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.”

Special Considerations and Latest Innovations for Growlers & Kegs

By: Alyssa L. Ochs

Growlers and kegs have been staples in breweries for many years. With the bevy of options available to brewers today, choosing the right size, shape and material for these essentials may be an overwhelming task. To make the best choice, brewers need to consider their options as well as the new and exciting innovations in the world of portable containers.

Types of Portable Containers

  Growlers can be made with various materials, such as glass, stainless steel, ceramic and plastic. Vacuum-insulated growlers go beyond a standard glass growler’s functionality to keep beer colder and fresher for longer. Some popular models include Hydro Flask beer growlers, DrinkTanks, GrowlerWerks, 45-Degree Latitude stainless steel growlers, Yukon insulated beer growlers and two-liter Euro Growlers with metal handles.

  Meanwhile, keg types vary based on volume, capacity and weight. The most common kegs are sixth barrels, quarter barrels, slim quarter and half barrels. Consumers also have access to Cornelius kegs, mini-kegs, one-way kegs and eighth barrels.

  With headquarters in Atlanta, Georgia, Schaefer Container Systems North America manufacturers ECO KEGS that are lightweight, durable and stackable stainless-steel kegs, and 100% stainless-steel Sudex Kegs. The company also offers fully or partially encased Plus Kegs, the FreshKEG and SmartDRAFT keg with flexible small-scale dispensing systems and Party Kegs that are stylish and easy to use with a gravity-fed system. Schaefer’s specialty kegs include yeast brinks and cellar topping kegs that are adaptable by using tri-clover and tri-clamp fittings.

  “The most popular are our ECO KEGS,” said Richard Winslow, the president of Schaefer Container Systems North America. “These kegs provide immediate brand differentiation, are highly customizable, and offer significant value-added features and long terms cost advantages. Also very popular are our Party Kegs, which use a gravity-fed system with all the utility of a Firkin and none of the hassles.”

  Yet there are even more types of portable containers that are trending and particularly attractive. For consumers looking for less than the standard 64 oz fill, smaller containers, like Swig Savvy’s stainless-steel water bottles, are popular. Some breweries are now equipped to fill 32-ounce crowlers, aluminum cans filled and sealed on demand that keep the beer fresh until it’s cracked open at its destination.

Best Materials for Growlers and Kegs

  Since the advent of the modern growler, glass has been a popular material. Easy to clean, easy to fill and easy to find, glass growlers can be clear or amber color. However, the material is heavy and easily broken, among other problems.

  “Glass has a highly non-porous surface and does not absorb microorganisms which can spoil your beer, but annealing is weakened with use and when subjected to temperature changes. Thus, glass weakens over time or when subjected to an impact and will eventually break,” said John Burns, Jr. of Craft Master Growlers. “Glass is not suitable to be pressurized.”

  Based in Tacoma, Washington, Craft Master Growlers creates the next generation of growlers forged from high-quality stainless steel and designed for performance and durability.

  Stainless steel is sturdy and keeps beer cold; however, during filling, bartenders are unable to determine the fill level accurately, often leading to a loss of product. However, stainless is sustainable and durable, resists oxidation and corrosion, and is ideal for pressurization.

  Ceramic growlers have a classy look but are heavy, more difficult to clean and prone to chipping. Plastic is also used for growlers because of its low cost and low likelihood of breaking, but is less durable with multiple uses and may cause oxidation in the beer.

  For kegs, stainless steel is the most commonly used material because it is durable, sterile, long-lasting and affordable with reuse. Aluminum was once used for kegs because of its strength and low cost, but is prone to corrosion and runs the risk of being stolen for scrap metal. Plastic kegs are cheaper, lightweight and stackable, but they also create concerns about durability, oxidation and exposure to heat and sunlight.

  Emma Shepanek of G4 Kegs told Beverage Master Magazine that food-grade stainless steel is the best material for kegs. Founded in the craft beer destination of Bend, Oregon, G4 Kegs offers high-quality and durable kegs, as well as various keg services and leasing.

  “All stainless-steel kegs are the most durable, reliable and safest kegs on the market,” Shepanek said. “There have been recent innovations with plastic kegs, but they are still not as safe or sustainable as all stainless-steel kegs.”

Refill Policy Considerations

  For both growlers and kegs, there are considerations to keep in mind about refill policies. First, check local and state laws concerning portable container fills to ensure you comply. Make sure to openly and publicly share your brewery’s policy about refills with consumers to avoid confusion.

  As a general rule, never refill a container with questionable sanitation or cleanliness to avoid compromising a consumer’s health. Brewers may always want to avoid refilling containers with other breweries’ names and logos on them to avoid misconceptions about whose beer is inside. Some states have laws against filling any growler that does not feature that brewery’s logo. Again, brewers should check state and local regulations for more information.

  Many breweries have a policy of not refilling plastic containers since plastic cannot be cleaned as well as other materials and is more likely to harbor bacteria. Brewers should only use and fill containers that maintain the integrity of the beer that they’ve worked so hard to produce, such as insulated stainless-steel or colored glass.

Return Policy Considerations

  Return policies are important to have in place if the brewery is in the business of leasing kegs to consumers. Always provide written policy details to consumers and include details about how to reserve kegs, the time frame for reservations and the length of time before it must be returned.

  Other important information to provide includes how long the brewery will honor deposit refunds, the charge for unreturned kegs and the deposits amounts for barrels and hand pumps. Brewers may want to advise customers where to park while picking up their keg and how to properly exchange an empty for a full one.

New Technology for Portable Containers

  The world of portable beverage containers is continually changing due to new technology and innovations in the industry. Portable beer systems are gaining popularity by allowing consumers to pour their favorite beer anywhere. Pressurized growlers serve as mini-kegs to maintain carbonation levels for longer and even include customizable tap handles and pressure gauges. Entrepreneurs are even turning shipping containers into mobile multi-tap kegerators to help beer lovers enjoy their favorite brews outside the taproom.

  Burns of Craft Master Growlers said that new pressurized growlers substantially extend the longevity and usability of fresh craft beer for a couple of weeks or longer. This is a significant upgrade from glass growlers with virtually no shelf life.

  “Double-wall insulation lets you enjoy a cold or hot beverage for hours when outside or on the road. Oxygen is substituted for CO2, as oxygen will cause the beer to go stale. A pressurized growler goes beyond just beer, to cider, kombucha, spritzer, seltzer and more,” said Burns. “At Craft Master Growlers, we are innovating the CO2 delivery system, giving the user a way to control and monitor the pressure for the appropriate beverage, and offering ways to infuse and ferment in a small-batch container. The way we think of it is broadening the appeal and accessibility of all the great things local craft brewers and homebrewers are doing.”

  Schaefer Container Systems’ FreshKEG and SmartDRAFT technology allow brewers to pour beer without CO2 tanks or draft systems. “The CO2 and beer are contained within a single keg body, and the unit is tapped by an easy-to-use dispensing unit,” Winslow said. “It’s ‘plug and play’ for the consumer!”

  Because kegs have been designed well and there’s little need for improvement, manufacturers look to technology as the next big thing.

  “Kegs are actually quite boring and basic,” said Shepanek of G4 Kegs. “The design and engineering of the keg have already been optimized, so there’s not much to be improved with the form or function. Yet spear and keg manufacturers continue to innovate to sustain consistent quality. There are some exciting things brewing in the keg tracking and software space. Services that give breweries access to their own data about their keg fleets and that can be used for other business insights could be really beneficial.”

The Importance of Modern Portable Containers

  The demand for portable beer containers is growing, especially for small batches, and as more beer drinkers begin thinking about how their consumption impacts the environment. Beer consumers are a mobile population that’s on-the-go and looking for ways to enjoy local craft beer while traveling and enjoying the outdoors.

  Portable containers are an eco-friendly option to help consumers control their waste, while also allowing more access to rare and special-release beers. With the right marketing, portable containers encourage brand loyalty with greater exposure in the community and cost-effective refill programs.

  Burns said Craft Master Growlers’ products are ideal for anyone who likes beer, enjoys their local craft brewery scene, and also homebrewers who want to share their hard work and innovations.

“Craft Master Growler can be a delight for campers, boaters, tailgating, picnics and barbecues where a cold and fresh local craft brew is coveted,” Burns said. “Craft Master Growlers were designed for people who want a luxury, high-end product for their home, and the professional food service industry where quality and durability are so important.”

Expert Advice About Growlers and Kegs

  Industry experts who work with growlers and kegs every day have a lot of useful advice and tips about how to choose the best portable containers.

  “I think most people are aware that fads come and go, and plenty of companies jump briefly on the bandwagon,” said Burns. “So, you want to make sure you are not buying a cheap consumer product that will break or is destined for the basement, the yard sale or donation center.”   

  Winslow of Schaefer Container Systems’ said breweries should spend the money to customize their kegs for distribution. “You want to maximize your chances of getting them back!” he said.

  Shepanek advises craft breweries to invest in their own fleet of kegs. “Kegs are a great investment as they can last 30 years and pay for themselves quickly,” she said. “Leasing is a great option to keep cash flowing, but make sure it is an ownership-based program. Rental and logistics options can seem attractive and convenient, but many breweries end up locked into contracts for services they don’t need.”

Reflections From One Year in Operation

By: Brian D. Kaider, Esq.

I met Christian Layke in April 2016, when he was still the head brewer at the Rockville, Maryland location of Gordon Biersch.  Like many others I had spoken to before, and since, he wanted to open his own brewery.  But, he wasn’t a homebrewer with romantic ideas of going pro with a 5 barrel system and a shoestring budget.  He had many years of education and experience in brewing (in addition to being a homebrewer) and had grandiose ideas of opening a full production brewery with a world-class taproom and launching immediately into distribution.  I was skeptical…at first.  I quickly came to realize that Christian had already developed a clear vision of what he wanted to build and had concrete plans to get there. 

  Fast forward to March 2020.  Christian and his business partner, Brett Robison, just celebrated the first anniversary of opening Silver Branch Brewing Company in Silver Spring, Maryland.  I sat down with them recently to reflect on the legal lessons they had learned in the three years leading up to their opening.

The “Harajuku Moment”

  One of the things that impressed me most about Christian was that when he first contacted me, he was already focused on obtaining federal trademark registration of the brewery name.  For many people, this thought comes much later.  But, Christian and Brett’s story highlights why this should be one of the first decisions.

  After conducting a trademark clearance search on their proposed brewery name, I had to give them the bad news that not only was it unlikely they could register the name, but that using it could expose them to legal liability based on another trademark owner’s rights.  This set off a back and forth discussion of new potential names that lasted many months.  In the meantime, they were moving forward with other phases of their brewery development; we were drafting operating agreements, deciding how to raise capital, and they were looking for commercial space.  Many months, many names, and many trademark searches later, we were still kicking around names.

  Then they met with their commercial real estate broker and had what Brett refers to as their “Harajuku moment;” an epiphany that turns a nice-to-have into a must-have.  Any landlord of the type of property in which they were interested was going to want to know what the branding of the prospective tenant was going to look like and they were going to want to negotiate with a company, not two guys with the idea of a company.  They needed a name and a branding image immediately. 

  They landed on Parallel World Brewing Company and we filed a federal trademark application on January 18, 2017.  On July 18, 2017, we received a notice of allowance from the trademark office, meaning that the mark could be registered as soon as they began using it “in commerce.”  In the meantime, they formed their LLC, opened a bank account, applied for their brewery permits, and began lease negotiations, all under the name Parallel World.

  That is when we got a cease and desist letter from another brewery with a registered trademark that they felt was too similar.  Although we believed their claim was without merit and that we would likely prevail if they followed through on their threat to file a cancellation proceeding against the Parallel World mark, it would have cost Christian and Brett money, time, and energy, all of which were precious commodities at that point.  Since they were still in the planning and building phase and had not yet opened their brewery, it made more sense to just abandon the name and try again.  As Christian put it, “if you’re not in business, you have no business being in this fight… just sigh and move on.”

  Ultimately, they feel that this process ended up benefiting them.  As they went back to the drawing board for a name, they spent significant time discussing and honing their vision of what they wanted their brewery to be.  It was an amalgamation of what they consider four key brewing cultures, Belgium, Britain and Ireland, Central Europe, and the Americas.  From this focus, they developed the imagery of their beer labels using cityscapes of those regions and they designed their taproom to have sections that pay homage to each culture.  From this concept they also found their new name, Silver Branch; a nod to their home location of Silver Spring, Maryland blended with the old world tradition of putting a branch outside your door to signify that you had beer for sale.  Additionally, in developing their new name, they also ended up with an extensive list of unused names, many of which have now become names of their beers.

  There are two overarching lessons from this experience.  First, start as early in the planning process as possible to develop a clear vision of what you want your customers’ experiences to look like.  Use this vision to guide your brand identity and the brewery name.  Second, file for trademark registration on the name as soon as possible.  Christian and Brett did everything right; they hired an attorney, researched the name, filed for registration, and got approval from the U.S. Patent and Trademark Office, and they still had to rebrand.  If they had waited until they were open for business before filing their trademark application and then had to face a cease and desist letter, it could have been devastating. 

The “Vegas Clause”

  The second thing that struck me as unusual when I first met with Christian and Brett was their focus on drafting an Operating Agreement.  Many clients will try to use a form they find online or ask if I have a “standard” operating agreement they can sign.  That is a huge mistake, because as Brett pointed out to me, “you don’t write these things for the agreement itself,” rather the value in drafting the agreement from scratch is that you get to know your partners extremely well and quickly learn whether you will be able to work together effectively.  In preparing the agreement, as Brett put it, “you put your soul to bare in front of another person and tell them everything embarrassing about yourself.” 

  In their case, one of the defining moments came when we discussed what would happen if one of them were to die unexpectedly.  It’s something most people don’t think about, but led to us drafting what they affectionately refer to as the “Vegas clause.” 

  The discussion began with two premises: 1) that if one of them died, their ownership interest would pass to their heirs, and 2) if one of them was divorced the ownership may be considered marital property, half of which would pass to the ex-spouse.  While that was fine on its face, it meant that the surviving owner could find themselves in a situation where they suddenly had a new partner who had no brewery experience, perhaps no interest, and possibly hostile intent. 

  So, we divided ownership interest in the business into two classes of LLC membership units; Class A, which were tied to managerial powers to run the business and had greater voting rights, and Class B, which had no managerial powers and lesser voting rights.  If one of the partners died, their ownership interest that was passed down to their heirs was immediately converted to Class B.  The same was true for any shares given to an ex-spouse in a divorce.  So, the heir or ex-spouse maintained the economic interest without the power to run the business. 

  The problem was that at the time we drafted the operating agreement, Christian was married, but Brett was not.  So, when the agreement was to be signed, we could have Christian’s wife sign her acknowledgement of the clause that her interest would revert to Class B shares.  But, we could not do the same for Brett.  This created a loophole where, purely hypothetically, Brett went on a bender in Las Vegas, found himself unexpectedly married (with or without Mike Tyson’s tiger in his bathroom), and quickly got a divorce or was killed and Christian would be stuck with a new partner with Class A shares, because Brett’s new wife had never signed the agreement.

  Thus, the “Vegas clause” was born.  It provided that Christian or Brett had to provide the company with a signed acknowledgement of the conversion to Class B clause from their spouse-to-be at least 5 days before entering into a new marriage.  Failure to do so would cause their Class A shares to convert to Class B.  The converted units could be reinstated to Class A upon receipt of the signed acknowledgement and upon a 2/3 vote of the Members.

  The lesson here is not in the details of this clause, but that these issues would never have come up if Christian and Brett had just pulled a “standard” agreement off the internet.  There is tremendous value in discussing these issues and ensuring that everyone is comfortable with the relationship.  Like an insurance policy, you hope that these clauses never come into play, but if something bad happens, it is a relief to know that there is a plan to allow you to move forward.

The “Curve-Ball”

  Ask anyone who has opened a brewery and they will tell you that EVERYTHING takes more time and money than you expect.  With a nod to Helmuth von Moltke, “no business plan survives first contact with the government.”  Christian and Brett learned that lesson painfully. 

  The location they found for their brewery was the bottom level of an office building in downtown Silver Spring.  It was a massive undertaking that required significant renovation, including raising the floor of one section of the building to match the rest.  After multiple rounds of discussions with architects and engineers, they were literally one signature away from getting their building permit.  Just then, the person whose signature they needed last went on vacation.  So, their application went to that person’s boss, who decided that because their proposed business required a “change of use” for the premises from office use to light industrial, they were required to bring the entire building up to specification with the new energy code. 

  What this meant was a very expensive upgrade to the building’s HVAC system and a construction delay of months.  After much blood, sweat, and tears (and money), the upgrade was completed and they celebrated in the moment captured in the photograph above; Christian and Brett toasting with a glass of scotch outside the door of what would become their brewery, the building permit in Brett’s hand.

  The specific legal lesson is that if your proposed location would require a change of use, ensure that the property is grand-fathered into the old code specifications before signing the lease.  More generally, though, think through all of the issues as thoroughly as possible before you get started, but be prepared for the fact that you will be thrown curve balls.  Budget for more than you think you will need (it won’t be) and build a team around you to help navigate the unexpected.

A Year Later

  Even with extensive experience, Christian and Brett faced a steep learning curve in building their brewery. That didn’t end when Silver Branch opened its doors.  Expanding their food service, working with artists to develop product labels, adding or changing vendors, and building their distribution network, they have encountered numerous new challenges. But, it sure is nice to meet those challenges with a glass of world-class pilsner in their bustling taproom.

  Brian Kaider is a principal of KaiderLaw, an intellectual property 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.

Lessons Learned from Opening a Taproom-Focused Brewery

By: D.C. Reeves, CEO, Perfect Plain Brewing Co., Pensacola, Florida

Blame craft spirits, seltzer or industry saturation, but the reality today is that craft beer is going to face its biggest challenges yet in the coming years. This is a turning point for the industry, and at a micro level, this challenge can present a turning point in your own market.

  Every brewery should be assessing what it does well, what it doesn’t and coming up with a plan to set itself apart. I wanted to share more of the more unique lessons we’ve learned about where we concentrate our time and resources that could help those thousands of taproom-focused breweries around the U.S. build and sustain their niche.

If you have a brewery you understand the value of top-quality product. We don’t need to cover that part. Let’s dive in on things that can separate you from your competition.

  I discuss a multitude of ways to do this in The Microbrewery Handbook. Graciously, Sam Calagione from Dogfish Head, Jeffrey Stuffings from Jester King and other experts shared their thoughts in the book about what they’ve learned along the way.

  Here are three key things that we learned and adapted as we opened and ran Perfect Plain Brewing Co. in Pensacola, Fla. starting in 2017 that helped us grow to one of the busiest taprooms in the state of Florida.

Taproom Vibe Matters (More than equipment sometimes)

  We spent a great deal of time deciding on the marriage in our budget between equipment “nice to have’s” and taproom. We ultimately decided to gear money towards the taproom and the taproom experience, and we’re thankful for that.

I visit breweries all over the nation that have sparkling new brewing systems and a neglected taproom. Imagine if a restaurant hired the most accomplished chef in New York City, built the most expensive kitchen, then left the dining room with bad lighting, plastic tables and old carpet? Would the chef and kitchen be worth the investment? Of course not.

  Don’t overlook the expenses of creating a great taproom. Having good furniture and fixtures. Good doesn’t mean expensive, it just means if you can afford a $300,000 10-barrel turnkey brewing system, you shouldn’t have your taproom look like a mismatched thrift store.

We can always grow into and upgrade equipment. It’s much, much more difficult to pick up and move a taproom or overcome a lacking first impression if your taproom isn’t up to par when you open.

  We are about to expand into a wood-aging program next door – it’s called The Well and will open this fall. This growth is attributed to us focusing on taproom first, and that success allowing us to do even more on the beer equipment side later.

Focus on Programming Your Space

  In the taproom model, the taproom is your sole business engine. We need to fuel it with events and fun to keep it busy, not just sit back and hope people come in.

  This is something we focused on from the start, but we’ve ramped up significantly in the past year or so. We wanted to be proactive about what brings people into our taproom. When we moved from one manager to two managers, we created an events position that would be charged with just one responsibility: Bring people into our taproom.

  So we’ve done all sorts of things: Drag shows, Harry Potter nights, trivia, we decorate the entire taproom for four days for Pensacon (our community’s version of ComicCon), we do pop-up theme bars in Garden & Grain, our cocktail garden behind the brewery.

  There are other things you can do: Synergize and integrate your brewing schedule and batch planning with your programming calendar from the get-go to give your patrons an immersive experience that has fun beer releases tied to it. A shared calendar with reminders set three months in advance can give you enough time to plan a special beer release, prepare a one-off pilot batch, or order seasonal ingredients for use in a beer for an approaching holiday. At Perfect Plain, we’ve found success with this simple reminder system that we check when we sit down to do our batch planning and raw material orders.

  What NOT to do is get desperate and offer deep discounts on your product as an attraction model. While you may see an increase in taproom foot traffic, you slowly devalue your product to the point that customers no longer desire to pay “full price” because they know they can get it somewhere else.

Learning to care about your employee culture, engagement and hiring well

  One distinct advantage I was fortunate enough to have when opening Perfect Plain Brewing Co. was working for Quint Studer, who pioneered customer service and organizational change in healthcare with his company, StuderGroup. They taught hospitals all over the nation about how to treat patients, treat employees and build winning cultures.

I was able to learn from Quint and adapt some of those tools to the beer business. That said, this also made me realize how much of a forgotten piece of the puzzle hiring and employee culture are in our business. We like to talk about how collaborative we are as an industry, but ask yourself, how are we when it comes to focusing on treating our own employees well?

Here are a Few of the Things We Installed at PPBC

  We have a three-interview hiring process for all positions that ultimately ends with peers making the decision on who to hire. I know, sounds like overkill. Maybe a little crazy. But it works. It allows all parts of the organization to have ownership of new hires and it gives employees the sense of ownership that their opinion on employees matters.

  We are one of the only bars or restaurants in North Florida with less than 50 employees to start offering comprehensive health benefits to our employees for 2020. It’s a significant expense, but an important one to send the message that these jobs are important, these people are important, and their work is important. I’m not saying you have to go to that extreme but think about measures you can put in place that build your employees’ sense of ownership.

  Another key piece to caring about your staff and culture – and a must for us each year – is doing an employee engagement survey. This is an assessment of how your employees feel in many different categories. The value of this is to not only know where you and your company stand with your employees, but it lets your staff know that their opinion counts and is heard. We have made some adjustments each year based on this feedback, so it has proven immensely valuable.

Questions Like:

•    Does the organization employ people whom I like to work?

•    Do my coworkers and I share a strong work ethic?

•    Are many of my coworkers performing at an acceptable level or better?

•    Do I feel connected to my coworkers?

•    Is the work I do meaningful?

  In The Microbrewery Handbook I have more details of how we conduct this survey (it’s not hard!) and the complete list of the 34 questions I ask my employees that could help you get started with your own survey.

  These tactics are especially important with a taproom focused staff. Your taproom staff is the face to your entire revenue stream. You want them happy and feeling a sense of ownership about the company.

For more information about The Microbrewery Handbook or brewery consultation email dc@perfectplain.com

Soul of the Beer

Origin Malt’s barley roots in Ohio fosters promising growth for the Midwestern malt market

By: Tracey L. Kelley

It’s taken nearly a century, but barley production for craft beverages in Ohio is making a comeback. Victor Thorne and Ryan Lang, the founders of Origin Malt in Marysville, just north of Columbus, are ready to fulfill brewers’ and distillers’ demand for local products. “From seed to sip” is not only the company’s motto but also a source of intention.

  “In 1900, there were over 4,000 breweries in North America. Four of the largest malt houses in the continent were in Ohio, and over 300,000 acres of malting barley were grown in the state,” Thorne told Beverage Master Magazine. “In 1978, there were fewer than 50 breweries, and no malting barley produced in our region. Now, with over 8,000 breweries in the country, and roughly half of the 27 million barrels produced within a day’s drive, we still have no industrial malting plant within 300 miles.”

  Barley was a viable crop in Ohio and throughout the Midwest before Prohibition. After repeal, beer and spirit makers disappeared, and regional farmers switched to more valuable commodities such as corn, wheat and soybeans, growing barley mostly as animal feed. While producers in the Great Northern Plains and the Pacific Northwest provide some access to quality malting barley, crafters in other regions have to look elsewhere.

  “Our craft brewers import the majority of their malt from Canada and Europe,” Thorne said. “Also, craft brewers require more than three times the amount of malt per barrel that they produce when compared to large industrial brewers, so as the craft segment grows, demand for malt exceeds domestic supply.”

  Thorne, a tech serial entrepreneur but no stranger to the foodservice industry, believes in building relationships from the ground up. One of his first ventures provided a solution for process automation software by partnering with titans such as Cargill, Sysco and Tyson. Origin Malt’s co-creator, Lang, is a fourth-generation distiller and co-founder of Middle West Spirits in Columbus. He understood a crafter’s desire for local products. The two opened the malt house in 2015.

  “I enjoy matching complex challenges with experts who can solve them. In the beer, spirits and specialty foods sectors that procure sprouted and malted grains, we require a range of expertise to tackle each of the delicate steps to provide the highest quality products at competitive prices,” Thorne said. “Before taking steps to build a malt house, Ryan and I spent several years forming trusted relationships with the agricultural community, from seed breeding, seed production, agronomists, university researchers, established global maltsters and the end customer—brewers and distillers. Our equity partners represent all of these key relationships.” 

More Than Malt

  “Malt is the foundation of beer—some people may say the ‘soul’ of craft beer. After working in the industry and learning so much about the brewing process—sensory, fermentation and quality—what struck me was that malt sets us up. It’s the canvas with which wort is created,” said Sara Hagerty, sales and marketing director for Origin Malt.

  “The question we want to answer is, ‘Why isn’t barley grown [in the area], and how can we bring it back to the region in a functional, sustainable and economically-impactful way?’” she said. “Victor and Ryan found a way to truly shorten the barley supply chain. For me personally, I could get behind that and feel confident that the groundwork was laid for a revolution in sourcing, procuring and bringing high-quality malt products for brewers and distillers to market.”

  From her passion as a dedicated homebrewer to her work for a leading liquid yeast provider, and later with a global malt provider, Hagerty’s experience helps her envision an integrated purpose for Origin Malt. “Suppliers should be more than salespeople with a price list and a catalog. Suppliers should be educators, listeners and visionaries. From our work with consumers, our customers, and our directly-contracted growers—every step of our supply chain is highly regarded and valued.”

  Supply starts with seed—in this case, that of LCS Puffin, a two-row winter malting barley. It’s derived from the heirloom variety Maris Otter—a popular grain grown in the United Kingdom and appreciated by brewers worldwide. Puffin was initially identified from 50,000 stock seeds by Eric Stockinger, a molecular biologist at Ohio State University, and now bred by the Miln Marsters Group.

  “In the Midwest/Great Lakes region, Puffin is planted in early fall and harvested in late spring/early summer. As a winter grain, the variety comes with some standard characteristics—a well-adhered husk, low protein and winter hardiness. These attributes and more play a part in how we malt it and the flavors it creates,” Hagerty said.

  Base and specialty malts include Pilsen, Brewers, Light Munich, C40, C60 and C90. “Some of the flavors and appeal that Puffin has can be identified in its classic nutty characteristic, and as more pronounced roasted almond flavor in some of our specialty malts,” she said.

  “How we decide on the base and specialty malts we bring to market is based on the general needs of our customers, and also the ability to provide a solid lineup of products that are versatile. Meaning, you could utilize all of them across a set of recipes or pull in one or two for a specific recipe,” Hagerty said. “While our established products exist with industry specifications in mind, we’re always keeping our eye on the opportunity to produce limited-edition specialty and custom products for customers.”

  The company currently uses a partner malting facility, but plans to establish one of its own in central Ohio so, as Thorne puts it, the supply chain shortens to “300 miles from seed-to-sip.”

  At press time, Origin Malt’s products are used in more than 50 beers and spirits, as well as health foods, baked goods and other items. To help producers explore the possibilities, the team frequently hosts beer dinners and “Seed-to-Sip Malt Schools” with brewing and distilling partners using a Hot Steep method to evaluate aroma and flavor.

A Boom for Midwest Agriconomy

  Puffin is sourced from directly-contracted family farms in Ohio, Pennsylvania, Michigan, Indiana and Illinois. Growers in New York are interested, too. Producers in search of a reliable winter cover cash crop have an advantage with Puffin not only because of its cold heartiness and disease resistance, but also its ability to help reduce soil erosion and runoff, improve terroir and water quality, and provide wildlife habitat.

  “By growing winter malting barley in combination with double-cropping soybeans, farms can reduce soil erosion and phosphorous runoff by as much as 80%. This is significant since we’re growing in the Great Lakes region, and phosphorous is the primary feed for algae blooms,” Thorne said. “I didn’t anticipate this being a major discovery that reinforces our commitment to conservation and sustainability.”

Origin Malt expects a 2019–2020 harvest of 10,000 acres, but the five-year projection is 75,000.

  “Puffin has a rich European heritage, and has had amazing results since we began producing and testing the variety—initially a cup of seed—nearly a decade ago,” Thorne said. “Our process and demonstrated commitment to bringing malting barley varieties to large has inspired more interest in our region from seed breeders who have been more focused on developing varieties suited to grow in other regions around the world.” 

  Reintroducing an integral ingredient in a multi-level supply line isn’t without risk, but Hagerty thinks Origin Malt’s best practices are factors growers and crafters can trust.

  “Every crop year can yield slightly different results, and it’s up to us—the maltster—to manage how we adapt and uphold our specifications and adjust our malting protocols. I’m a big believer in that it comes down to how you’re educating and keeping your customer informed—as that relationship needs to be lock-step to make sure that everyone can do their best,” she said.

  “We’re very focused on risk management, which is why we’re strategic in where we grow and how we develop and diversify our growing region,” Hagerty told Beverage Master Magazine. “That being said, if barley volumes or quality were low, there’s an established global market for high-quality malting barley that Origin Malt could procure. Maintaining those secondary-sourcing relationships is something we already have in place in case of a North American shortage or crop failure.”

  Thorne said weather is the challenge he worries about most, but cannot control. “To mitigate the risk of weather damaging our crops, we’re committed to spreading our seed across a several-hundred-mile range from Illinois to the Atlantic coast.”

  The company’s agriconomy roots will filter even deeper in the coming years. “When our plant is at capacity, we’ll be ‘reshoring’ tens of millions of dollars every year from the local researchers, seed sales, malting barley production, agronomists, local storage and transportation, and our malting facility,” said Thorne. “Total economic impact will exceed $2 billion from seed-to-sip.”

  He said he loves all the people Origin Malt works with, “aligning every day to make this a success. I’m driven by the potential to make a sustaining impact on an important supply chain.”

  Hagerty is always excited by the “amazing products made with our malt and watching consumers learn about our supply chain and the processes and products that come as a collaborative effort between Origin Malt, barley growers and our brewing and distilling customers.”

  “The value that our malt house has is in the ability for our future facility and the agricultural economy to tie in more deeply with the craft beverage movement, and most critically with craft beverage consumers,” she said. “Sustainability isn’t just an outlook for the short term, but a long-term goal that will continue to be challenged and achieved with the efforts of our team, our growers, our brewing and distilling customers, and, most importantly, consumers who seek to support American agriculture.”

How Craft Beer Producers Can Incentivize Distributors and Wholesalers to Help Them Go to Market

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

As a craft beer producer, competition is fierce. According to the Brewers Association, there were 7,346 craft beer producers in the U.S. last year competing for $27.6 billion in sales. That’s a lot of beer! And, that doesn’t even take into account competition from “The Big Five” or import beer for shares of the overall U.S. beer market.

  For craft beer producers who are looking to scale and increase sales, it might be tempting to start pouring your marketing funds into consumer marketing. But will that really make a splash? Think of the hundreds of millions in media spend by beer companies every year that you’ll be going up against.

  Could there possibly be a more efficient way to use that marketing spend? For craft beers producers who are trying to go to market, it’s important to sit down and ask yourself, “Who has the biggest impact on whether or not end consumers find my beer? And how can I motivate them to prioritize my business?”

Understanding the Craft Beer Sales Channel 

  When it comes to connecting with end consumers, craft beer producers have four options:

•    On-Site: Selling directly to consumers at your brewery.

•    E-Commerce: Selling directly to consumers online.

•    Retail: Selling to consumers through other retailers.

•    On-Premise: Selling to consumers through bars and restaurants.

  However, on-site sales are limited by geography and e-commerce sales require brand familiarity or extremely creative (or very expensive) marketing. For a scalable sales and marketing strategy, craft beer producers have to turn their attention to retail and on-premise sales and the indirect sales force that helps them achieve penetration with these vendors.

Incentivizing Distributor and Wholesaler Sales Reps

  Outside of smaller, highly localized breweries, most craft beer producers rely on distributors, wholesalers and other supply chain trading partners to market to retailers and restaurants. Distributor and wholesaler sales reps are responsible for selling vendors on the value of your beer, negotiating pricing and terms of sale agreements and ultimately getting your craft beer to market.

  There’s one small problem: no matter how awesome your craft beer is, it only a small fraction of your distributor or wholesaler’s supply mix. In this battle for mindshare, it’s up to you to educate reps about your brand, enable them to sell your product and supply them with a value proposition that inspires them to take action on your account.

  This is where an incentive program comes into play. When many people think of incentive programs, they think about rewards. But while rewards play a big role in building relationships with your channel partners and adding to your overall value proposition, modern incentive programs take a more holistic, software-driven approach.

  Today’s incentive programs act as comprehensive sales and marketing platforms that enable craft beer producers to:

•   Build mindshare with distributor and wholesaler sales reps.

•   Target promotions by qualifying participant type, regions or product line.

•   Fill data gaps within their channel.

•   Enable sales reps to sell their product to vendors.

•   Deepen relationships with partners throughout their channel.

Building Mindshare with Distributors and Wholesaler Sales Reps

  Sales reps, for the most part, sell what they know. However, in a crowded supply mix, building this awareness and product knowledge with sales reps can be challenging. While every supplier wants something from these outside sales reps, far fewer supplier focus on offering value and creating memorable brand interactions.

  Inviting these sale reps to enroll in an incentive program where they have the opportunity to earn millions of rewards or exclusive incentive travel opportunities (and perhaps giving them a generous point bonus upfront) is more than a nice gesture. It’s a strategic differentiator and an opportunity to stand out from your competitors.  

  Your rewards program also creates new opportunities for communication and engagement that aren’t strictly business. These brand interactions are an opportunity to improve personalization and build relationship capital, which can be difficult to achieve in supply chain partnerships.

Targeting Promotions to Minimize Cost and Maximize Return

  It’s worth noting that a channel partner program is an investment. When planning an incentive marketing strategy, craft beer producers need to focus on maximizing the return on their marketing spend. This means that they should target first and scale second.

  For instance, would it make more sense financially to target your program to the sales and brand managers at the distributor level or the individual reps who work beneath them? It depends on your go-to-market strategy and the size and number of distributors you work with. If you sell through smaller wholesalers with a handful of reps, who each are responsible for a significant portion of your overall sales volume, then it might make sense to structure your program to reward individual sales reps. On the other hand, if you’re selling through a number of wholesalers and distributors, or an extremely large distributor with thousands of reps, it might make more sense to target your incentive programs to sales and brand managers.

  Additionally, from those managers and sales reps, craft beer producers can set qualification thresholds, based on sales volume or engagement, to ensure that their incentive program spend is allocated toward the participants who are most impactful to their sales growth.

  Another aspect of your targeting strategy is choosing to set incentive promotions by specific regions or product lines, based on strategic initiatives and opportunities for growth.   

Collecting More Complete Data Throughout Your Channel

  Craft beer producers, like many other companies who sell into a channel, often struggle with having inaccurate and incomplete data about their channel. Your incentive program is an opportunity to motivate distributors and wholesalers to provide more complete data. There are several ways craft beer producers can use their incentive program to fill in gaps in channel data:

•   Structuring enrollment forms that capture contact information and firmographic data during program registration.

•   Including automated tools for sales reps to attach invoices or other documents as part of the program’s sales verification process.

•   Offering rewards to participating sales reps for referring other reps within their organization.

•   Rewarding sales reps for completing voluntary surveys that can be used to clean up your existing database or collect more information about your participants’ interests, demographic and lifestyle.

•   Analyzing engagement datapoints the program generates to spot highly engaged accounts that are ripe for upsells and cross-sells.

  All of this information can be used to inform your sales and marketing strategy and increase the level of personalization you offer your supply chain partners.

  However, all the data in the world is useless unless you’re able to act on it. Modern incentive software includes CRM integration, data filters, reporting dashboards and custom reports to streamline this data for optimal use.

Enabling Your Distributor and Wholesaler Sales Reps

  Do you know one of the quickest ways to build brand preference with an indirect sales rep? Provide quality sales enablement. Using proven strategies to educate sales reps on your brand and your products makes it easy for them to sell your products to vendors.

  Integrating interactive quizzes and training videos with your incentive program is a powerful tool for supplying your external sales reps with the knowledge they need to sell your beer. This education can be supplemented by your incentive program’s digital communication platforms. (If you use this kind of strategy, make sure to break things up into bite-sized pieces and focus on the highlights your partners will need to help you go-to-market). Additionally, these quizzes are another opportunity for sales reps to earn rewards, increasing the overall value proposition of your program.

Deepening Relationships Throughout Your Channel

  Finally, in addition to short-term sales growth and marketing penetration, your incentive program has another benefit that will have a lasting impact on the success of your go-to-market strategy: relationship-building. Non-cash rewards are a social currency that achieve emotional impact and memorability with sales reps at distributors and wholesalers. In addition to motivating sales growth and reinforcing desired behavior, the rewards your program offers create a sense of personalization.

  For craft beer producers, your distributors and wholesalers are more than just conduits to the end consumer. They are your partners – an indispensable part of your go-to-market strategy. Offering your sales reps the opportunity to choose from exciting rewards or treating top performers to unforgettable incentive travel experiences represents the type of brand interactions that will set you apart from the competition. But more than that, these rewards inspire your distributor and wholesaler sales reps to emotionally invest in your brand and take an active interest in your success.

Unsure About Where to Start? Be Smart, Explore Your Options and Focus on Scalability

  An incentive program can be an integral part of a craft beer producer’s go-to-market strategy. However, what about companies who have never used this type of strategy before? If you are interested in creating a channel marketing program for your distributors and wholesalers, do your homework. Identify a goal for your program and the software functionalities you’ll need to achieve that goal.

  Compile a list of incentive program providers who fit your requirements and who have a proven track record, with case studies and testimonials to prove it. From there, begin reaching out to these providers and enlist their help in planning your incentive strategy. Use these conversations to refine your strategy and learn more about what has worked for companies with similar goals and similar distribution channels to yours in the past.

  Once you’ve decided on a provider, you don’t have to go all in. It’s prudent to start small, maybe with a pilot program or highly targeted incentive promotion. You can always scale, once you’ve proven that you can do this successfully.

  However, it’s also important to have a sense of urgency. As craft beer sales continues to grow, so will competition for craft beer dollars. Beating your competitors to building an incentive program for your distributor and wholesale sales reps can be a major competitive advantage. Plus, you owe it to your future customers to help them find their new favorite 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