Master Magazine new breweries would be wise to support family-owned suppliers who are invested in the industry.

  “Private equity held manufacturers are lowering quality to meet your price point and are not concerned about your long term needs,” he said.

  Starting a new brewery is rarely easy, but it’s often worth it if craft beer is your passion, and you have a great business plan and support team behind you. As you prepare for your initial launch, remember some things can wait. Focus less on merchandising, loyalty programs or decorating for every event and allow the business to grow a little at a time. Once you’re established with a good reputation, those things will come naturally and pay off quickly.

Keys to Creating Effective Incentives for the Craft Beer Distribution Channel

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

  When it comes to improving your go-to-market strategy, incentives can be a powerful tool that craft beer producers can use to motivate distributors and wholesalers to sell their product. Incentive programs help craft beer producers build mindshare with distributors and wholesalers, differentiate their product, provide enablement to indirect sales reps and collect important data throughout their channel.

  However, it is important to be mindful of your marketing spend and to focus on designing your program to generate a meaningful ROI. Keep in mind that an incentive program is about more than just rewards. 

Keys to Creating an Effective  Incentive Program

  While the specifics of incentive program design will be as varied and unique as the craft beer producers who use them, below are several overarching principles that can be utilized to create effective incentives for supply chain trading partners:

1.  Choose a specific, measurable goal for your program.

2.  Analyze your audience and your competitive situation.

3.  Offer rewards that are relevant to your target audience.

4.  Structure promotions to target KPIs (key performance indicators) that bring you closer to your goal.

5.  Consistently market your program to stay top of mind of with your indirect sales reps.

6.  Use digital platforms to drive your program and measure results.

  By following these six steps, craft beer producers can establish effective incentive programs that give them a sustainable competitive advantage in their channel and allow them to focus more of their attention on where it belongs – crafting great beer that their customers will love!

Choosing a Specific, Measurable Goal

  In order to achieve a meaningful ROI, it’s important to begin with the end in mind. Why do you want to launch an incentive program? What do you hope this program will accomplish? How will you measure success? The more specific you are when answering these questions, the more informed you will be when making decisions to empower your goals.

  Possible program goals craft beer producers use incentive programs to accomplish include:

•    Generating brand awareness;

•    Increasing sales for a specific product or region;

•    Driving incremental growth among supply chain trading partners;

•    Gathering data to improve partner profiles;

•    Capturing market share and gaining access to new verticals; and

•    Building loyalty with wholesale and distributor sales reps.

  While an effective channel incentive program can accomplish all of these things, it’s best to start small and narrow your focus to just one or two goals. Doing so will help you sell other members of your organization on the idea of launching an incentive program and will allow you to more effectively measure the results. Plus, you can always scale your program to accomplish additional goals once you know it’s working.

Analyzing Your Audience and Your Competitive Situation

  When building an incentive program, you have to put yourself in the shoes of the wholesale and distributor sales reps you’re attempting to motivate. What do you know about their lifestyle? What are the things that excite them? What information can you provide to make selling your products easier for them? The more you understand about your target audience, the better equipped you will be to create incentives that inspire them and align your goals with theirs. 

  In the competitive craft beer channel, each of these reps is responsible for selling multiple products from dozens of brands. The battle for mindshare is fierce. Chances are, some of your competitors are already running an incentive program or using other channel marketing promotions. It’s up to you to take a look at what your competitors are doing and to create an incentive program that is more engaging and compelling than theirs.

Offering Relevant Rewards to Your Target Audience

  According to the COLLOQUY Loyalty Census, the average American household is enrolled in more than 18 loyalty programs. Of those, they actively participate in fewer than half. In order for your incentive program to accomplish its goals, you have to stand out from the competition by offering rewards that enhance your value proposition and feel necessary to your participants.

  The more closely you can match your incentive rewards to the lifestyle and interests of your participants, the more effective your program will be. However, it’s important to choose rewards that align with varying levels of performance, while fitting into your overall budget. Luckily, there are plenty of options!

  For SPIFFs, rebates or programs with a wide range of participants, debit card and gift card rewards provide flexibility, convenience and wide appeal. Online merchandise rewards are more personalized and scalable, ranging from easily-earned “point burner” items like movie tickets for part-time customers, to exclusive, high-end merchandise and custom reward fulfillment for higher-performing supply chain partners. Group incentive travel is memorable and emotionally impactful, perfect for building loyalty with your top wholesale and distributor sales reps. Although incentive travel events are currently on hold for the foreseeable future, demand for travel rewards will be extremely high when the shutdown ends. This will not last forever, and there will be compelling bargains to be had as resorts and hotels at top destinations endeavor to resume business.

  Additionally, you can use a mix of rewards and tier them for different levels of performance or segments of your channel. For instance, it might make sense to offer an online points program for individual sales reps, while running an incentive travel promotion for the brand managers at the distributor level.

Structuring Promotions to Target Strategic KPIs

Incentives work by modifying the behaviors of your wholesale and distributor sales reps. Each step these reps take that bring you closer to your goal is also known as a KPI (key performance indicator). KPIs can be measured to predict or prove program success. For instance, the more participants that enroll in your program, the more likely they are to sell your product. Enrollment bonuses are a common incentive promotion, but you can also reward points bonuses for KPIs such as:

•    Attending tradeshows or taking online certification courses;

•    Participating in product-related trivia and quizzes;

•    Providing referrals;

•    Filling out surveys or updating their contact information; or

•    Making a first-time sale of a specific product.

  However, priorities change! For craft beer distributors, it’s important to have the ability to set multiple promotions and change reward parameters to target strategic initiatives, capitalize on analytics and respond to the tactics of the competition.

Marketing Your Program to Stay Top of Mind

  Once you have outlined your strategy and structure, the next step is to spread the word. Incentive programs create an easily communicated value proposition, but it’s necessary to consistently reach out and engage with your wholesale and distributor sales reps over a variety of channels.

  From program launch to reward redemption, you should be communicating with your supply chain trading partners across email, SMS, web platforms, direct mailers, flyers and phone calls. Get them excited about participating in your program, educate them on your brand, inform them about new promotions and remind them about the rewards they have the opportunity to earn. Your incentive program provides the chance to personalize your communication with your indirect sales reps in a way that may be otherwise difficult to achieve in the craft beer distribution channel. Additionally, you can use analytics to spot opportunities for growth or which accounts you should reengage and create targeted marketing campaigns for those accounts.

Using Digital Platforms to Drive Your Program

  Finally, you have to consider the user experience of engaging with your platform, as well as the administrative functions you need to successfully manage your program. Today’s incentive programs, like most business platforms, are software-driven. Gone are the days of analog catalogs, manual processes and investing in channel marketing strategies that don’t produce measurable results.

  When exploring potential incentive program providers, craft beer producers should ask themselves questions such as:

•    Does this incentive program software integrate with my CRM and other existing platforms?

•    How will this program software help me capture the data and analytics I need to improve my channel marketing?

•    How will this program software improve my ability to communicate with my supply chain trading partners?

•    Will my reward program website present an engaging and accessible user-experience that is a strong reflection of my brand?

•    What other features, such as gamification and sales enablement tools, does this platform include to keep participants engaged and to help them succeed?

  Luckily, these are areas where the incentive industry has made exciting strides over the last decade or so. As data, analytics, automation and providing digitally connected channel partner experiences continue to become increasingly important, incentive companies have shifted their focus from just providing reward fulfillment to offering complete channel sales and marketing solutions.

  This focus on technology has made launching and managing an incentive program less time intensive. In a 2019 survey, Incentive Solutions found that 70 percent of our clients, including several notable craft beer producers, spend less than two hours a week managing their incentive program. Additionally, some incentive companies provide the option to take full responsibility for program management to free up your resources for other priorities.

  After all, chances are you didn’t get into the craft beer industry to manage channel partners and set parameters for sales promotions. You got into it because you are passionate about brewing great beer!  

  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.

Combining the Cannabis and Cocktail Cultures

By: Becky Garrison

Terms like “The Wild West” and “Gold Rush 2.0” have been used to describe the rapid shift of cannabis from an underground illicit practice to a legalized market. Global brands like AB InBev and Constellation Brands have invested in cannabis-infused beverages. (For now they appear to be focusing on the Canadian market where cannabis is legalized at the national level.)

Also, after hemp became legalized at the federal level in 2018, CBD-infused drinks for the adult market (21+) began popping up at bars, restaurants, and select grocery stores. In addition, the increasing legalization of cannabis for adult use has led to the rise of non-alcoholic drinks called “mocktails” that contain THC and are available for purchase in those licensed cannabis dispensaries located in states where recreational cannabis is legal. 

As one example of the increasing normalization of cannabis, in 2019, Feast Portland, a food and drink festival celebrating the bounty of the Pacific Northwest, included in its educational offerings a panel titled “Cannabis & Cocktails: Best Buds?” During this panel, Jeremy Plumb, Director of Production Science at Prūf Cultivar, lent his 30-years of expertise in the cannabis industry to illuminate this new trend. He describes this current state of cannabis as a “frontier culture” where people are exploring a all the dimensions of over thousand compounds found in the cannabis plant.  

The two compounds in cannabis getting the most buss are  buzz is CBD (Cannabidiol) and THC (Tetrahydrocannabinol).  Both CBD and THC possess analgesic and anti-inflammatory properties that can help with a range of conditions such as relieving pain and reducing stress.

For those unfamiliar with this plant, Plumb breaks down cannabis into three types. Type 1 cannabis is high THC with almost no CBD. THC is that compound that produces a psychoactive high and is the most heavily regulated (in the U.S.). Type 2 cannabis is a 1:1 ratio of THC to CBD,  a combination that produces a balanced high. Finally, Type 3 cannabis contains less than .3% THC and is also called hemp-derived CBD. This is the form of cannabis that’s theoretically legal in all 50 states and the one being used in beers and cocktails available in bars, restaurants, and other public settings.

Rather than focus on just CBD and THC, Plumb encourages people to explore the “entourage effect” that happens when one consumes a cannabis infused product. This term describes the overall sensations a consumer experiences when consuming a particular product. In particular, Plumb homed in on terpenes, which are the organic chemicals present in food and drinks that produce certain effects. Among of the more common terpenes found in cannabis include Pinene (pine), Myrcene (musky, earthy, fruity) fruity), Limonene (citrus), Humulene (hoppy, earthy), Humulene (musky, earthy, spicy), Linalool (spicy, floral), Caryophyllene (peppery, spicy), and Terpinolene (woodsy, smoky).

While cannabis and hops belong to the same Cannabaceae family, Plumb notes that cannabis offers a broader range of flavors and aromatics than what one finds in hops. According to Plumb, cannabis is the most genetically diverse plant on the planet. “Any aroma found in nature can be found in some variety of this plant.” In his work, he explores whole-plant infusions that take advantage of all the plants properties rather than distilling a single compound and adding that to the products. 

How Cannabis  is Used in Cocktails  

Once hemp derived-CBD. became legalized at the Federal level in 2018, CBD drinks became the latest craze. Howeer, until the FDA and USDA formalize the legal guidelines for how to regulate food and beverage products made with hemp-derived CBD, these products will not be available for adult use in all 50 states. Furthermore, The Alcohol and Tobacco Tax and Trade Bureau (TTB) has not approved cannabis or CBD as approved ingredients for use by a distillery, brewery, cidery, or winery.

But while one cannot expect to see these cannabis or CBD-infused alcoholic products available in the near future, CBD drops can be added to alcoholic beverages. According to Brandon Holmes, CEO of Danodan Hempworks, the challenge in using their Hemp Flower CBD shots in a drink is the same as using any other ingredient in cocktails. “Mixologists make great drinks because they experiment with ingredient ratios that captivate the senses and amplify each ingredient’s characteristics.”

Joanna Matson,  founder and CEO of  ZVEDA Botanicals, created her CBD wellness drops using fusions of Ayurvedic herbs, cannabinoid-rich Hemp-CBD oil, and signature essential oil blends as a natural product to help promote health and wellness. Presently, she also partners with the Portland Bitters Project to produce a line of bitters infused with CBD and organic botanicals. 

For those looking for a lighter taste, East Fork Cultivar’s CBD drops are not flavored as strongly as other hemp products. Their CBD Drops are a glycerine-based tincture made from their USDA Certified Organic Oregon-grown craft hemp flower to produce an accessible, mild-tasting, broad-spectrum, water-soluble form of CBD to be added into drinks.

While CBD affects everyone at different dosage levels, one can generally expect to feel a light, pleasant feeling of relaxation after taking a 10-50 mg dose. However, some people can experience these feelings with only 2mg of CBD.

Sparkling beverages such as those produced by Ablis CBD Infusions and clēēn:craft can be used as mixers or consumed as stand-alone products for those wanting a non-alcoholic lift courtesy of the CBD present in these product but also desiring products made with organic ingredients. For those desiring products infused with THC, companies such as Magic Number and SōRSE Technology manufacture non-alcoholic THC beverages available in different strengths. These zero-proof cocktails work well for those who want a sophisticated drink in a social setting but do not wish to consume alcohol.

The Future of Cannabis-Infused Cocktails 

Lee-Ellen Reed of East Fork Cultivars, speaks to the role of CBD in the bar space. “They offer an alternative to alcohol for those who still want to “take the edge off.” Also, both cannabis and cocktails could produce some new experiences when combined together. In Plumb‘s experience, sipping on a whole plant vaporizing creates a new experience which could be incorporated into a cannabis infused cocktail. 

Also, anecdotal evidence suggests that consuming cannabis could help reduce the amount of alcohol consumed and prevent hangovers. However, further research is needed to ascertain the effects of combining alcohol and cannabis

In Plumb’s estimation, blending together cannabis and cocktails makes sense from a craft perspective. He believes cannabis should be seen in the same context of other craft food and beverages that produce nourishment and enjoyment. “There’s a whole community of passionate craftspeople who existed in this underground [cannabis] economy for a very long time, aspiring to simply be at the table with other brilliant crafts people who are producing spirits, ales, wine, and food.”