After the July/August issue of Beverage Master Magazine featuring an article highlighting the 30th anniversary of The Pike Brewing Company went to press, news broke of the death of Cofounder Rose Ann Finkel. She died on Tuesday June 16, 2020 at the age of 73 from Myelodysplastic syndrome blood cancer.
“We have had a wonderful experience for almost 52 years,” Charles says of Rose Ann. “She had a lot of friends, a lot of people who loved her. She made a really great impression on everyone she met. I miss her, obviously. But I’m very happy she died in peace surrounded by people who loved her.” (Forbes, June 17, 2020).
As reported by the Seattle Times, It’s impossible to talk about Seattle brewery history without mentioning Rose Ann Finkel. From her arrival in Seattle in the mid ‘70s, she helped shape the way this city ate, thought about beer and how the two best complemented each other.
Jason Parker, Co-Founder/President Copperworks Distilling Co., who served as Pike Brewing Company’s first head brewer, reflected on Rose Ann’s legacy.
Rose Ann was the perfect dance partner to Charles in life, love, and in business, which for the Finkels, were one in the same. Though frequently in the spotlight with Charles, Rose Ann also worked behind the scenes to pull deals together and lead the business of their endeavors, from importing containers of malt to picking out tee shirts for the staff. Transcending her contributions to helping the company succeed was her influence on folks, and especially women, in the industry, who looked at Rose Ann as a role model for enjoying life, getting things done, and encouraging others, all at the same time.
After finding Merchant du Vin in 1978, the Finkels became known in international beer circles due to their success introducing Americans to specialty beers brewed by family-run breweries from England, Germany, and Belgium, as well as other places throughout the world including the United States. Along with this commitment to craft culture, Rose Ann championed community causes through events such as Pike’s Women In Beer. This annual cerebration of craft beverages, local foods, and the women who make them, benefits the Planned Parenthood of the Great Northwest & Hawaiian Islands.
When asked how Women in Beer tied in to Pike’s company philosophy, Rose Ann offered this response.
Pike’s community mission is focused on being good and doing good. Whereas brewing great beer is in itself a laudable goal, it is our mission is to provide employees with a happy, artistically driven, and soul satisfying experience. To build a team of diverse employees who share our vision to be good community citizens, supporting non-profits whose mission is in concert with ours.
As an example of the Finkels’ commitment to building a better world, the aforementioned Forbes article noted how Charles concluded a phone call. “He didn’t elaborate on how he wants to get back to work at the agency (he does) or lament that COVID is keeping his family from holding a proper funeral for his wife (he hopes a memorial service will happen at some point in their home garden) but enumerated more than half a dozen civil rights movies he recommends. There may not be a more illustrative example of the Finkel spirit: forward-looking, optimistic, pragmatic, gracious and genuinely working for the betterment of the community – not just their own but everyone’s.”
Financial literacy is the ability to read and understand the
numbers of your brewery business so that you can improve financial results.
Improving financial results may include growing sales, improving gross margins
or increasing cash flow. In today’s uncertain times, financial literacy is more
important than ever.
The numbers of your
brewery business are reported on the financial statements – the income
statement, balance sheet and statement of cash flows. Each of these reports
provides vital financial information to understand what’s going on in your
business.
In this article, we’ll
review the basic components of brewery financial statements and provide
examples of what these reports should look like. We’ll also dig into the
mysteries of the brewery chart of accounts – the building blocks of the
financials – and provide tips to make sure your financial reporting is as good
as it can be.
We’ll close out with a
list of best practices to follow so that your financial information is
accurately reported. These best practices are summarized into a handy checklist
of month end procedures to follow.
Brewery Financial Reports
The numbers of your business are organized into reports called the financial statements: the income statement, balance sheet and statement of cash flows. Each statement provides useful information about a different part of your brewery business. Below is a brief review of each report.
Income statement (Profit & Loss Statement
or P&L): The brewery income statement reports on sales, margins, operating
expenses and shows whether the business had a profit or loss. This statement
measures results over a period of time – the month, the quarter, or year to
date, for example.
It’s important to
understand that the income statement measures transactions but does not measure
cash flow. The income statement records sales when earned, and expenses when
incurred, regardless of whether cash was received or paid out.
Balance sheet: The brewery balance sheet
lists assets, liabilities and equity.
Assets are things you own, liabilities are things you owe, and equity is
the difference between the two. If
assets are larger than liabilities, you have equity. If liabilities are bigger, you have a
deficit.
While the income statement
measures results over a period of time, the balance sheet measures numbers as
of a specific point in time – at month end, quarter end or year end, for
example.
Statement of cash flows: This financial report
measures the flow of cash coming into and going out of the brewery
business. It tells you where cash came
from (collections on sales, for example) and where cash went (payments to
vendors, for example). The income
statement measures transactions, not cash. The statement of cash flows shows
picks up where the income statement leaves off and records the flow of money
through the business.
Brewery Income Statement
(P&L) Examples
Now that we’ve covered the
basic financial reports, let’s look at examples of what brewery income
statements should look like.
We’ll begin with a
summarized version of the P&L.
Shorter reports are easier to read and allow you to see important
information quickly. The summary report
includes sub-totals for each major P&L category: sales, margins, operating
expenses and profit or loss.
The simple P&L shows the summarized results for a period of time (Year to Date, in this example) and presents each category as a percentage of sales. P&Ls don’t need to be five or ten pages long to be good. In fact, shorter is better. Shorter is easier to read and makes it more likely that you actually will read the report. Start with a summary P&L like this one, then expand the report by adding more details. Here’s an example:
This P&L shows sales,
cost of sales, and margins by package type. This type of presentation makes it
easy to see the margin percentage by package type (kegs, cans or bottles) which
is useful in analyzing portfolio profitability.
An alternative to this
P&L is to present the information by line of business. This might include
sales through the taproom, self-distribution and wholesale distribution.
Regardless of which method you use, it’s helpful to mirror the sales categories
within the cost of sales and margins categories. For example, have a separate
account for taproom sales, taproom cost of sales, and taproom margins.
Financial literacy is the
ability to read and understand the numbers of your brewery business so that you
can improve financial results. The income statement, balance sheet and
statement of cash flows are reports that summarize those numbers. Each report
gives you different information about the business, and each is important to
review on a regular basis.
Brewery Chart of Accounts
Accountants use the term
Chart of Accounts to describe the listing of all the things you want to track
and report on in your business. These include all of the assets, liabilities,
revenue and expenses. The purpose of this listing is to provide organization
and structure for your financial reporting. The Chart of Accounts serves as the
building blocks of your financial statements.
The level of detail in
your chart of accounts listing will depend on how much information you want to
see on your financial reports. For example, you may have three different sales
accounts, as shown earlier: Sales-Kegs, Sales-Cans, and Sales-Bottles. Each captures the sales specific to a type of
package.
Alternatively, you may
have any number of different sales accounts to show sales by market and package
type. For example, Sales Self-Distribution Kegs, Sales Self-Distribution Cans,
Sales Self-Distribution Kegs, etc.
Be purposeful about the
level of detail in your chart of accounts. More detail may be preferable, however
this will take more time for your bookkeeper to record the transactions into
the proper accounts. Start with the kind of reporting you need to see in your
financial statements and build the chart of accounts accordingly.
For an example of a full brewery chart of accounts, visitwww.craftbreweryfinance.com and enter chart of accounts in the search box.
Brewery Financial Month-end
Process
We’ve covered the basics
of how to read the financial statements and understand the chart of accounts.
Next, we’ll review a month-end process you can use to make sure
your numbers are complete and accurate. A process is defined as a series of
steps, followed in order, that will lead to the right outcome. In this case,
the right outcome is accurate numbers in the financial reports.
The month-end process
should be clearly written and used as a document to train your bookkeeping
staff. An accounting manager should periodically audit the work of staff to
ensure that the process is being followed.
The process can be presented in the form of a checklist, indicating what task to do, when to do it, and who is responsible for completion. Below is an example of a month-end financial checklist:
The process checklist
should contain all the necessary steps to close the books for the month in
order to ensure the accuracy and completeness of the information. For example,
all payroll journal entries should be made on the 1st day of the new month and
all bank statements should be reconciled by the 5th business day of the month.
To create your month-end
process checklist, have your bookkeeper write down all the actions they take to
close the month. Compile this list of actions and assign due dates and a
responsible person. Each month when it’s time to close the books, use the
checklist as a guide to make sure each step is done and completed on time.
The best way to make sure
you have good financial information is to follow a good process consistently.
To download a full month-end process checklist, visit
www.craftbreweryfinance.com and enter month-end process in the search box.
Wrap Up + Action Items
Financial literacy is the
ability to read and understand your financial statements so that you can
improve results in your brewery business. Improved results may be sales growth,
margin increases or positive cash flow. You define the result you want to
achieve and use your financial literacy to make it happen.
Use the summary income statement templates presented here or create your own so that you can monitor financial outcomes. Review your chart of accounts and compare to the template atwww.craftbreweryfinance.com to identify any needed changes.
In today’s uncertain
business environment, financial literacy is a competitive advantage. Use this
advantage to drive increased financial performance in your brewery business
today.
Kary Shumway is a Certified Public Accountant and has been working as a CFO in
the beer business for the past 15 plus years. He creates financial training
courses for beer wholesaler owners so that you can build a more profitable
business.
For more information please visit…www.craftbreweryfinance.com.
At press time, details
about the future economic impact of the pandemic are in constant fluctuation.
However, most forecasters are certain greater challenges loom large.
It’s not for a lack of
effort. There were many expedient pivots in the craft beverage industry, from
the much-lauded manufacturing of hand sanitizer and flipping stale beer into
whiskey to crafting subscription boxes and extending off-premise sales.
So, now what? We asked business consultants to provide their
perspectives, and they eagerly offered frank but encouraging relaunch and
repositioning action steps we hope spark ideas. Our experts include:
Jacob Halls, partner, and Rick Laxague, partner, Craft Beverage Consultantsin Columbia, Missouri. Halls advises in areas of business strategy, compliance and marketing and distribution. Laxague provides plans for distribution, operations and sales and marketing. Laxague said, “Our experts have a combined 150 years in the alcoholic beverage industry, with deep knowledge in everything from sales and distribution, production and regulatory compliance to marketing, package design, event planning, IT, (social) media, hospitality and even values-based executive coaching.”
Scott Schiller, managing director of Thoroughbred Spirits Group, which specializes in helping new and established spirit companies. Schiller said, “Since 2009, our Chicago-based company has helped launch more than 30 distilleries, designed over 50 spirits brands and facilitated three exits.”
Beverage Master Magazine
(BM): Right now, there’s still considerable uncertainty in the beer, cider and
spirits industries. Is this a time to wait and see what happens, or an
opportunity to take proactive steps?
Jacob Halls (JH): Be proactive—successful
companies see their environment and adapt to it. Waiting to see what happens to
you takes you out of an element of control of the direction of your company.
See the changes in the hospitality climate and take note of how they’re not
going to be going back to how they were anytime soon and adapt accordingly.
Consider:
1. Were your on-premise sales
80% of your business? Find a way to team up with your prime on-premise accounts
to set up partnered order pairs if the state allows curbside/delivery alcohol
sales. For example, if you have 200 kegs, sell them directly from the taproom.
2. Slow down production in the
areas where your sales drastically diminished, and shift to areas that have
picked up.
3. Are you currently doing
curbside sales at your taproom to supplement that revenue generation? Have you
created a gift card program? Have you developed an online sales system and
where legal, delivery/distribution program for your products and merchandise? Have
you explored every option of new streams of sales? How have you maintained
connection with your customer base?
Adapt—or Get Ready to Sell Your Equipment
Rick Laxague (RL): Be proactive now! If
you’re not analyzing your business right now and what the new normal looks like
for your brand post-COVID, chances are you won’t recover from this.
Scott Schiller(SS): The spirits business is recession resilient, not recession-proof. I’m not an economist, but at the time of writing this, I don’t foresee the economy recovering quickly. As such, there’s no better time for the well-prepared—whether existing or those in the wings to enter the industry.
I take no pride in writing
this, but there are many distilleries, and companies in general, at risk before
COVID. Unfortunately, COVID is forcing their hand. The knowledgeable,
well-financed, nimble and diversified—such as those with a healthy combination
of on- and off-premise ratios and affordable price points—have the potential to
flourish. For the distiller in planning, there’s likely to be less competition
and a healthy offering of used equipment.
BM: In your
estimation, how much of a shift do you think the pandemic and its aftermath
will make in the industry?
JH: I don’t want to sound grim, but the taprooms, bars and restaurants
will take the largest hit, which passes to the alcohol producers for a decrease
in on-premises sales. Walking around or
dancing shoulder-to-shoulder in a club for three hours isn’t going to be viewed
as normal for a while. If an establishment’s happy hour was its primary
earnings time-of-day, and it could seat 200 people with the average space
between seats being two feet, how many people concerned about this will want to
sit that close to someone?
As businesses adapt, seating
space becomes less per square foot. In order to earn the same dollars-per-hour,
something has to change in the pricing or the amount of staff—both of which can
drastically change customer flow and demographic of the restaurant. Service may
go down with fewer staff, causing a less-positive experience and fewer return
visits.
If the prices have to go
up in order to maintain the same level of staffing, then some customers may now
be priced out of the establishment, as they’re financially affected by the
pandemic as well.
The brands of alcohol
purchased by the establishment may also change: a package by the smaller craft
producer that’s normally $45 per case or $200 per keg may be passed over for a
cheaper $23 case and $60 keg in order for the establishment to maintain its
customer service level of staffing and pricing.
Something will have to
give. Bars, restaurants, wineries, breweries, cideries, meaderies and
distilleries will suffer and, in many cases, cease doing enough business to
survive their existing debt loads.
RL: It’s obvious that all
segments of the industry have seen growth from new entries—that is, companies
and brands opening in the past eight or more years. Some of these segments have
triple-digit growth. This caused the glass for the consumer to be overflowing
with overloads in brand, flavor, style and marketing. There’s no loyalty to a
brand in the new 21–28 age range due to the influx of offerings. To stop the
glass from overflowing, you have the following options:
1. Get a bigger glass.
2. More space in retail
stores, as the stores aren’t getting any bigger. B: More stores, but with the
cost of real estate and larger corporate retail stores the “A locations” are
gone and a “C location” won’t deliver a ROI.
3. Turn off the faucet. Stop
the “overflow abundance.” The thinning of the crowd needed to happen, but it’s
unfortunate that a worldwide pandemic life scare is what it took. Think of
Mother Nature and our farmers who produce ingredients to make these beverages.
They burn off their fields after harvest to create new healthy growth for the
coming year.
SS: The mid-size and larger distillers will benefit from this
pandemic. Part of what has hindered their typical growth patterns is the number
of new entrants and the plethora of local distillers who often gain favor.
The second tier puts an
incredible focus on companies that provide their quickest pathway to
recovery/profitability, which will likely cause some brands to have even less
attention. I believe some brands will be delisted before that dance plays out.
Once we reach the third
tier, the on-trade will rely on brands that provide value and support.
Off-trade is doing very well, but I don’t foresee these profits being poured
into unsupported/unknown craft brands, as consumer confidence isn’t likely to
be there to warrant the investment to carry them.
BM:In what ways is a relaunch
plan essential now, and how can a producer formulate one? What might it entail?
JH: I tend to have three or more plans for almost every situation—you
can never be too ready, but you can always be underprepared. One may ask how to prepare as a producer. In
order to plan, know your business history:
• Where have you struggled
before?
• Where were you suffering
most recently?
• How agile is your
marketing team to communicate your company’s changes, and in a tone that
maintains a positive message?
• How agile is your
production team in shifting from kegs to package?
• How able is your
operations team to facilitate the changes that need done: ordering disposable
growlers, cans, contactless delivery material, etc.
• How able are you as the
proprietor to manage the economic responsibilities needed to maintain changes
in your company?
• Are you able to make
hard decisions as needed?
• Laying off or
furloughing a long-time employee is incredibly hard to do. Do you have a
support system yourself for this?
Account for everything
that has happened and can happen.
RL: What is the saying: “You
have one chance to make a good impression?” Well, now you have a second chance!
Look at your original business plan and model and select all the positives—then
write a new one. You can remove things you did wrong and implement those you
thought of after the fact. You know more now, but not everything. So source out
what you don’t know, a.k.a, “phone an expert.”
SS: No matter how this pandemic is influencing your business, it’s vital to create a strategic plan with several pathways and outcomes, for there is only one who is all-knowing in this unknown, and that is neither you nor me.
With plans in place,
financial models need to be built to ascertain how much time you have, and
along with an awareness of critical decisions and time periods. Assigning
weights to the various outcomes also allows you to make a calculated risk
assessment on what should even be attempted.
BM:
What top
three action items do you recommend to producers right now?
JH:
1. Don’t produce just to
produce unless you need to burn through raw materials already purchased. If you
can, barrel-age or delay the release dates to maintain the production/release
rate to sales rates.
2. Take a cold look at your
finances. The hardest part of that is being honest with yourself. Don’t let ego
make the decisions.
3. Be as proactive in your
community as possible. If you can, develop a T-shirt that’s available online or
curbside with 100% of the proceeds going to support your furloughed taproom
staff or a local community cause. Work with your distributors in other
communities outside your own to be supportive there as well. Be part of the
community, even if you’re not local—keep your face seen in a positive way.
RL:
1. Evaluate finances. What
can you afford to do, and what can you afford not to do, have or upgrade?
2. Branding. What can you
improve upon from a brand perspective—as in, how to reach the consumer and
engage with them? Get them to stop scrolling, and “like” (buy) your brand. I
think virtual happy hours will be a popular thing moving forward for friends and
families apart.
3. Distribution. Improve
your relationship with the distributor network. This also means having adequate
sales-brand representation to work with your distribution network to secure
those placements.
SS:
1. Center yourself and get
extra clear on your definition of success.
2. Develop a rock-solid
strategic plan and financial model.
3. Get your team informed and
aligned, from front-line workers to investors. Prepare them mentally and
emotionally for what’s at hand. Ensure that you have the right warriors, and
that you have the leadership and wisdom to see them through.
BM:
In what ways can producers work within their
communities and develop new marketing strategies to rebuild their businesses?
JH: As mentioned above, team
up with distributors, businesses that supported your brand well, and charities
and causes that are positively helping communities during this pandemic.
RL: Thank the community for the support during this crisis. If you
have a loyalty program, use an email marketing platform to send a direct thank
you letter to the zip codes where members reside. Make it a bounce back:
“Thanks for the support, bring this letter in for a ½ off item,” or a similar
promotion.
SS: Every business is in this together, and every business is going
to need help. Distilleries and other craft producers have always been important
members of communities, from supporting other local businesses such as farms
and utility companies; to offering dependable and well-paid jobs from
production to sales to executives; and of course, providing extensive tax
revenue for their municipalities and states.
Distillers switched gears
during world wars, and are doing so now during the pandemic. This is an amazing
time to be a leading light in the community and an essential economic engine in
a town’s rebirth. We often say “support local.” This is a two-way street and
right now, distillers can lead.
BM:
Finally, “no revenue” is an obvious answer to
the question, “Should I close?” But in the current over-expanded market, what
other answers might a producer consider?
JH:
SKU
reduction. If you have a brand that’s working and some that are lagging, but
they’re being produced to fill out the portfolio to make your brand more
attractive to distributors, grocery, C-store sets or franchise restaurant chain
mandates—cut them! Focus on what’s working and do it well.
RL: Be humble. It’s more
admirable to ask for help than to never build a new door to walk through. Also
consider:
1. What’s your quality of
life? Health, stress levels, missing kids’ activities because you must run the
business and so on. This pandemic has brought families together. More meals in
groups, board game conversation and outdoor life vs. a face in a phone all the
time.
2. Are you staying true to
the mantra, integrity and goal of why you opened the business? Some people will
say no—they’re just trying to keep up.
SS: This pandemic will
hopefully be the toughest business challenge you’ll ever face in your lifetime.
As such, it presents an excellent opportunity to confirm your commitment to
your business:
1. Is it your life’s
calling/purpose?
2. Do you have the energy and
resources to start back from where you were in the early years?
3. What will your personal
and financial well-being look like if it takes two years to get to where you
were at the end of 2019?
If you have the fortitude and the wisdom, you
can work through this. And the field will likely be even greener if you can
make it through the next 730 days.
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.
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.
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.
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.
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.
TheFuture 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.”
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.”
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.
