Choosing Effective Incentive Rewards for the Craft Beer Distribution Channel

America’s Beer Distributors: Fueling Jobs, Generating Economic Growth & Delivering Value to Local Communities. (PRNewsFoto/National Beer Wholesalers Association)

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

From improving market penetration to increasing sales volume for a specific product, craft beer producers rely on their indirect salesforce to accomplish their strategic goals. Incentive rewards can help craft beer producers create win-win scenarios for their indirect salesforce and influence their selling behaviors in ways that benefit the brand. However, not all rewards are created equal. The effectiveness of an incentive reward program depends on choosing rewards that capture the attention of wholesale and distributor sales reps and provide sufficient motivation for them to go the extra mile.

  When choosing rewards that appeal to their target audience, it’s important for craft beer producers to focus on the following factors:

•    Value Proposition: Will these rewards provide sufficient value to your indirect sales reps to justify their efforts and maintain their interest?

•    Personalization: Will these rewards feel meaningful to participants on a personal level, creating an emotional impact?

•    Scalability: Will your reward selection give you the ability to tailor your value proposition to different segments of your audience, from easily attainable rewards for new participants to exclusive rewards for top performers?

•    Memorability: How long will this reward keep your brand top-of-mind with participants? 

•    Participant Lifestyle: Which types of rewards appeal to your participants’ interests and align with their lifestyles?

•    Competition: If your competitors are running a rewards program, how will your program provide a more compelling value to your participants?

  Additionally, craft beer producers need to consider how their reward selection ties into their overarching goals, as well as their budget. Will it be more profitable to focus on providing more attainable, less personalized rewards to drive short-term growth or to develop high value, highly personalized rewards to solidify long-term loyalty? Or, perhaps, some craft beer producers will be interested in a mix of both. Either way, it’s important for craft beer producers to view their incentive reward program as an investment rather than a cost and concentrate on choosing rewards that help them achieve their goals in a profitable, cost-effective manner.

Types of Incentive Rewards

  Today’s incentive reward programs provide a variety of different reward types that craft beer producers can offer to their participants. These include gift card and debit card rewards, points-based merchandise rewards and group incentive travel. Each of these reward types has various strengths and weaknesses, depending on the goals of a craft beer producer and the makeup of their target audience.

  For instance, gift card and debit card rewards are highly scalable and provide an easy to understand value proposition. However, this comes at the expense of personalization. While a branded, reloadable debit card will keep your brand top-of-mind longer than cash commission, it doesn’t provide much in the way of social value and will not necessarily make a distributor sales rep feel warm and fuzzy about your brand. With e-delivery options and reloadable cards, gift card and debit card rewards can be awarded almost instantly, making them best-suited for SPIFFs (short-term incentive promotions) or for sales promotions for a wide audience. 

  Merchandise rewards, on the other hand, have trophy value and provide tangible rewards that indirect sales reps will associate with your brand for much longer. With an online rewards catalog that’s chock full of millions of exciting rewards, from digital movie rentals and Netflix subscriptions to home theaters, a points-based merchandise program is highly scalable and allows participants to choose personalized rewards that fit into their lifestyle and match their level of performance. Online merchandise rewards allow craft beer producers to incentivize sales growth across each segment of their salesforce, while also inspiring loyalty in top accounts with higher value, more personalized rewards.

  Of the different reward types, group incentive travel is the most memorable and emotionally impactful. By rewarding top-performing indirect sales reps with a trip to an exclusive locale like Tahiti or Venice, craft beer producers will have the opportunity to really personalize their relationship with their wholesale and distributor sales reps and create memories they won’t soon forget. However, incentive travel isn’t very scalable. Typically reserved for top accounts, incentive travel is better suited for building loyalty and solidifying long-term relationships. Additionally, it’s worth noting that while the effects of Covid-19 have put a damper on incentive travel events, demand for these trips will be through the roof when travel resumes, and many vendors will be motivated to provide great deals for craft beer producers who plan ahead. 

Setting Reward Parameters

  An important component of reward program strategy is determining how participants will be rewarded. Craft beer producers should consider which specific actions participants must take in order to accumulate reward points and whether different actions have different strategic values in helping them achieve their goals.

  For instance, if a craft beer producer’s goal is to increase overall sales, then it might make sense to assign reward points to distributor sales reps based on overall sales volume. But it also might be beneficial to provide point bonuses for first time sales, sales on a new or underperforming product line, completing online educational courses or providing referrals. All of these actions can help facilitate sales growth in the long-term and provide distributor sales reps with a clear path toward maximizing the value they receive from the program.

  Additionally, setting qualification thresholds and offering tiered rewards can help craft beer producers make their program more cost-effective. For instance, it might make sense to require distributor sales reps to sell a certain amount of beverages before they qualify for the program or to offer a group incentive travel trip for the top 25 performers each quarter, in addition to a card or points-based merchandise program for the other sales reps. Doing so allows craft beer producers to allocate their reward spend toward their most valuable supply chain trading partners, while limiting expenditure on sales reps who may not offer as much long-term value.

  In addition to tiering rewards based on performance, craft beer producers can leverage this strategy to target different hierarchical segments of their indirect salesforce, offering higher value rewards like incentive travel to sales managers while running a points-based merchandise or card program for the individual reps who work under them. This allows craft beer producers to incentivize from the top-up or the bottom-down, maximizing their influence within their sales channel.

  Online incentive technology offers craft beer producers the ability to easily segment their audience, change parameters, automatically allocate points and track the impact of these decisions on their ROI through dashboards and custom reports. For craft beer producers, it’s important to have the flexibility to quickly adjust elements of their reward program strategy, while minimizing the man hours necessary to manage their program.

Expanding on the Reward Experience

  Rewards are exciting and provide an easily understood value proposition, making them an effective tool for marketing an incentive program; but rewards are only a small component of the value an incentive program creates for craft beer producers, as well as their supply chain trading partners. An incentive reward program provides new touchpoints to improve the partner experience, such as:

•   An integrated digital hub, where indirect sales reps can connect to learn more about the brand, explore the latest incentive promotions, track their progress and redeem for rewards;

•   A communication platform that craft beer producers can use to send customized communication and automated alerts via email, SMS, push notifications and direct mail;

•   Customizable enrollment forms that craft beer producers can use to capture data about their indirect sales reps in order to personalize their sales and marketing;

•   Data collection tools that make it easy for indirect sales reps to upload sales invoices or scan QR codes in order to verify their sales claims and earn points;

•   Elements of gamification such as leaderboards, spin-to-wins and limited time bonuses to keep sales reps more consistently engaged;

•   Online surveys and analytics tools that help craft beer producers better understand the members of their channel and provide a more rewarding partner experience; and

•   Interactive quizzes and online training platforms to help indirect sales reps become more informed, effective advocates of the brand.

  The appeal of earning a reward channels indirect sales reps into this funnel and keeps them invested in the communication they receive through the program. But, more importantly, the reward program itself provides an entire ecosystem for more personalized communication and engaging brand interactions between craft beer producers and members of their channels. By focusing on the partner experience, both before and after earning a reward, craft beer producers have the opportunity to maximize the effectiveness of their reward program, solidify brand preference among their supply chain trading partners, differentiate their brand and target long-term strategic initiatives.

  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@incentivesngunn@incentivesolutions.comolutions.com.

Growing Your Brewery’s Brand

By: Lewis Barbera – Vice President, Sales

There are currently more than 7300 regional breweries, brewpubs and microbreweries in the United States. Even during difficult times, the popularity of the craft brewery continues to grow. For many home brewers and beer aficionados, the prospect of owning and operating their own brewery is a dream come true. It’s an opportunity to expand their personal recipes that they have refined over the years as a hobbyist and share them with a wider audience.

  Making your mark within the industry is not an easy task to accomplish. Perfecting your craft is an important start in staying relevant. But satisfying your regulars and marketing through word of mouth is just the beginning. It’s the additional, day-to-day business details that become so incredibly important. Maintaining your brand and ensuring that it reaches the widest audience possible will help you to stand out in a crowded market.  

Brand Identity

  One of the benefits of owning and operating your business is the freedom associated with developing its brand. From the name to the logo, this is an opportunity for you to work closely with your business partners to establish something catchy and unique, while also cutting through the clutter and staying top of mind with your customers. But once you’ve picked out your colors and have come up with a memorable catch phrase that highlights your craft, what’s next?

  In today’s market it’s not uncommon to promote your brand through a variety of related products. Whether that’s pint glasses and coasters, umbrellas, signage or an oversized Jenga set reserved for outdoor events, merchandising your business in creative and unique ways is critical. But there are numerous moving parts that inevitably get in the way. Working with your local Kinkos and your cousin (twice removed) to help with the graphical design will only get you so far.

  Properly sourcing your merchandise is an indispensable asset to your overall brand marketing initiatives. Working closely with a partner capable of assisting with the delivery of your products can make an immense difference in your day-to-day operation.

  Understanding the ins-and-outs of product sourcing often includes first-hand experience in knowing what works and what does not. These conversations can help steer you in the right direction, while also shielding you from potential missteps. Promoting your brand with a Point of Sale (POS) system capable of delivering the best return on investment (ROI) in a growing market will help you to realize even greater success.

Off-Premise Initiatives

  Traditionally, craft beer has primarily been sold on-premise. The experience of enjoying a freshly tapped beer while socializing at your local brewery is one of the reasons the craft beer industry has stayed consistently strong. When combined with ongoing marketing and merchandising efforts, off-premise sales has the strong potential to develop into an additional sales and distribution plan.

  Some beer aficionados might argue that traditional retail sales takes away from the uniqueness of the craft beer experience and no longer differentiates itself from large national brands. However, retailers are very much in tune with consumer preferences and will always be looking for opportunities to emulate the success of on-premise craft breweries through off-premise sales.

  It’s important for every craft brewery to take the steps necessary to continue promoting their name and their brand. As such, there are several opportunities worth considering for an off-premise strategy:

•   Stand Out in a Crowded Space: Whether you’re positioned within a local liquor store or the corner grocer, make sure your branding is prominently displayed and catches the eye of every customer. Proudly present your most popular beer or newest recipe on shelves, stackers and corrugated risers that clearly exhibit your branding. Make sure the colors are bold and vibrant, and that the wording can be read from across the aisle. Take pride in your craft and give it the attention it deserves.

•   Small Idea, Big Impact: Even the smallest idea can have the biggest impact when it comes to branding and product marketing. Sticky shelf talkers, ceiling danglers, window clings and floor placements. Make it so that no matter where the customer is looking, your brand is sure to grab their attention. And it’s not always about how big of an impression you make or how much real estate your branding utilizes. A strategically placed logo can help even the most undecisive beer drinkers make the right choice.

•   Your Fans are Your Biggest Advocates: Don’t overthink it. The practicality of the idea often becomes the biggest win for off-premise business. Let your fans do the “heavy lifting”. Selling a variety of tote, lunch coolers and brown paper bags, each with your branding clearly identified for everyone to see, is a great way to continue getting your name out there. Used at work, on vacation or attending any number of social events, your biggest fans will be promoting their favorite beer without ever saying a word.

•   The Signs Are Everywhere: Chalk-based A-frame menu boards. LED light boxes. Laser cut, digitally printed hardboard wood. What do all these different types of signage have in common? They’re the most classic form of beer advertising you can think of. People of all ages collect them and prominently display them in their homes, garages and on the walls of the businesses they own. They catch your eye, make a statement and get you thinking about one thing, and one thing only – BEER!

Product Management

  Having access to your own, business-specific e-commerce website is an opportunity to more effectively manage your growing list of products. When conveniently organized by category, a robust e-commerce solution is more likely to yield an increase in the number of merchandising orders placed. By providing your sales group, wholesalers and consumers 24/7 virtual access to your products, you’re removing yourself from the time-consuming difficulties and headaches of manual maintenance and upkeep.

  An effective e-commerce portal is not only a reliable source for managing your inventory in an organized fashion, it can also be seamlessly updated to accommodate for new products and inventive promotional efforts. Including pre-order windows and making them available to your distributors will help to better gauge the potential success of your latest product promotions before taking the plunge and jumping head first into a new initiative.

  Planning for the upcoming year’s promotions, brand launches and seasonal programs is an important function critical to the ongoing success of your business. Having access to online ordering is a great resource to take advantage of when working toward upcoming events. Providing your distributors access to your ecommerce site makes the process of managing and expanding your brand a seamless activity.

  However, maintaining your inventory and shipment data can often be challenging. Working from a comprehensive and reliable report – one that details the data needed to drive a successful program – saves time and increases productivity, allowing you to focus more on your craft. Accessing these reports, whenever needed, makes the process of future inventory planning and promotional efforts even easier and more sustainable.

Inventory Optimization

  Space is a commodity. You’ll never have enough and will always be needing more. When owning and operating your craft brewery, you’ll quickly realize that as more of your space is consumed by branded merchandise, less will be available for that essential, behind-the-scenes equipment – brewing systems, canning lines, tanks, fermenters and more. Working with a total fulfillment partner opens up the possibility of maintaining and safely storing your merchandise stock.

  At its core, inventory optimization and supply planning answers the question about how much merchandising inventory should be carried. Working with your fulfillment partner, you’ll be able to better understand the complexities of supply and demand and more accurately identify inventory targets. By maintaining appropriate levels of merchandising stock you’ll greatly reduce the chances of inventory obsolescence, thereby freeing up capital that can be applied elsewhere throughout your business.

  Fulfillment partners often include consignment opportunities, giving you the option to store your products offsite while still retaining ownership. As the products begin to ship, you’ll be able to track how much inventory sold and work closely with your fulfillment provider on the transactional details.

  When tied directly with your unique e-commerce platform you’ll have even greater flexibility and control over the number of products sold, understand when and how they have shipped and be able to effectively report – from week-to-week and month-to-month – for better management of your business’s overall expenses and profits.

  Pre-orders are also designed to increase profitability. Utilizing your fulfillment partner’s expertise in identifying products that are best suited to both order windows and the make-and-ship process, you’ll capitalize on an effective solution to the POS puzzle. This pre-order option provides greater overall flexibility when planning for upcoming events and seasonal placement.

Dedicated Support

  Whether it’s the account manager, sourcing, logistics or warehouse, the various touchpoints of a fulfillment team provide the support needed to effectively operate your business. Their focus is helping you maintain yours. In doing so, you’ll have greater opportunities to further pursue your passion.

  A committed support team should be analyzing your POS operations on a quarterly, bi-annual and annual basis, and provide feedback to assist with any changes that may be needed. Their long-standing relationships within the industry are designed to support your needs and ensure that your business realizes continued success.

  Your merchandising efforts are directly connected to establishing your brand and helping your business thrive in an increasingly competitive market. Aligning yourself with a reputable fulfillment program will assist you in meeting the goals you have established for your business. When done well, your brand will realize the greatest potential to reach more customers and leave lasting impressions.

How Craft Breweries Can Use Technology to Drive Channel Incentive Programs

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

In order to stay competitive in today’s distribution channel, craft beer producers must be able to digitally engage their supply chain trading partners and effectively communicate across channels. However, this can seem like a tall order! Between the need for integrated technology, gaps in partner data, and interorganizational goals that might not always be aligned, craft beer producers often struggle to utilize technology to sell through and with their partners.

  When facing these challenges, a channel incentive program might not be the first solution that springs to mind. After all, most people associate incentive programs with rewards rather than considering how that program fits in as part of an effective channel management tech stack. However, today’s channel incentive programs are software-driven, offering craft beer producers a platform to provide connected, omnichannel partner experiences, improve communication, and collect important partner data to inform their sales and marketing strategies.

Creating Engagement Before and After the Reward

  While offering incentive rewards can be an exciting way to differentiate the brand and drum up initial engagement, the real value proposition for craft beer producers occurs in the opportunities for growth and improved communication that the program creates.

  Motivating and facilitating digital engagement is a major focus of today’s channel incentive programs. Depending on their scope, these programs can provide:

●    An integrated digital hub where channel partners can learn more about the brand, while exploring the latest incentive promotions;

●    Automated communication touchpoints, such as email, SMS, push notifications, monthly statements, and website announcements;

●    Custom enrollment forms and survey tools to round out partner profiles and fill in missing gaps in data;

●    A branded mobile app where partners can easily upload sales invoices and other documents in order to earn reward points;

●    Gamification- and education-based platforms to increase engagement and help supply chain trading partners become better representatives of the brand; and

●    Streamlined administrative tools and reporting dashboards that enable craft beer producers to easily manage their programs and monitor success.

  These components help make the brand more accessible to supply chain trading partners, while giving craft beer producers tools to consistently engage partners across digital channels. Better yet, all of these platforms exist in a space where supply chain trading partners have the opportunity to earn rewards. This means that supply chain trading partners will be more likely to engage with the brand interactions they experience through the channel incentive program, whether via email, SMS, apps or other digital platforms

Integrating Incentive Programs with a Website

  Providing a seamless user experience is an integral element of effective digital engagement. Modern channel incentive programs allow craft beer producers to integrate their rewards program with their existing website or partner portal.

  This helps craft beer producers accomplish several goals. First, it drives supply chain trading partners to the website, where they can gain additional exposure to the brand and its product lines. Secondly, creating a single sign-on reduces the need for partners to keep track of additional URLs or login information, making them more likely to engage with the brand. Finally, offering channel partners the ability to redeem for rewards directly from a company website provides positive reinforcement that partners will associate with your brand in the future.

Leveraging Automation for More Efficient Communication

  When it comes to channel partnerships, communication is key. While smaller craft beer producers can be accustomed to operating exclusively with manual processes and analog customer experiences, what happens when it’s time to scale a go-to-market strategy?

  Channel incentive programs give craft beer producers the ability to automate a large portion of their channel marketing. With triggered emails, SMS, push notifications, and website announcements, incentive program software allow craft beer producers to efficiently communicate with members of their channel based on specific parameters. Additionally, if craft beer producers are pressed for time, some incentive companies even provide the option to outsource entire custom, end-to-end incentive marketing campaigns.

Collecting Data to Provide a Connected Customer Experience

  For craft beer producers, a channel incentive program is a valuable opportunity to learn more about the distributor and wholesaler sales reps who make up their channel. Reward-earning opportunities motivate supply chain trading partners to share information that craft beer producers would otherwise struggle to obtain. From firmographic data, to contact information, engagement metrics, and buying habits, craft beer producers can use this data to inform their sales and marketing strategies and further personalize their sales and marketing strategies.

  By integrating this data with their existing CRM or ERP, craft beer producers can maintain a more accurate picture of the buyer experience. For instance, craft beer producers can see which distributor and wholesaler sales reps are engaging with a certain promotion in order to create relevant cross-sell and up-sell opportunities. They can view which accounts (or even regions) need to be nurtured or reengaged. Having this visibility into the sales channel helps craft beer producers anticipate the needs of their supply chain trading partners and allocate their marketing spend more intelligently.

  Additionally, sales claim submission and verification tools make it easier for distributor and wholesaler sales reps to exchange data at the point of sale. Some craft beer producers use this as an opportunity to gain information about customers further down the supply chain in order to glean insight about the retailers and restaurants that sell their beer to end-users. Survey tools allow supply chain trading members to offer feedback, which can be used to further personalize sales and marketing strategies.

Using Gamification to Make Programs More Engaging

  Elements of gamification, such as trivia, leaderboards and spin-to-wins, can be incorporated into incentive program websites to drive more regular engagement in between reward-earning opportunities. These make the programs more interesting for participants, while offering additional tools to shape the behavior of supply chain trading partners. For instance, daily trivia can be utilized to keep channel partners coming back to the website, while assigning limited-time bonus points for selling specific products or completing other CTAs (calls to action) are another great incentive. This makes for a more rewarding channel partner experience – even before partners ever redeem a reward!

  In addition, interactive quizzes and training modules make your supply chain trading partners more knowledgeable and effective representatives of the brand. Sales reps sell what they know and providing sales enablement is a great way to build brand preference with an indirect salesforce. Plus, these educational modules give sales reps the chance to earn rewards, further increasing the value proposition of an incentive program.

Streamlining the Administrative Experience  

In addition to the benefits of incentive program technology for channel sales and marketing, another important consideration for craft beer producers is ease-of-use from an administrative standpoint. How complicated is implementation? What are the time-costs of managing the program? How much flexibility is there for adjusting the program website or setting new promotions? Will there be ongoing strategic support from the incentive company?

  Today, cloud-based, modular incentive software has streamlined the admin experience. Programs can be launched in as little as eight weeks. With easy-to-use administrator dashboards and drag-and-drop editors, sales and marketing managers at craft beer producers can quickly make changes to their program. Plus, custom reports help them monitor their program and measure ROI.

  Additionally, some companies offer teams of incentive specialists to manage the program. According to a 2019 survey of our clients, many of whom are in the beverage manufacturing industry, more than 70 percent spent less than two hours a week performing administrative responsibility for their incentive program.

Sustaining a Competitive Advantage

  In short, a channel incentive program acts as an entire digital ecosystem for partner engagement, an important competitive advantage for craft beer producers who rely on supply chain trading partners in order to go to market. Compared to other industries, the craft beer production industry is still in the early stages of adopting channel incentive strategies, giving those who jump on board soon a major competitive edge. Being among the first to roll out a channel incentive program for distributor and wholesaler sales reps represents a major opportunity to capture mindshare and share-of-wallet.

  However, it’s important for craft beer producers to keep an eye on the future. Technology is evolving at a rapid rate and the craft beer distribution channel is notoriously competitive. When shopping for incentive program providers, make sure to choose one that fully supports their software and has definite outlines for future development. Moreover, look for a provider that offers the ability to quickly enhance and expand a program in response to competition. That way, it’s easier to capitalize on the present opportunity, while planning ahead for the future, and staying one step ahead of industry competitors.

  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.

Social Media in the Time of COVID-19:

Social Distancing Doesn’t Apply to Your Social Media Efforts

By: Tracey L. Kelley

It’s no surprise that time spent online during the height of the pandemic increased exponentially. Data from Nielsen specifically tracking social media usage indicates that on platforms such as TikTok and Instagram, there was a 25% spike in mobile engagement, and a soaring 75% of ad content placed by influencers. While usage is expected to flatten a bit by the end of the year, there’s still a slight uptick of average minutes per day people peruse social networks: 82 minutes now, compared to a 2019 forecast of 76 minutes.

  How does this data impact social connection with your audience? Now more than ever, refine your brand and your community presence to cultivate content people are willing to notice.

Share the Story of Your Community

  Craft beverage producers repeatedly demonstrated these past few months how quickly they could pivot to accommodate not only the needs of their business but also those of their employees and the community as a whole. Many of these efforts were the feel-good stories major news agencies were eager to feature in bleak times.

  Ruby Benoit is Head of Craftiness and Founder of Craft Good Business, a company in Southern California specializing in helping craft beverage companies create and implement marketing plans and events. She told Beverage Master Magazine that storytelling holds considerable clout in social media messaging.

  “Since consumers are turning to social media to evaluate brands even more so now, storytelling creates a connection and helps keep you top of mind,” she said. “Your audience wants to see what your brand is all about: What do you stand for? What is your purpose? And it’s critical to show your community efforts: decide on how you have a unique, positive impact on society. Whatever your stance is, communicate with your customers and all stakeholders in an authentic way.”

  Brands should stick to providing great experiences, as well as dedicate energy to remaining consistent and genuine in their messaging to win customer support, according to the media team of Happy Medium, a full-service digital creative agency in Des Moines, Iowa.

  “Overall, audiences tend to react well to community involvement because it’s inspirational and aspirational. If your team is volunteering, share a photo of employees at the volunteer event. If you made a charitable donation, ask the recipient to share digital assets that align with the cause you’re helping them support,” the Happy Medium team said. “This demonstrates how your brand builds and supports communities in a way that’s relatable and impactful. Write a brief caption about why the cause you’re supporting is relevant to the brand. Always tag the organization!”

  Chad Richards is vice president of Firebelly, a “social media marketing agency on a mission since 2007” based in Indianapolis. Firebelly has worked with 450 North Brewing Company, Gnarly Grove Hard Cider and Upland Brewing Company, as well as wineries and restaurants. Richards also recommended taking a less self-serving approach. “Whatever you do, make sure the hero is the charity or community you’re supporting. Nothing elicits eye rolls faster than ‘Look at us—we’re so charitable!’”

  The continuing flux of the pandemic’s ongoing impact creates many levels of marketing uncertainty. Managing social media right now might feel more like a scattershot than a targeted approach. Richards said storytelling will pull you through.

  “Humans like stories, and we’re storytellers by nature. It’s how we connect to one another, and right now, people are seeking connection more than ever,” Richards said. “Don’t worry about trying to be creative or clever—just be honest.”

Marry Content to Audience

  Some producers believe they must extend concerted effort across all platforms to reach all people, all the time. Realistically, it’s more effective to shorten the funnel to one or two channels that hit the sweet spot of your consumer base. Benoit offered a collective summary aggregated in early 2020 by Hootsuite, the social media management platform, which you can find here: https://blog.hootsuite.com/social-media-demographics/.

  You may have favorite channels based on your preferences, but where is your audience? As a brief but interesting example, here are just a few statistics from the Hootsuite summary—focusing on the U.S. for simplicity—such as:

•    75% of adults who identify as Hispanic use Facebook more than Black and White adults. Most users of this platform “live in urban areas, followed by suburban and rural.”

•    83% of women age 25–54 use Pinterest—more than Instagram, Twitter and Snapchat. Also, “one out of every two millennials use Pinterest,” and 59% discover products there.

•    28% of Black Americans use LinkedIn, compared to 26% of White Americans. This platform is “most popular among 25- to 49-year-olds.”

•    43% of Black Americans use Instagram, “followed by 38% Hispanic and 32% White Americans.” Users also mostly live in urban communities, then suburban and rural areas.

•    44% of young adults age 18 to 24 use Twitter, compared to 26% of people age 30 to 49.

•    78% of Hispanic internet users watch YouTube, followed by 76% and 71% of Black and White users, respectively. This channel “reaches more 18- to 34-year-olds and 18- to 49-year-olds than any cable network in the U.S.”

  The key for the next few months is to strategize with social media professionals to develop messages that not only communicate with individuals of your loyal base but also others who might not know who you are and what you provide.

  Happy Medium advised using interactive content whenever possible to build confidence and trust. “Customers are more likely to engage with content that entertains, educates and tells an authentic story. Engaging customers with your content makes your brand more memorable and creates a deeper connection,” the media team said. “Try incorporating polls [or] question and answer stickers. Feature the people who make your brand what it is in Instagram stories or by hosting a live stream—both of these are growing social trends that bolster higher engagement and should be a staple to any social media strategy.”

  Don’t feel you have to do all the heavy lifting of brand awareness and connection alone. Once again, Richards said, think about potential alliances. “Get your product into the hands of influencers—allowing people to learn about your product via someone they already trust or admire. And think outside the box. These don’t have to be craft beverage or foodie influencers. A travel, fashion or beauty influencer could easily weave your brand and product into their story.”

  If the budget allows, boost your social media ad views. “I realize they may be a luxury in times like these, but ads really are the fastest way to get the right message to the right people in the right places,” he said. “Many brands have cut their ad spends, so the marketplace is less competitive right now. You’ll get more for your money if you’re able to participate.”

  Here are some other content considerations:

•   Promote your best practices for safety and cleanliness to reassure and comfort people who want to visit the taproom but express concern about contagions.

•   Develop clear, concise messaging both on your site and through social media regarding all procedures, special events, advance registration practices, bottle shop services, state-sanctioned curbside sales and other issues. These continual and timely updates speak when you can’t, so it’s worth the time investment to update them daily.

•   Take a tip from wineries by boosting virtual hospitality efforts. Live streaming, which experienced quite a boost during the height of the pandemic, continues to grow in popularity across all platforms.

  Additionally, ask your followers what they might be interested in, and listen carefully. Their suggestions might differ from what you’ve tried before, but now is the time to take advantage of fresh ideas.

Social Media Ideas for the 12–18 Months

  “Flexible consistency” is the action plan for your social media efforts now—and the foreseeable future. Maybe your marketing manager is temporarily furloughed. Or your state allowed gradual reopening, but a summer resurgence in COVID cases forced closure or hour limitations again, and you’re not sure how to engage with purpose. It’s still an essential business practice to like and respond to all posts your establishment is tagged in—that’s the basic approach.

  The media team at Happy Medium suggested three other areas of focus:

•   Post consistently. While so much consumer activity has slowed during this period, it’s especially important for brands to stay top-of-mind with their consumers. Even if operations are currently paused, still send at least a couple of posts per week.

•   Stay positive. Audiences overloaded with COVID-19 messaging over the past few months are starting to become jaded to overused marketing verbiage. Send positive messages while still being respectful to the current situation.

•   Don’t post content exclusively directed at sales: share photos and stories about your team, industry news or fun facts about your operations.

  A 2017 study from the American Express Customer Service Barometer reported that Americans are “more likely to post about good experiences (53%) than poor experiences (35%).” So reaffirming authentic engagement is what Benoit advised.

•    If you haven’t already, create a give-back campaign that helps people in the community such as frontline workers, teachers and others in need. For example, a distillery might do a canned food drive and invite customers to participate.

•    Engage with customers through a social media sweepstakes: they post a creative picture or video of themselves enjoying your beer, spirit, cider or mead. Then, the individual’s photo or video with the most likes wins a day with the craft producer when social distancing is over.

•    Host a virtual ‘Meet the Brewer’ event where the master brewer leads participants through a curated beer and food pairing and interacts with participants. This creates connection and promotes valuable partnerships with local restaurants also in need of exposure.

  Finally, be realistic, Richards told Beverage Master Magazine. He provided these points:

•    Be flexible. These are unique times, and we’re not sure what will happen next. That’s okay. Nobody does. Be prepared to update your plan and approach as needed.

•    Think short term. Take it month-by-month or maybe even week-by-week. Any really long-term campaign planning will likely be disrupted.

•    Show vulnerability. If you’re struggling, say so. It makes you relatable, and people will want to support you and come to your rescue.

  “Know that it’s okay to ‘not know.’” Uncertainty is uncomfortable—especially when it comes to business and finances—but we’re all in the same boat right now. A ‘best guess’ is sometimes the best you can do.”

Ruby Benoit, Founder, Craft Good Business
https://www.craftgoodbusiness.com/
Social Media Handles on Facebook/Linkedin:
@craftgoodbusiness

The Media Team at Happy Medium
https://itsahappymedium.com
Social Media Handles on Facebook/Linkedin:
@itsahappymedium

Chad Richards, Vice President, Firebelly
https://firebellymarketing.com/
Social Media Handles on Facebook/Linkedin:
Chad Richards: @chadrichards
Firebelly Marketing: @wearefirebelly

Beyond the Mask: Rebuilding after COVID-19

By: Tracey L. Kelley

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

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

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

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

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

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

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

Consider:

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

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

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

Adapt—or Get Ready to Sell Your Equipment

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

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

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

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

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

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

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

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

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

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

1.  Get a bigger glass.

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

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

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

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

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

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

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

•    Where have you struggled before?

•    Where were you suffering most recently?

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

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

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

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

•    Are you able to make hard decisions as needed?

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

  Account for everything that has happened and can happen. 

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

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

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

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

JH:

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

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

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

RL:

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

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

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

SS:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Keys to Creating Effective Incentives for the Craft Beer Distribution Channel

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

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

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

Keys to Creating an Effective  Incentive Program

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

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

2.  Analyze your audience and your competitive situation.

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

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

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

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

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

Choosing a Specific, Measurable Goal

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

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

•    Generating brand awareness;

•    Increasing sales for a specific product or region;

•    Driving incremental growth among supply chain trading partners;

•    Gathering data to improve partner profiles;

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

•    Building loyalty with wholesale and distributor sales reps.

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

Analyzing Your Audience and Your Competitive Situation

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

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

Offering Relevant Rewards to Your Target Audience

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

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

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

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

Structuring Promotions to Target Strategic KPIs

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

•    Attending tradeshows or taking online certification courses;

•    Participating in product-related trivia and quizzes;

•    Providing referrals;

•    Filling out surveys or updating their contact information; or

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

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

Marketing Your Program to Stay Top of Mind

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

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

Using Digital Platforms to Drive Your Program

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

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

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

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

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

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

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

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

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

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

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

Standing Out in a Crowded Room: The Beverage Distributor & Supplier in the 21st Century

There is a compelling evolution in the industry and from our vantage point, the industry is changing rapidly, every month – week – day!  As our country continues to change at the same rate, so must the beverage leaders to address this rapid evolution. Change, however, is difficult and having agility built into your company is critical to success. But, what is success? Many companies struggle with this notion. When asked “what is your one year and five year plan?” many just do not have an answer. This results in confusion at the top and bottom of your organization, as well as with the investment community. Planning is not rocket science but it is one of the most critical functions that leaders do for their company and intellectual property (IP). How does your craft company create, maintain and maybe even increase value?

  The number of phone calls we receive at Baker Tilly regarding mergers and acquisitions (M&A) for craft companies has increased significantly during past 18 months. This is a testament to the state of the industry. You can certainly see cognitive dissonance with the hype in relation to the number of brewers, distillers and even distributor licenses issued and in process vs. our M&A conversations.

What is not apparent, is how thin these companies are running. Many are not capitalized appropriately, have poor information systems, lack qualified management, have incomplete infrastructure, understaffed expansion markets, equipment requiring upgrades, and a limited understanding of their customers and markets. Just because sales are up (and that’s not for many brewers) doesn’t mean they are financially sound. There are many investors that haven’t seen any return on their investment and are being asked for more financial support in order for the business to become profitable.

It is not surprising that investors and over-worked managers are looking for an exit. Unfortunately, for many companies, valuations may be disappointing and in some cases, there is little to no interest from new investors in a craft company. These companies have failed to distinguish themselves in the increasing competitive and volatile marketplace. M&A is not a solution for many due to current sales trends, market share and financial performance. Waiting for a deal to break through and rescue investors is only an option for those with well-run operations.

  To overcome this situation, a solid strategic understanding of your business and a supporting plan is necessary. We are frequently asked, “How do I do this when I am so busy?” The last thing you want to say to yourself is that we completed our business plan a few years ago and everything is fine. Can your business really be fine with the amount and speed of change with consumer and retail demands? How you answer this question is how people are viewing you both internally and externally. There are very large companies with plenty of resources looking at your industry with plans and strategies to capture opportunities and improve operating performance with an appropriate funding. You must do what they are doing with a clear strategy and diligent planning processes that address the consumer, retailer and aggressively play to your strengths as a company.

  Understanding your industry, the trends within it and where you fit, is a critical first step The beer, wine, spirit and alcohol industries remain highly concentrated in the hands of the largest suppliers. There are now approximately 9,000 brewers in the United States and five of them control approximately 80% of the market share. Currently, there is a record number of distillers and distributors with licenses and many had aspirations of becoming a top-volume, successful operator in their city, state, region or even country. It was common to bootstrap the start-up phase while seeing others raise money from investors. Many began with multiple founders and received support from family members. Few were able to jump into business with all of the right funding for their business plan. No matter how it transpired, everyone is feeling the pressure of shifting demand, innovation, SKU rationale, minimum wage challenges and receding retail traction for their brands. 

  Smaller operators are trying to keep up with new entries as well as capture interest from distributors and retailers by blitzing the market with innovations or riding the wave of the latest consumer fads. Hazy IPA’s, craft spirits, cider, spiked seltzer, Kombucha and CBD-infused concoctions are all part of the buzz. Distributors want to make the most profit and retailers want to see SKUs with high rate of sale. Analytics matter and if you have not figured out how important it is to transcend beyond the ranking and distribution reports of the past, then you are missing the boat on getting your team focused on what matters most. Did you notice that the largest brewer on the planet just released a spiked seltzer of their own instead of buying one? What does this signal? Could it be they recognize small brand values are receding?

  The share of the pie continues to get smaller as more people seek licenses to brew, distill and/or distribute. What we are clearly seeing is the inability to support these numbers at the retail or distributor level. Those who signed up to own a brewer and scale it to multiple cities or states are finding it nearly impossible to make that vision come true.

  They are being transformed into bars and restaurants. Outside sales at retail are too costly to support and rate of sale with those SKUs is not keeping up with the standards set by many retailers. Small is fine and perhaps the best way to stay true to what you do best. Most off-premise retailers (grocery, convenience, packaged liquor stores) segment brands for the masses. From a supplier standpoint, it is critical that you have the relationship with your key distributors. How your brands fit into their local strategy is one of the most important aspects in your relationship. Owning your marketplace is a great way to stay small, grow organically and be ready to scale up once the business plan indicates success. As stated earlier, with 9,000 brewers in the industry, gaining higher market share than your peers should be the first priority.

  Which companies will grow and which ones won’t? Let’s go beyond the obvious characteristics like quality. If you really want success, then you must listen to the consumer and those closest to the front line. Take action and do not deny what you are seeing in the data or what distributors, retailers and consumers are telling you. There are plenty of new avenues for consumers to order, understand and even receive delivery of your product. Disruptors in the market such as Amazon Prime, Provi, goPuff and Barley Sober are changing the buying habits of consumers. Do not try to push a rope – pouring additional effort into something that is not getting traction will upset everyone in the supply chain. Create a strong plan that covers all the bases and includes funding and support from all stakeholders.

  What we are seeing is that the successful and valuable companies are those that are the most agile and adaptable. Meaning, they have identified the complexities within their operations and streamlined them with the help of business intelligence so they can spend more time focusing on growth. The traditional approach of just adding bodies to the mix is both costly and ineffective. Having a sound plan for brand growth driven by data is how you win. As we all know, the consumer is driving this complexity. Whatever generation you want to target, there is segmentation happening. How they spend their money needs to be a factor that is applied to your planning and innovation. The next factor to consider is the occasion in which the consumers are consuming. Developing your mix shift within each segment and brand is a very key factor when planning for the now and future. Addressing these consumer behaviors is critical for knowing what brands and SKUs to carry.

  Connecting the back-office fundamentals with the front line is another solid key to success. Link your back office to your front line employees. Speed and trust is critical in the beverage environment as retailers shift from on and off premise to all premise. We see great success when the plan fits the market strategy. It is a process of zooming out and then zooming back in to understand your product attributes and how they are perceived by consumers to ultimately achieve your objective and satisfy retailer needs.

  Retailers have less and less time for a sales pitch on your latest brand. Technology has made it easy for them to figure it out on their own. Your plan of attack should consider their desire to get to the point of the pitch and be right about how well it will sell. Call frequencies of your sales team should be developed with the retailer’s business needs and schedules in mind.

  Shareholder expectations and funding requirements are issues for everyone. Getting the most out of your resources and applying solid growth strategies are foundational pillars that keep the focus of your company on profitable growth.

  To lead in the 21st century, craft beverage companies have to rely on innovation and planning. The traditional route to market is not the same as yesterday. To be successful, understand your internal strengths and protect your brands and processes. These should be the cornerstones of your plan and that plan should be a working document that increases both trust and speed to market for your entire organization.

Making First Impressions Count: Smart Math & Creativity Produce Innovative Design and Manufacturing of Labels

By: Cheryl Gray

Whether beer or bourbon, a distinguishing label serves a dual role in either identifying an old standard or giving consumers a reason to try something new.  

  Craft breweries and distilleries count on the design and production of their labels as a key marketing strategy. Labeling is part of brand identity, a creative process frequently handled by specialists in the field. Among them is Argent Tape & Label, a global, woman-owned business headquartered in Plymouth, Michigan, which makes labels, tapes and adhesives for the automotive, pharmaceutical, industrial, healthcare and food and beverage industries. While it considers itself to be a small company, ATL is big on customer service. Bekah Keehn, who spearheads quality assurance for the company, says its customer service goes well beyond the sale.

  “We are a small, dynamic company whose hallmark service begins with the personal interactions between customers and sales account managers,” she says. “Our sales account managers and customer service representatives are in continual contact with our potential existing customers, and we pride ourselves on listening to our customers. From the moment an inquiry comes through our website or an introduction is made at a trade show or other industry event, and even through successful delivery of the finished label, our sales account managers are engaged with the customer base.”

  Experts say that attractive, cost-effective and environmentally friendly are among the characteristics that craft brewers and distilleries want in their labels. Keehn says that finding the right combination of standard elements and unique creativity is what ATL strives to produce for its clients.

  “Every customer requires different characteristics for their labels,” she says. “Once we speak to our customers and have a thorough understanding of their requirements, we work with our material suppliers to provide the material substrate (underlying layer) for label production.”  

  Durability, Keehn says, is also important. “Some need a very durable label to withstand the outdoor elements, very moist or high heat conditions, while others may need something delicate and attractive or flashy and eye-catching for prime shelf appeal. We consider all conditions the label must ultimately withstand, we review the effect or finish the label should have, we address the color and graphic requirements and we employ several different pricing methodologies to achieve our customers’ requirements. Most recently, we have experienced a demand for sustainable material from our customers, and we now offer metallic, clear and white sustainable materials that we can print on. You would never know the label is specifically designed and considered environmentally friendly!”                                

  With design demands constantly changing, technology plays an integral role in the design and production of product labels. Keehn says that digital processing gives customers a heads-up on possibilities.

  “We employ digital processing and are able to show our customers online samples of what their finished product will look like,” she says. In this way, customers can ask questions, and we can discuss changes without always running numerous, costly physical samples. We can refine the outcome well before running a physical sample so that when and if we do require a physical sample, it is as close to production-ready as possible. Employing technology in this process is invaluable in allowing flexibility and efficiency through the product and design development phases.”

  Some craft beverage makers find inspiration through other kinds of collaboration. Todd Thrasher, owner of Potomac Distilling Company in Washington, D.C., teamed up with a graphic designer to get just the right look for his product labels.

“I hired a graphic designer that I knew and trusted,” Thrasher tells Beverage Master Magazine.

  “I showed her vintage labels for inspiration. We primarily concentrated on bottles from the 1960s and 1970s. I completed a marketing course at Moonshine University (in Louisville, Kentucky) that was focused largely on labels, so I was excited for the opportunity to apply what I had learned in this process. After we met a few times and sketches were developed, I sent three versions of the logo for review via email to a group of 30 people—close friends, family, business owners, etc.  A large majority favored the label that had been my favorite. It was really validating to have the opinion and feedback of others.“

  Thrasher, well-known in the Capital Beltway as both a sommelier and bartender, wanted creative labeling to showcase Thrasher’s logos for his five signature rums—Spiced, Green Spiced, White, Gold and Coconut, all produced in an urban, waterfront D.C. setting on the Potomac River known at District Wharf. For Thrasher, making products instantly recognizable was vital.

  “The most important element is that the label is easy to read and identifiable from across a bar!  I also wanted the aesthetic of a more vintage bottle. I decided not to use shrink wrap and instead went with waxing the bottles for a more handmade approach.”

  Owner input also goes into label designing at family-owned and operated Bron Yr Aur Brewing (pronounced “bron-yar”), located in Washington State’s Yakima Valley. Amanda Hatten, co-owner and Operations Manager, says that in the beginning, the brewery utilized an outside design company, but it wasn’t long before she took over the task. Becoming the brewery’s solo in-house label designer was less about saving money and more about adding a personal touch to the brewery’s brand.

  “This is a passion of mine, and it’s a great way to express who we really are as a company when it comes to working so closely together on designs,” Hatten says. “We have them printed elsewhere. For our crowlers, the main thing is to create fun graphics that are filled with adventure.” 

  There is adventure, too, in developing new innovations for labeling, led by companies like ATL, which tracks market trends. ATL’s sales force has identified a rise in the use of sustainable materials in labeling and packaging. Keehn says the information was priceless. 

  “They brought this trend information in-house, and we put together a cross-functional team that identified, tested and priced out a line of sustainable label substrates,” she says. “We partnered with new and existing material suppliers who pioneered the introduction of sustainable materials into the label market, and now ATL has its own line of sustainable material offerings that are proven compatible with our traditional, Flexo and Domino N610i, digital presses.  In this time of environmental consciousness, we are excited to meet the demand for recyclable labels that utilize less material and may be biodegradable with a low carbon footprint.”

  Above all else, a quality label is long-remembered by the client—and consumers.

  “Producing a quality label is paramount at ATL,” says Keehn. “We take quality seriously, employ standard procedures and processes to assure consistent outcomes, and we spend time prior to production reviewing our customers’ needs and whether and how we can produce their quality label.”

  Some craft breweries and distilleries are opting for full-body shrink sleeve labels. A shrink sleeve label provides top to bottom coverage because it conforms to an entire container’s shape, allowing a complete label identity for any product. It is one of the specialties of PDC International Corporation, a 50-year old company based in Norwalk, Connecticut.

  According to PDC International, converting to a full-body shrink sleeve not only boosts a product’s shelf appeal and visibility but does so at significant savings. A regular, stock container (bottle or can) is generally used, and, with a full-body shrink label, there is no worry about aligning front and back labels. One sleeve, the company says, does the job of three labels, improving consistency, lowering costs and requiring only a single application. In the spirits industry, one full-body shrink sleeve can brand a product on the front, back and at the neck. 

  For breweries, a full-body shrink sleeve conforms to the entire can, covering it 360 degrees. Rather than having to store large quantities of pre-printed cans, full-body shrink sleeves allow a brewery to decorate blank cans when needed. PDC experts say that the process saves warehouse space, pares down logistics and saves money.

  Increasing the bottom line for companies in the labeling industry sometimes means anticipating client needs before even the client can pinpoint it. ATL’s Keehn underscores how communication and innovation go hand-in-hand, citing an appreciation from clients to a commitment to stay on top of industry trends.

  “We attend trade shows and review trade publications to keep abreast of new offerings in materials, inks and methodologies, and we continually expand our product line to offer new and innovative materials and printing effects. As high shelf appeal and unique design are common characteristics of our customers’ labels, we strive to meet the next level of creativity, quality and excellence.”

  That said, creativity, quality and excellence of any label are perhaps best measured by how consumers respond as they peruse store shelves for the multiple craft beer and spirits options competing for their attention—and their money.

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

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

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

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

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

Understanding the Craft Beer Sales Channel 

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

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

•    E-Commerce: Selling directly to consumers online.

•    Retail: Selling to consumers through other retailers.

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

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

Incentivizing Distributor and Wholesaler Sales Reps

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

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

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

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

•   Build mindshare with distributor and wholesaler sales reps.

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

•   Fill data gaps within their channel.

•   Enable sales reps to sell their product to vendors.

•   Deepen relationships with partners throughout their channel.

Building Mindshare with Distributors and Wholesaler Sales Reps

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

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

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

Targeting Promotions to Minimize Cost and Maximize Return

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

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

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

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

Collecting More Complete Data Throughout Your Channel

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

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

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

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

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

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

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

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

Enabling Your Distributor and Wholesaler Sales Reps

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

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

Deepening Relationships Throughout Your Channel

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

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

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

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

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

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

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

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

Increasing Brewery Cash Flow: Craft Breweries and the R&D Credit

By: Wendy Landrum, CPA, Partner and R&D Advisory Leader; Mark Heroux, JD, Principal, Tax Advocacy and Controversy Services Leader; and Brian Haneline,  CPA, Senior Manager, R&D Advisory

Craft brew popularity is at an all-time high in the United States, with explosive industry growth in the past five years. According to the Brewers Association, craft brewers now make up 98 percent of all U.S. breweries. As new craft brewers continue to enter the industry and existing brewers look to keep up with recent trends, significant financial investments must be made before the first brew can reach the consumer. Whether these costs are related to the formulation of the brew, or how to produce or package the brew, costs can be substantial.

  Fortunately, federal and state governments offer an often overlooked but valuable benefit to help offset these costs in the form of R&D tax credits for craft brewers engaging in “qualifying activities.” 

R&D credits result in a dollar-for-dollar reduction in income taxes and, if applicable, payroll taxes, providing cash flow for future investments. The R&D credit applies not only to new product development, but also to improvements to existing products and manufacturing processes. Importantly, the activities need only be evolutionary to the organization, not to the industry as a whole, to qualify for the credit.

  Because the R&D credit is nonrefundable, startup companies and other small businesses like craft breweries are often limited in their ability to claim the R&D credit in the current tax year because they do not have current income tax liability to utilize the credit. Despite the credit having a 20 year carry forward if not used currently, the company receives no immediate tax advantage from the R&D credit, especially for years in which R&D activities and investments may be high.

Payroll Tax Offset

  However, the Protecting Americans from Tax Hikes (PATH) Act of 2015 allows certain small businesses to offset the R&D credit against payroll taxes instead of income taxes. PATH allows for up to $250,000 of annual federal R&D credits that can be allocated against payroll tax liability. This applies to tax years that begin after Dec. 31, 2015.

  To qualify for the payroll tax offset in 2019, a business must have gross receipts of less than $5 million in 2019 and may not have had gross receipts for any tax year before the five-tax-year period ending with 2019. For example, if the credit-claiming year is 2019, a company must have had less than $5 million of gross receipts in 2019 and no gross receipts prior to 2015.

  The R&D credit may be applied against the FICA portion of payroll taxes beginning in the first calendar quarter following the date on which the business files the income tax return. If the payroll tax credit portion of the R&D credit exceeds the tax liability for any calendar quarter, the excess is carried to the next calendar quarter and allowed as credit for that quarter. The payroll tax election is limited to five taxable years.

Four-Part Test

  Naturally, the question then becomes, what are “qualifying activities” to be able to claim the credit and what costs can be captured? Generally, activities must meet the following four criteria (referred to as the “four-part test”) to include the related wages, supplies, or contract research costs in the R&D calculation:

1.   The activity must be technological in nature. The activity must be based on the principles of a hard science such as chemistry or engineering.

2.   The activity must be for a permitted purpose. The activity must involve the creation of a new or improved level of: function, performance, reliability, quality, durability or cost reduction for a product or manufacturing process

3.   The activity must involve the elimination of uncertainty. The activity must explore what was not known at the start of the project.

      •   Capability: Can we develop the new or                                improved product or process?

      •   Methodology: How will we develop the new                       or improved product or process?

      •   Design: What is the appropriate design of                            the new or improved product or process?

4.   The activity must involve a process of experimentation. Substantially all activities must include elements of experimentation such as:

      •    Evaluating one or more alternatives

      •    Performing testing or modeling

      •    Examining and analyzing hypotheses

      •    Refining or abandoning hypotheses

  A wide range of technical activities related to product or process development or improvement in the craft brew industry may qualify for the R&D credit. Consider the examples below:

•    Developing new or improved recipes and styles.

•    Brewing experimental or pilot batches of new or improved recipes and styles.

•    Performing lab testing, or other functional testing, on new or improved products or processes.

•    Developing new or improved ingredient mixing methods.

•    Developing new or improved yeast strains or fermentation processes.

•    Developing new or improved manufacturing processes.

•    Researching new or improved production techniques.

•    Automating existing manufacturing processes.

•    Developing new or improved processes or methods to prevent spoilage.

•    Developing new or improved bottling or packaging processes.

•    Developing new or improved methods to minimize or treat wastewater.

  For reference, examples of activities that may not

qualify include:

•    General administrative and managerial functions.

•    Sales, marketing and business development activities.

•    Routing data collection (e.g., management studies, efficiency surveys).

•    Day-to-day production activities.

•    Routine quality control and inspection.

•    Maintenance and installation services.

•    Training (even if related to new equipment or technology).

•    Research conducted outside the U.S.

Qualifying Costs

  As mentioned above, the following costs are included in the R&D calculation:

1.  Wages paid or incurred to employees who are directly engaged in qualified research activities, or who directly supervise or support qualified research activities. Qualified wages are computed by multiplying the percentage of an individual’s annual time attributable to qualified research activities against W-2, box 1 wages.

2.  Supplies include any tangible property, other than land and depreciable property, which is used or consumed during the development process.

3.  Payments to third parties to perform research and development activities on your behalf. The services must be performed within the U.S. and you must have financial risk (with T&M or hourly contract terms paying for the services versus final product).

  There are two calculation methodologies to consider, alternative simplified credit and regular credit, both with alternatives for start-up companies.

Documentation Requirements

  Federal and state regulators focus on whether a taxpayer can document: 1) the process of experimentation, and 2) the development of a new or improved product or process (also referred to in a research credit discussion as “the business component”).

To maximize the credit taxpayers are well-advised to conduct a disciplined, documented research process. It is important to document every step of the research process, particularly the process of experimentation used to eliminate uncertainty and the identification of the business components, i.e., the new or improved product or process. Sales increases and customer surveys will help to identify improved products, but will not be conclusive. It’s the contemporaneous recording of the research activity that will carry the day in an IRS exam.

  It’s also important that breweries identify the amount of time that professionals spend performing qualified research activities. Time tracking software that identifies the various activities that take place when creating a new or improved product or process is the best option to document time spent by professionals in the conduct of qualified research activities. Taxpayers that do not use time tracking software generally use estimates provided by the research professionals, through the use of time surveys, as to the percentage of time that they spend conducting creditable research activities.

Case Study

  To see how the credit can benefit a craft brewer, the following case study is instructional. In this example, XYZ Brewery in Texas wants to design a new brew from scratch. Once research is conducted to determine the ideal end product (and this research should qualify for the R&D credit), here is the process employed by the brewer (pre-bottling) and who is involved:

  General R&D process including potentially qualifying activities:

1) Mashing – malts are mixed with adjunct flavorings and liquor (pure water) and heated to allow enzymes to break down starch into sugars.

2) Lautering – consists of three steps: mash out, recirculation, and sparging.

3) Hops boiling – once the mash is sparged, the resultant wort is sent to a hops boiler where hops are added for flavor and boiled according to a recipe hops schedule.

4) Fermenting – the wort is sent to a fermentor where the sugars undergo fermentation, via the glycolysis which causes a chemical reaction.

  Who might be involved in the process:

1) Head R&D Brewer

2) R&D Brewery Manager

3) Production Manager

4) Assistant R&D Brewer

5) Brewery Quality Control/Lab

The brewer in this case provides their tax advisor with a W-2 box 1 wage listing and supply expenses for the current and previous three years, and had no contractors that assisted with the development process. Your tax advisor conducts technical interviews with the employees below to help identify the qualifying activities and to allocate a percentage of time to each qualifying activity:

  Assumptions:

•   Head R&D Brewer’s time qualifies at 100%

•   R&D Brewery Manager time qualifies at 100%

•   Production Manager’s time qualifies at 50%

•   Assistant R&D Brewer’s time qualifies at 100%

•   Brewery Quality Control/Lab’s time qualifies at 100%

  Qualified supply expenses by year:

•    2018: $60,000

•    2017: $50,000

•    2016: $50,000

•    2015: $40,000

  Once the data is gathered, analyzed and quantified, your tax advisor calculates a federal and state R&D credit. In this case, the brewer will generate a federal credit of $10k and a Texas state credit of $6k.

  As can be seen from the case study above, the R&D credit can be a valuable tool for craft brewers to help offset startup or other operational costs, either in the way of credits to offset tax liability or refundable payroll tax credits in certain cases.

  While it may not be readily apparent that the R&D credits are in-play for the craft brew industry, many craft brewers have taken advantage of this opportunity. Craft brewers should take notice of the activities that they engage in and consider whether R&D credits might be an option.

For more information, contact the authors at Baker Tilly or 608-240-2334.