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

man standing in between a line

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

stacks of beer cans

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

lone beer glass in front of a beer stall

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

cash flow

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.

Technology and the Benefits of a Digital Marketing Strategy

woman at a bar

By: Robert Frost, Principal, Boelter Blue

Competition is fierce! With the number of craft breweries and brewpubs continually on the rise year-over-year, it should come as no surprise that current bar owners and operators must focus on more than just word of mouth, radio ads or the occasional 30 seconds of air time on the local network to create buzz about their business. Developing a marketing plan to maintain visibility and relevance is key to both the initial and ongoing success of your business.

But not just any marketing strategy will do.

A robust and diverse digital marketing plan, one that also leverages mobile technology, will play a significant role with effectively attracting and retaining customers. Utilizing loyalty apps and a variety of marketing automation initiatives will ultimately allow you to spend less time and money on your overall marketing efforts, while simplifying and maintaining your path for continued growth and success.

All of this speaks to the advancement of technology within this space. As such, it should come as no surprise that the role of technology continues to be on the rise, both in terms of what is in the hands of you and your loyal customers – on their phones and through a more personalized interface with your business – as well as the technology your business may currently be utilizing.

The increased involvement of technology is very much a generational change and one that craft brewery and bar owners are recognizing as a means to become better and more productive at what they do. The old saying, “work smarter, not harder” rings true across the board.

Align yourself with mobile technology and mobile marketing

By 2020, 77% of the US population will be using mobile technology daily. It’s the go-to technology for personalized communications. Adding to this impressive statistic is the notion that thirty-five percent of smartphone users are already claiming to use their phones more than 50 times a day—this is where craft brewery and bar owners and operators can make the biggest impact. Personal means connecting with customer routines, moods and of course, discerning taste buds. Data makes it possible—mobile makes it deliverable.

Most consumers expect information to be available at their fingertips. The vast majority of consumers are searching for information about a particular business on their smartphone, with 84% of them contacting that business as a result. An app with your menus, reservation, ordering, payment and delivery capabilities maintain accessibility and convenience. And convenience is a big part of the overall experience that customers are looking for. If too much is being asked of your customers they may abandon your business before ever stepping through the front door.

Attracting new customers, building loyalty and running a variety of continuous promotions requires a heavy investment of time and energy. An automated marketing strategy allows you to focus on what you do best—providing great craft brews and exceptional service. Capture your guests at every touch point with pre-scheduled communications, photo push messaging, social media posts and more. Utilizing a robust app for your business allows you to capture more first-time guests, make your regular guests feel like insiders and remind customers who haven’t visited with you in a while why they should consider returning.

Utilizing technology does not necessarily equate to an entirely new business plan. However, it does mean that you now have an option to execute your current plan better, while also being able to expand and grow them quicker. An example of this is identifying those efforts that you may currently be doing with email, paper punch cards or in-house only promotions and taking that to a mobile and digital platform as a means to obtain more control and visibility for everyone involved – customers and owners alike.

An app has the ability to act as your personal, day-to-day assistant. If you don’t have the time or money to hire and manage another employee, it might be time to look at technology as the employee that never gets tired. With it you can send your loyal customers birthday wishes, offers and alerts, giving them the personalized experience they prefer and deserve. With an automated marketing strategy, you can create a series of push notifications triggered by their activity. Notifications can be sent right away, pre-scheduled or programmed to be delivered in certain scenarios. Either way, it communicates why your business is the perfect option for that moment.

Being social with your media

Customers love to see what is offered before deciding where to go. Show them, don’t just tell them. Instagram and Pinterest are fantastic options for enticing people with tasty-looking and thirst-quenching photos. It’s also beneficial to develop short, unique videos – such as a quick recipe or a behind-the-scenes look at your brewery. And don’t forget to use trending hashtags to increase post visibility. For example, include #happyhour, #newbrew, or #foodielife, along with the name of your craft brewery or bar. All of this will help keep your establishment top of mind with both your regulars and first time customers.

Your customers are always looking online to get ideas when thinking about visiting a new business. To ease this process, make sure that all of your social profiles are up to date and easy to read, as well as portray your business with the correct ambiance. It’s not uncommon for new customers to be hesitant about visiting the unknown. Your social presence needs to provide a compelling reason for them to engage with you. However, never sell your business through a clouded social media lens. Customers expecting one experience based on how your business is represented on social media, only to walk in to something entirely different, will likely result in negatively affecting your business as a whole.

Your social media promotional efforts should also be backed up with an engaging customer-facing website in order to complete the experience. This will further provide your customers with an even better idea as to what they can expect when choosing your business over the competition. Think of a great website as a first handshake, before they commit to visiting your business for the first time. Your website must be mobile friendly so that it can easily be viewed from your phone without distorting the message or making the experience inferior in any way. 

Technology that’s here to stay

This growing trend in technology is a strong reflection as to how business owners are looking to maintain their operations with their distributor – online, expedited, quick-to-answer and respond and capable of addressing all of your needs through a variety of technological channels and initiatives. It would be unfair and, quite frankly, unacceptable, for a distributor to suggest that you engage with your customers through the advancements of technology if they themselves are not capable of providing the same level of service to meet your day-to-day business needs. Technology will continue to impact and affect buyer behavior. This can be seen both from the customers that frequent your establishment, as well as the way that you engage (or want to engage) with them.

Consumer preferences are changing faster than ever, dictating how your business must respond. The distributor that you have chosen to partner with should be in the business of delivering value. When they deliver on value, it demonstrates an understanding of what is truly important. A distributor capable of delivering value and unforgettable experiences is infectious, and it will help you, in turn, deliver unforgettable experiences to your own customers.

A thoughtful and in-the-know distributor should always have the pulse of what consumers want as a means to help you innovate and continually reinvent yourself in order to remain relevant in a highly competitive landscape. When they can adapt and respond with speed and agility, they help you to keep pace, stay relevant and often outpace your competition. Ultimately, their business should be dedicated to helping you succeed with yours, utilizing non-traditional methods to better serve your needs through more interesting and engaging uses of product management, technology and education. While it’s true that people do business with people they like, they also look to do business with the people that are committed and able to execute. Finding a distributor that can serve you better and become a comprehensive, go-to resource for all of your business needs is the end game.

Technology is advancing faster than ever before and it’s here to stay. As a business owner, your digital media strategy should be flexible to more easily respond to what does and doesn’t work. Discover how your customers found out about you to gauge where they’re spending time online in order to maximize those platforms. Cross-link all of your online profiles and link your website to your mobile app and social media pages. In doing so, you’ll be able to strategically cover more ground while building a base of followers on their preferred platform. The end result will likely translate to an increase in new traffic, while also building upon an established foundation of regulars.

Contact Robert at (262) 523-6210 or email him at rfrost@boelter.com.

WOMEN AND CRAFT BEER: Brewing Networks & Profits One Beer at a Time

By: Cheryl Gray

woman dispensing beer

When Meghann Quinn’s great-grandparents planted their first acres of hops in 1932, little did they know that their great-grand-daughter would be responsible for the business side of what is now Bale Breaker Brewing Company, a family-owned enterprise ranked last year as the fifth-largest independent craft brewery in Washington state.

  At Bale Breaker Brewing Company, women play an integral role in nearly all aspects of the business, from the farm to the tasting room.  It is a tradition that Quinn traces back to her great-grandmother, Leota Mae Loftus, the namesake of the brewery’s Leota Mae IPA.

  “It never occurred to Leota that there was a job she couldn’t do,” Quinn said. “If an irrigation ditch needed to be dug, crops needed to be picked, or workers needed to be fed, she was the lone woman on the crew beside—or in front of—the men, getting the job done.  In fact, throughout the 1940s, she was the only woman hop drier in the Yakima Valley.” In those days, Quinn says, hops drying was done by hand.

  Fast forward to the 21st century. Bale Breaker Brewing Company operates out of a 27,000 square foot facility housing a 30-barrel brewhouse. The brewery’s tasting room is right in the center of Hop Field #41, part of roughly 2,200 acres of the family farm in the heart of Washington’s Yakima Valley, where Quinn and her three brothers grew up.

  “My dad always says that when you grow up among them, hops become part of your DNA,” said Quinn. “I guess my brothers and I are pretty good examples of that.”

  Quinn earned a degree in Business Finance from the University of Washington. She now handles all things business at the brewery, including finance, accounting, reporting, marketing, public relations and the like. However, she proudly points to the team of women whose expertise gives Bale Breaker Brewing its competitive edge. 

  “Jackie Beard is our Quality & Sensory Manager. She has a degree in microbiology from Northwestern, has developed a robust in-house sensory program from scratch, and makes sure all of the beer we send out is up to our high-quality standards,” said Quinn. “Erin Schlect and Shayna Koch are two young moms who run our accounting department.  Our marketing department consists of Danika Norman (Marketing Manager), Sara Gottlieb (Social Media Manager) and Marguerite Washut (Marketing and Events Coordinator).  These three women are essential to driving our brand forward and effectively communicating to and connecting with our consumer base.”

  Quinn also said three of the company’s four-person outside sales team are women. Sara Verdieck covers western Washington, Kat Finn handles Oregon, and Justine Malland tackles eastern Washington and northern Idaho. “These women are the face of Bale Breaker with our distributors and accounts throughout our distribution footprint.”

Pink Boots Society

  Quinn and members of her team at Bale Breaker Brewing are among the more than 2,000 women worldwide who network through The Pink Boots Society. This nonprofit organization,  founded by brewing pioneer Teri Fahrendorf, supports women engaged in the brewing profession and, in particular, the craft brewing industry. The group, which began in 2007 with fewer than 20 members, helps women brewers connect with mentors and advance their brewing knowledge through education. Educational opportunities receive support through scholarship money the group raises to help women advance in the industry.  There are Pink Boots Society chapters across the United States and global chapters in Canada, Europe, Asia, South America, New Zealand and Australia.  

Bron Yr Aur Brewing Company

  Be it a global enterprise or a blossoming start-up in the U.S., women have come into their own in the craft brewing industry. Bron Yr Aur Brewing Company is among the latter, a fast-rising brewery and restaurant owned and operated by the Hatton family, who’ve called Yakima Valley home for seven generations. Annette Hatten, whose husband, Mike, had been a homebrewer for more than a decade, decided to turn an old fruit stand into a brewery with a restaurant. Bron Yr Aur Brewing Company opened for business in 2013 and the Hatten children, Zach, Amanda and Trevor, gave up their day jobs to pitch in and contribute to the brewery’s success. They’ve focused on capturing space in the competitive craft beer market by combining its brewery offerings with innovative restaurant fare, ranging from its popular pizza varieties to its beer brownies. 

  Annette Hatton is involved in day-to-day operations, brewing recommendations, as well as recipe development for the kitchen and distillery. Daughter Amanda, co-owner and Operations Manager, was recently awarded the Yakima Valley Tourism Ambassador of the Year Award. She sees to it that Yakima Valley produce gets featured on the restaurant menu. She also manages the brewery’s community outreach, creating innovative partnerships with local organizations and small businesses.  Amanda says that the opportunity to work side by side with her mother is a gift.

   “Not only do I get to spend time with her every day, but we get to collaborate on many great ideas and have a ton of creative energy flowing, which I love.”

Cowiche Creek Brewing Company

  Maria Nordberg worked side by side with husband Derrick to build the Cowiche Creek Brewing Company, which opened for business in 2017. What started as a homebrewing project evolved into a full-fledged business plan to launch a brewery that’s products would showcase the citrusy, piney, and tropical hops varieties of Yakima Valley. Nordberg has a background in food safety management from her position at Yakima’s Green Acre Farms, a fourth-generation family operation with a vineyard, orchard and hopyard, as well as row crops. Cowiche Creek Brewing gets much of their hops from Green Acres, although the Nordbergs also grow and use their own varieties of hops. 

  To keep a firm hold on construction costs, The Nordbergs built the brewery’s 20 barrel brewhouse and taproom by combining their own sweat equity with their skilled tradesmen friends who knew how to do tile work, plumbing and other construction trades. 

  Marketing strategies for Cowiche Creek include electronic gift cards available online, as well as business partnerships with restaurants, bars, hotels and casinos in the Yakima Valley area that feature the brewery’s products. Maria says that at the end of the day, it’s the customers ‘ appreciation for the brewery’s offerings that count. 

   “All the hard work is worth it when you see a smile on someone’s face and knowing you helped put it there. “

Like a Lady Boss

  Women who don’t directly brew craft beer have still found a way to incorporate it—or its ingredients – into their businesses. A prime example is HopTown Wood-Fired Pizza, which features pizzas sprinkled with hops from Yakima Valley.  Co-owners Lori Roy and Carrie Wright serve wood-fired fare, showcasing fresh-from-the-farm ingredients paired with local craft beers, wines and ciders. “We celebrate the hop heritage of our community with our award-winning pizzas and our local brews,” said Wright.

  There are also the women who keep the taproom flowing, responsible for everything from managing staff to operations. Such are the responsibilities of Rachel Verhey-Goicoechea, Taproom Manager and Cellar Assistant at Varietal Beer Company, located in the Yakima Valley community of Sunnyside, the second-largest city in Yakima County.  Varietal, which opened last year,  joins an already crowded field of craft beer establishments in the Lower Yakima Valley area but is holding its own as a popular gathering place. It’s headed by Verhey-Goicoechea, who not only runs the taproom but also assists in the cellar CIP, transfers, dry hopping, kegging and other related duties. 

  In addition to the Pink Boots Society, women are teaming up for special events that champion women in the craft brewing industry. Last year, Atlanta, Georgia was host to Dregs and Dames, a festival aimed at empowering women in craft brewing by presenting beers brewed by women and discussing community, business, brewing and legal issues affecting women’s success in the craft brewing world. There is also a push for more diversity as minority women enter into the craft brewing scene.

  For all of recorded history, women have played a role in craft brewing. The earliest civilizations considered brewing beer a “woman’s job.”  Today, according to an Auburn University study, women comprise 29% of beer industry workers. Women who have been in the business the longest say that mentoring is the key to sustaining and expanding the number of women who own, operate and work in the field of craft beer brewing.

Advice from Beyond the Grave: Distribution for Small Breweries

By: Eric Myers

skeletal decor with beer in hand

When Mystery Brewing Company closed in 2018, it was difficult to articulate to people outside the company where things had gone wrong. We looked like a successful company from the outside; we had a well-attended pub and restaurant, we frequently won awards for our beer in both local and national competitions, and in general things looked great.

  We made the mistake many small businesses – particularly small breweries – make in having a debt load that outsized our resources. We were stretched too thin. It took months of introspection after the business closed for me to understand where things had really gone awry.

  What you’re missing in that picture is distribution. At our peak, we were distributed throughout our state of North Carolina to hundreds of grocery stores, convenience stores, bottle shops, bars, and restaurants. When we closed, we were self-distributing mostly draft beer in a 75-mile radius from the brewery.

  I now put the blame squarely on my own basic misunderstanding of what to realistically expect from my distributor, as well as their fundamental misunderstanding of what we needed and, what’s more, their misunderstanding of what they were actually offering us – or anyone.

  With the help of our distributor, we saw success in distribution into large grocery store chains in our state. Unfortunately, as a small brewery, we couldn’t handle the demand from those grocery stores. We picked up a loan to help meet that demand, but before we were able to put the pieces in place, we lost our placement in those grocery stores. We were weighed down with debt without a market to sell the expanded volume we had put into place. We could never recover those lost sales and ended up closing our doors in the face of rising costs – in ingredients, rent, and the cost of distribution – when we got to a point where we could no longer service our debt.

  It all tracks back to our relationship with our distributor.

Distributors As Sales Companies

  For years after Prohibition, beer was sold exclusively through the three-tier system: the mandated split of manufacturing, delivery, and retail sales of alcohol. The role of each tier was very clearly defined, and as beer manufacturers consolidated through the 20th Century, the role of sales could be taken on by distribution partners whose portfolio was primarily comprised of one brewery’s products. Distribution partners could essentially function as a brewery’s sales force: a mid-sized middleman industry built to act as logistics handlers between a large manufacturer’s output and the thousands of widely distributed small retail outlets.

  Enter the craft beer industry – a ragtag gaggle of creative innovators that disrupted traditional sales channels. From the first brewpub in the country, Bert Grant’s Yakima Brewing Company in 1982, to changes in distribution and franchise laws around the country, to the onset of the current popular “taproom-only” model, small breweries have been in the business of changing how beer is sold almost constantly.

  When Mystery Brewing Company opened in 2012, we were on the early end of the “taproom-only” trend. Because our local laws allowed it, we opened on a plan of self-distribution in our local area and selling what we could through our own taproom. At the time, I considered it a hybrid model between Production Brewery and Brewpub and it worked! We saw distribution success that quickly outgrew our ability to deliver on our own given our level of resources, and so before long we started looking at distributors to help shoulder the load.

  When I was contacted by the first distributor I worked with – an independent distributor (ie, not affiliated with either Anheuser-Busch or MillerCoors, primarily imported beers either from other states or other countries) – the title of the person that I talked to was “Statewide Sales Manager.” Her previous job was “Southeast Regional Sales Manager,” and she later went on to work for another distributor as “General Manager of Sales and Marketing”. After Mystery closed, I would often wonder how I was so confused about the role of distributors in the beer marketplace, but looking retrospectively suggests to me that the distributors were equally as confused.

  Later, when the relationship with that distributor soured and I moved onto the next, much larger distributor, we frequently met with the Sales team to train them on our products. We had Sales Goals in place. We had brewery reps on staff that would interface with those Sales Reps, but we weren’t allowed to do our own sales. We were required to turn over any potential customers to the distributor for their reps to handle and close the deal.

  Here’s the problem. Distributors don’t do sales. They do logistics.

Distributors are Logistical Experts

  According to the Brewers Association and the National Beer and Wine Wholesaler’s Association, over the course of the last 40 years the number of breweries in the country has gone from just over 70 to just over 7,000. Over that same time, the number of distributors has fallen from just over 4,500 (64 distributors per brewery) handling, on average, around 100 – 200 SKUs each to around 3,000 (.4 distributors per brewery) handling, on average, well over 1,000 SKUs each. The idea that any distributor rep working could know and sell any more than a small percentage of their portfolio is laughable.

  Distributors, on the other hand, are incredible logistics companies. Our primary distributor, through most of the life of our business, was a statewide distributor that handled thousands of SKUs across North Carolina and in most cases (ie – except for really rural customers), would perform overnight delivery anywhere in the state. They had one central warehouse that stored the majority of their products. That warehouse would send trucks to each of its 7 branches every single night based on orders put into the system each night. Those trucks would arrive at each location and loads would get broken down into individual delivery trucks that would go out from those branch locations and delivery every day of the week. It was breathtakingly complex.

  Distributors are experts at off-premise sales. Over the course of the past 70 years, grocery store chains have come to rely on distributors to both stock and manage their beer sections from product selection to daily stocking of shelves. Distributors don’t so much sell to grocery stores so much as they ensure that the grocery stores always have something on the shelves to sell. It is incredibly difficult for self-distributing breweries – small business partners that only represent one product – to compete with the efficiency of a distribution company in a grocery stores.

  If not for distributors, it’s hard to imagine the national craft breweries that we have today even existing. A startup in the 1980s, building a brewery out of cast-off dairy equipment had no way of possessing the knowledge, much less the resources to create or satisfy demand for its beers over the breadth of the country that was required at that time.

  It’s why it’s so seductively simple for small breweries to fool themselves into think that distributors inhabit the same role they used to. It’s the way they’ve been taught to think of distributors – and it’s the way distributors think of themselves.

Breweries Drive Sales

  This all might seem obvious to large breweries with wide distribution networks, but the majority of breweries in this country are small – they are 400bbls annually on average. Many are undercapitalized and understaffed, stretched thin, barely making payments on outsized debt. It’s easy to look to a distributor for relief, to take work off of your hands, but that’s not what they’re there for.

  In my current role, managing Tavern Operations at Durham’s Fullsteam Brewery, I work with 7 different companies to manage cider, guest beers, wine, and other non-alcoholic beverages. The only ones that sell to me – that approach me with new products and attempt to make a sale – are self-distributing breweries, cideries, and wineries. The distributors are order-takers and delivery-makers. That has become their role as their portfolios are too large to know and as their customer base is too wide to service personally.

  Learn from my mistake: As a small brewery, you are your own best asset when it comes to representing your brand. Use a distributor to increase your reach, but do so knowing the extra cost – that they will take a portion of your income AND require extra brewery staff to manage sales. More than that, set that expectation up front with your distributor so that you both agree what their role is, and yours. Distributors can manage off-premise and chain accounts for you in a way that can be transforming and positive, but they have no incentive to manage your supply, only deplete it, so be sure that you can handle the demand – or grow safely to meet it – before you take that step.

  Distributors are not your friends and they’re not your sales force. They’re a tool in your toolbox. Use them wisely.

Beer & Food Pairing Dinners: Upping the Bar for Craft Breweries

By: Nan McCreary

salad and hamburger meal

Oenophiles have long known that wine dinners — where wine is selected and paired with a variety of foods based on complementary tastes and styles — can elevate the dining experience. Now, craft breweries are opening that door to customers who want to expand their culinary horizons with the plethora of flavors and styles of beers available on the market today.

  “We’ve been doing beer-food dinners for years, and they’re great fun for everyone,” said Ben Edmunds, partner and brewmaster at Breakside Brewery in Portland, which opened in 2010 as a restaurant and pub brewery. “The events introduce customers to a wide range of beers, plus we have an opportunity to reach a different audience than we usually have.”

  Indeed, according to the National Restaurant Association, food-and-beer pairings were listed as a top beverage trend in its “What’s Hot 2018 Culinary Forecast.”  This isn’t surprising, considering that beer — with its broad range of flavors, aromas textures, and styles — offers endless possibilities for pairing with food.  Whether it’s a light lager with a spicy Asian dish or an IPA with loaded fries and a decadent burger, the right pairing will deliver a flavor nirvana that far surpasses the flavors of each component. Ask any aficionado, and they will tell you: food makes beer better, and beer makes food better. It’s that simple.

  Like wine and food pairing dinners, beer and food events typically go through a progression of four or five courses, sometimes more if the occasion is more extravagant. Each course is paired with a different beer, depending on the strength, flavor and style and its compatibility with the food.

  According to Edmunds, each beer serving in Breakside’s dinner is five and eight ounces. The event, he said, is informal and educational. “We always have a brewery representative at the dinners to talk about the beer,” he said, “and we ask the chef to come out and introduce the food. It’s a fun way for customers to experience our beers, and from our end, we get to present our beer in an entirely different format.”

  While many customers are die-hard beer drinkers, Edmunds told Beverage Master Magazine the dinners often appeal to a wine-drinking crowd. “These events offer wine drinkers an opportunity to see how diverse and food-friendly beer can be.”  

Recently, Breakside featured wood-aged and acidic beers with lots of fruit flavors, components that are similar to those in wine. “It was a good way to challenge preconceived notions of what beer is and how it should be consumed.”

  Breakside’s dinners may seat as few as 10-to-15, or as many as 70-plus. Prices range from $35 to $120, depending on the number of courses and the complexity of the menu. The average for an all-inclusive dinner, said Edmunds, is $65 to $85. Breakside has sponsored events ranging from introductory beer pairing at gastropubs and bars, to more elaborate affairs at fine dining establishments. This year during Portland Beer Week, Breakside paired with renowned Icelandic chef Ólafur “Óli” Áugústsson, the culinary director for Portland’s forthcoming KEX hotel. The dinner featured aged and sour beers selected to complement local seafood and produce.

  Pairings, Edmunds explained, are a collaboration between brewery personnel, the restaurant’s chef, and others, such as a bar manager. “The dynamic that works best for us and leads to the best results for the consumer is for us to invite the restaurant people to our brewery and taste through a wide range of beers,” he said. “We’re lucky because we make many different styles of beer and aren’t limited to three or four options. We ask them to find the beers that inspire them, and we talk about food pairings.”

  Edmunds said that the collaborations always start with selecting the beer and then choosing a food pairing, rather than vice versa. “Once a beer is done, it’s done, and you can’t modify it. It’s easier to design a dish to a beer that’s already finished than to make a beer to complement a specific dish.”

  While the brewery generally does not interfere with the chefs once a menu is selected, occasionally they will use their expertise to “nudge” them one way or the other. For example, Edmunds said he is very particular about pairing desserts. “Even with a sweet beer, the dessert is likely to overpower it,” he told Beverage Master Magazine, “so I’ll ask the chef to do something with a savory element, like a cheese plate.”

  For Edmunds, whose interest in food preceded his interest in beer, the pairing dinners are a natural fit. “The two go hand in hand,” he said. “We also have three locations for our brewery, plus two restaurants, and we regularly do pairings when we release a new beer. The multi-course dinner is a natural extension of that.

Not Just for Breweries

  While breweries like Breakside typically collaborate with different restaurants to introduce their beers, some restaurants host regular beer and food pairing dinners to showcase the skills of their chefs. One such restaurant is the Session Room and Beer Garden in Ann Arbor, Michigan. With the theme, “Real Food, Craft Beer,” the restaurant focuses on fresh ingredients sourced locally and serves 70 rotating beer taps.

  Since opening three years ago, the restaurant, under the guidance of Executive Chef Traver Lucas, has offered pairing dinners every month or two, always featuring beers from Michigan breweries, including Bell’s Brewing, Founders Brewing Company, and Perrin Brewing Company. Like Breakside’s dinners, the Session Room pairings are a team effort, where the chef meets with the brewery’s personnel and tastes the beers, then decides what to cook. The beer dinners are inspired by French cuisine, with the food selected to complement the beer.

  According to Event and Marketing Director Jessica Smith, the Session Room dinners are very elaborate, with four courses and a beer to match each course. “The cost is $50 plus tax, so customers get a lot for their money. Generally, 30 to 50 people attend the dinners,” said Smith. The menus are not released ahead of the event, so the dinner is always a surprise. “That’s part of the fun,” Smith added.

Festival Pairings

  As competition among craft breweries heats up, many breweries and beer festivals are upping their game with pairing events to attract more visitors. Last year, at the California Craft Beer Summit, a “Brewed for Food” event featured specialty brewed beers from 12 breweries paired with specially crafted food from as many restaurants. The objective, said the advertising, was for “teams to partner to create the perfectly balanced bite that elevates the flavor profile of the beer.” The 2019 Portland Beer Week featured four pairing events. “Bean to Bar,” was a chocolate-and-beer festival hosted by Xocolatl de Davíd chocolatiers and Ruse Brewing, spotlighting 10 local chocolates and the beers paired for each one. “Mussels From Brussels,” featured four local brewery’s takes on the classic pairing of mussels and frites.

   At the “Brewer’s Burger Brawl,” four Oregon brewers served a carefully selected beer alongside a slider-sized burger to determine the best pairing. The “Nordic + Northwest” event was the event held by Breakside Brewery and Portland’s future KEX hotel.

Everyday Pairing

  “Culinary Brewhouses” are making waves across the country. In these establishments, brewmasters are applying culinary skills to create beers that showcase flavors and aromatics, and chefs create foods that transcend pub fare like burgers and chicken wings. Chicago’s Band of Bohemia, noted for “infusing culinary flavors into house beers and pairing them with global plates,” became the first brewpub to be awarded a Michelin star within its first year of opening. 

  Moody Tongue Brewing Company, also in Chicago, has classically-trained chef Jared Rouben at the helm as brewmaster. According to Moody Tongue’s website, Rouben “draws on his culinary training to forge this connection between the kitchen and our brewery, building recipes for our beers in the same manner a chef would for a dish.”

  Clearly, beer pairing beer and food is a hot trend throughout the country, and it shows no signs of stopping. According to the 2017 Nielsen Craft Beer Insights, 71% of consumers look for complementary foods when choosing a craft beer at restaurants and bars, and that isn’t about to change. If anything, the number is likely to increase, as more and more beer lovers become exposed to the wonders of the beer and food match-up. Stay tuned…as the market continues to ramp up, the best may be yet to come for the thirsty consumer with a discriminating palate.

Forward-thinking Marketing Is About Looking Back

By: Jim McCune

wheaties cereal and beer
HefeWheaties is a new beer from Fulton, which collaborated on the brew with another Minneapolis company, General Mills.

Many beer brands have recognized the value of “nostalgia marketing” by tapping into our fondest childhood memories to sell more.

But What is Nostalgia?

  It’s a human emotion defined as “a sentimental longing, or affection for the past”.

  As we grow older, we develop fond memories of our younger days. From the food, candy, and ice cream we ate, the events we attended, the music we listened to, the video games we played, the clothes and sneakers we wore, to the TV shows we watched. 

  Your experiences from your past, form your personality and identity today.

  Scientific research has proven that nostalgia is a powerful feeling that provides a pleasant effect to both mind and body, and the natural phenomenon is sometimes referred to as the “warm and fuzzies”.

  It seems the more we move into an age of technology and innovation, the more we enjoy revisiting a simpler past and the joyous memories that come with it.

  Nostalgia can be activated at any given moment by any of our senses. A certain sound, scent, or color can trigger a nostalgic episode. Nostalgia can appear as a flashback, a vivid memory, or a wave of seemingly out-of-place emotions.

  One of the reasons we love Netflix TV show “Stranger Things” is because of our desire to look back fondly on our own formative years. This show really nailed the time period of the eighties and allows viewers to relive certain aspects of their past that they enjoyed.

  Nostalgia triggers emotion, and emotion activates purchase. This is why nostalgia is smart and effective marketing tactic.

  Breakfast cereals, vinyl records, candy bars, gaming systems, ice cream cake, and literally everything in between. Brands are engaging beer drinkers by tapping into their positive memories from decades past in fun, innovative new ways.

  Retro tactics have found their way into most marketing channels. Throwback Thursdays hashtag across social media, Facebook’s “On This Day”, and apps like Timehop now account for hundreds of millions of new photos linked to personal memories.

  In a series of experiments conducted by the Journal of Consumer Science, they found that consumers who thought about “the good old days” were more willing to spend money. In contrast, less likely to spend bucks when thinking about “the present or future”.

  The research study examined how nostalgia evoked feelings of connectedness and community due to childhood memories being linked to friends, family, and a sense of trust.

  Other interesting findings from the study is that nostalgia is experienced at least three times a week by persons of all ages, and across all cultures.

  It was also determined that most persons see their nostalgic event “through rose-colored glasses,” meaning they were revising history in their favor.

  Additionally, and most interesting, persons who were exposed to extreme heat or cold found relief and comfort from these adverse states when experiencing the joy of nostalgia.

  The emotional component of your brain is far more advanced than the logical side.

  80% of your decision-making derives from emotion rather than logic. This is why most consumers make their purchase decision at the beer shelf based on what they see and feel.

  But, 64% of this group admitted they would change their mind at the last second if “something else better” caught their eye.

  Smart brands are successfully using the timeless marketing strategy to attract new drinkers by elicit the stopping power and emotion in their branding. The results have been extraordinary with the GenX and Millennial aged groups.

  If you peruse the shelves of your local beer distributor, you’ll quickly see how evident, and brilliantly, nostalgic marketing is being employed by many beer brands.

  Why does nostalgia resonate so well with these marketing segments?

  Mainly because childhood for them during the 70s, 80s, and 90s (commercially-speaking) was all about them, and chock full of awesome. So, looking back on these days, there’s bound to be a lot of great memories.

  Children born mid–1960s to 1970s were considered the first generation of children to be directly advertised to. They would be known as “Generation X” and marketers discovered that this segment was impossible to define.

  Advertisers eventually discovered that although GenX children were not the purchaser, they could use them as “parental influencers”.

  If they could get a kid super excited about their product, they would eventually get to the mum. Many parents reported being pestered by their children for products they saw on television. This new marketing tactic was termed “pester power”.

  The result was an onslaught of exciting new youth products advertised directly to kids during their Saturday morning cartoons, movies, comic books, video games, and beyond.

  The pester era was fueled by a major surge in birthrates during the 80s and 90s that ushered in the new marketing segment, known as “Generation Y” aka Millennials.

  Studies at the time estimated children spent an average of 28 hours per week watching TV and playing video games which exposed them to approximately 20,000 ads a year.

  During these 3 decades the youth market became expansive and accelerated economic growth around the globe to the tune of $250 billion today.

  Millennials were also a big part of the craft beer boom. Over the past eight years, as this age group reached legal drinking age of 21, the craft brewing industry experienced its most significant growth.

  Millennials were labeled the “Peter Pan Generation” due to their tendency to delay “Adulting” for longer than any generation prior.

  So, it’s no wonder, if a beer brand could leverage favorable memories from our childhood and evoke these warm–fuzzy feelings that allow us to suspend our disbelief for a few moments, that we’re actually adults … you’ve likely made the sale already.

  You’ll also forge a meaningful connection with this consumer at an extremely–emotional level that results in brand loyalty (a consumer quality that hardly exists in beer today).

  An alcohol watchdog group recently reported that consumer complaints were stacking-up. As increasing numbers of beer brands rollout nostalgia in their marketing, more cases are being upheld because their label “appears to be aimed at kids” or “encourages immoderate consumption.”

  It’s been urged that breweries, marketers, and designers tread more carefully with the design of their retro packaging that depicts candy, toys, and cartoons. Ensuring the alcoholic nature of their beverage is communicated clearly, and when appealing to one’s inner child, not going too far to inadvertently appeal to a child.

  Check out these 5 beer brands that did great jobs using nostalgic marketing:

1.  Captain Lawrence Brewing Company of New York collaborated with Carvel Ice Cream to make “Fudgie the Beer” a 6.0% ABV beer brewed with Carvel signature chocolate crunchies, fudge and ice cream from their famous cake. Fudgie the Beer has smooth creamy cocoa notes with a roasted crunchies finish. (https://fudgiethebeer.com)

      This innovative concept worked so well, Captain Lawrence Brewing extended the line with Cookie O’Puss St. Patrick’s Day Beer, and Cookie Puss Birthday beer.

2.  Virginia-based brewing company Smartmouth is releasing a “magically delicious” IPA with all the warm and fuzzies. “Saturday Morning” is a throwback to the early mornings in front of the TV watching cartoons in your pajamas eating your favorite cereal. Smartmouth brewed with Lucky Charms-inspired marshmallows. (https://smartmouthbrewing.com/beers)

3.  450 North Brewing Co. of Indiana is pushing the envelope with an extensive line of mouth-watering retro packaging. Peanut butter cups, ice slushes, fruity and cocoa pebbles, firecrackers, French toast sticks, rocket popsicles, marshmallows, Nintendo games, tacos, and anything else you loved as a kid is represented. (https://www.instagram.com/450northbrewing)

4.  Two of America’s iconic beverage brands, Harpoon Brewery and Dunkin’ of Massachusetts collaborated on a limited-edition 6% ABV Coffee Porter. The co-brew combines the taste of Dunkin’s Espresso Blend Coffee with Harpoon’s famous craft beer for a balanced and smooth brew offering robust and roasty notes. (https://www.harpoonbrewery.com/beer/dunkin-coffee-porter)

      Harpoon and Dunkin’ just released a bright, summery follow-up brew with “Dunkin’ Summer Coffee Pale Ale” at 5% ABV.

5.  California’s Altamont Beer Works has an extensive line of cool–looking brews. They left no childhood stone unturned with their heady, and retro plays. Catty Shack, My Little Pony, Grand Theft Auto, NKOTB, Crunch Berry Cereal, to The Dude. (https://altamontbeerworks.com/1/beers)

  Nostalgia is a positive emotion. It’s more than a passive flashback to our yesteryear, it has strong implications of our future. It temporarily alleviates discomfort of our present and provides much needed motivation to head into our future.

  Like any trend that’s rediscovered and overused, nostalgia marketing will eventually be met with skepticism and quietly fade away, only to return again when today is tomorrow.

  Jim McCune is director of the Craft Beverage Division of Melville-based EGC Group.

Reach him at …

jimm@egcgroup.com

(516) 935-4944

Burning Questions From the Craft Brewers Conference (Part 2)

By: Jack McCraine – Firm Director, Baker Tilly

Continuing with part two of our Q&A from the Craft Brewers Conference from Denver, with additional follow-up questions to our panel of experts. It was clear that times are tough and brewers are feeling the pressure from every aspect of their business. Innovation and disruptive solutions to engage consumers and capture retailer interest were top of mind during our discussions.

  Consumers are using their disposable income on more than just beer, with consumption patterns and drinking occasions changing constantly. Generation Y and Z are entertaining spirits, RTD’s and wine as well as new and emerging industries in seltzer and cannabis (medical and recreational). Minimum wage pressures are challenging employee recruitment and retention, forcing pressure on engagement and culture. Virtual distributor models and companies like Amazon Prime are making distributors rethink and retool their sales and service strategies. 

  Diving deeper into your business plan and implementing a detailed strategy to scale your business to be more effective and efficient is a must do for brewers who want to enjoy continued success in the future. Here are some additional questions from our audience and answers from our Baker Tilly team of subject matter experts:

  Question: There’s a lot of data available and I don’t always have time to utilize it. How can I better use my data to run my brewery?

  Answer: Knowing what to track and having a process to capture and interpret the data is 1/3rd of the challenge. Another 1/3rd is knowing strategies and tactics to deploy that will correct or accelerate performance. The final 1/3rd is sharing the information beyond ownership and Sr. Management to really get your team moving in the right direction. At a minimum, record your own historic information to allow for benchmarking and variable pay opportunities that can be used to incentivize and motivate team members to accelerate performance. Here are a few good reports/charts to run:

Sales:

•   Pareto charts: They help identify the most frequent factor that you can count or categorize. Distributors, brands, SKU’s, reps, etc. These reports can be created at any level and visualize what’s helping or hurting the business. Brewery reps should spend half their time calling on these accounts.

•   Rate of sale: Measures how quickly volume is moving through a given account. This is very important to improve and an indicator of brand health.

•   Simple distribution: Number of buying accounts divided by total account base will show penetration of a given brand, SKU, etc. in a given territory.

•   Weekly time series (current and previous year): This can help identify significant events from previous years and allow you to prepare for them as they come back around in the current year.

Production:

•    Packaging efficiency such as yield target on loss: This is deeper look at breakage, low-fills and mislabels against a target/goal.

•    Yield target on loss: Hitting yield targets in total barrels filtered (by style). This shows tank utilization vs your target.

•    Reduce controllable production cost per BBL (by style, etc.): Your P&L should capture controllable COGS compared to last year.

Financial:

•   Gross profit trend lines before allocated costs: The overall percentage is important, yes, but the trend line is most important in this view. The reason you want to view prior to allocated overhead is to measure your real costs including labor. Utilization of your production facility will affect cost per BBL with allocated or overhead costs imbedded. This will allow you to forecast new brand costs, pricing and profitability.

•   Labor costs: Labor should be tracked not only to real production volume on a cost/BBL, but also as it relates to sales, overhead and management. This should trend down as your overall volume grows and efficiency improves.

•   Brewhouse and tank utilization: For obvious reasons, you need to set baselines for each of these and track overall utilization. It will allow the long-term forecasting of sales, capex planning and cash flow management.

  Question: When measuring break-evens (ROI), what is acceptable? How do I measure success? How many months/years?

  Answer: It depends. A loss isn’t a bad thing if your intention wasn’t profit but rather impressions. Creating a detailed business plan by department is the first step in understanding ROI’s. Each department should have KPI’s established that tie into the achievement of the plan/budget. Agreed upon actions and required resources should be identified, tracked and measured to achieve the KPI’s. Frequency of measure really depends upon what you are tracking. From a production standpoint, it could be by brew, by monthly/quarterly budget, etc., sales by month or distribution by quarter. These are good measures, but recouping profit only tells part of the story.

  Breakeven analysis is a great way to understand what is at stake or what you need to get back your investment. A standard percentage return is not always the best approach, but can be a good way to begin the discussion. There will be some things you can and should make more or less on depending upon the intent of the offering. You can put a breakeven on manpower, brands/SKUs, special events, etc., but all shouldn’t be the same ROI.

  From a timeframe standpoint, it would vary. People and equipment tend to have longer tails with ROI so those could scale quarters to years. Products and special event breakeven could be achieved overnight. It’s best to categorize the opportunity, apply a timeframe and capture it with a tracking/measuring system for future benchmarking.

  Question: How do you balance the setting of aggressive goals vs. selling correctly to the right accounts?

  Answer: Aggressive but realistic goals are great for any organization’s sales team as long as you have the following clearly outlined:

•    Variable pay: Compensation over the target so your team doesn’t stop selling after the objective was achieved in the 3rd week of the month. A threshold also needs to be set so you aren’t paying for easy layups too. 80% of achievement before 40% of payout is realized, or something of that nature. 

•    Standards: What does execution look like at retail? How many cases actually qualifies for a legitimate display? Is it the same for cans and bottles? Should there be a price on it? Pre-printed or handwritten? There are a number of things that beg to be defined. Salespeople want targets so they can be marksmen with their achievements of the objectives. You get what you ask for, so be specific in your standards with a document comprised of pictures and words.

•    Tools: Such as a POCM (point of connection material), account level data, profit calculator and a toolbox/kit with protocols for inventory replenishment:

           1)  POCM example:

•   11 x 17 accordion folder or box which includes the following:

A) Case cards and posters

     1)  Brand specific

     2)  PTC specific (all available pre-printed PTCs)

B) Sell sheets for all brands (core, seasonal, etc.)

C) Brand calendar

D) Brewery stickers

E) Tap stickers

F) Shelf strips

G) Tear pads (if applicable)

•   Coasters (where legal)

•   Case of glassware (where legal)

•   Tap handle (example)

•   Metal tacker (example)

•   Focus calendar – current quarter or year (wholesale sales rep distribution)

•   Brand matrix chart

•   Copy of retail standards

•   Bin displays (min of 1-2 per rep. for key account opportunities)

1)  Cooler with samples (ice)

2)  Tape

3)  Scissors

4)  Box cutter

5)  Zip ties

6)  Business cards

•    Structured selling process to clearly define, communicate and execute the critical actions of a sales call. The benefit is that standardization removes unnecessary steps and improves efficiency, sales productivity and focus of the sales team. The goal is for each salesperson to become a valued business partner with retailers and distributors through service, relationships, knowledge, collaboration and follow-through. Below is a brief example of a structured sales process:

  Our recommendation is to have the right goals set with the right accounts with the aforementioned in place instead of goals that don’t make sense for accounts and/or geographies that you are targeting based on your plan and budget.

  The goal of every good company is to plan for and achieve realistic business objectives that tie into all aspects of your business. The collaboration of departments into one business will help avoid pitfalls of silo development, which lead to mistrust within your organization and hinders the organization’s performance. As stated with these questions and answers, having a collaborated and efficient organization is the key. If everyone knows their role and targets (not just the sales team) then you can start to operate more effectively and efficiently as one company, tackling the industry together and scaling up efforts to drive elements of your business plan.

  Jack McCraine, Firm Beverage Director with Baker Tilly and leader of craft beverage services for the firm. He has more than 28 years of sales, marketing, consulting, training, revenue management/pricing, sales/service strategy, routing and training experience in the beverage industry. Jack specializes in accelerating client performance with sales and revenue growth, utilizing proven strategies and tactics to achieve business plans for wholesalers and brewers across the country. He has extensive experience with wholesaler distribution systems, compensation and incentive programs to motivate sales organizations.

For more information contact…

Jack McCraine

Firm Director, Baker Tilly

jack.mccraine@bakertilly.com