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

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

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

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

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

Understanding the Craft Beer Sales Channel 

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

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

•    E-Commerce: Selling directly to consumers online.

•    Retail: Selling to consumers through other retailers.

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

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

Incentivizing Distributor and Wholesaler Sales Reps

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

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

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

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

•   Build mindshare with distributor and wholesaler sales reps.

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

•   Fill data gaps within their channel.

•   Enable sales reps to sell their product to vendors.

•   Deepen relationships with partners throughout their channel.

Building Mindshare with Distributors and Wholesaler Sales Reps

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

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

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

Targeting Promotions to Minimize Cost and Maximize Return

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

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

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

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

Collecting More Complete Data Throughout Your Channel

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

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

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

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

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

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

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

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

Enabling Your Distributor and Wholesaler Sales Reps

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

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

Deepening Relationships Throughout Your Channel

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

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

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

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

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

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

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

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

Starting a New Craft Distillery: Part 3

By: Donald Snyder

Man in front of distillery – copper

  Consumers are thirsty and they want something new. Increased demand for all things local and unique have helped pave the way for a surge of craft distilleries across the country. For those interested in starting a craft distillery today, there is a wealth of resources available to help navigate the unknown. Many toes have been stubbed by those who have been through the startup gauntlet and came out successful on the other side, lighting the path that new distillers can follow. Finally, let’s look at some of the proven, key attributes of a successful craft distillery.

Find Your Niche, Strengths

  Every craft distillery is different. That is what makes this industry so exciting. Every distillery starts with different goals, aspirations, skill sets, strategic strengths, and weaknesses. What is your story? What makes you different than the other 900 craft distilleries? If your sales representatives are in front of a new account, how will you get and keep their attention after they leave? Are you the first in your area? Is there something special about your grains or recipes? What does your background and strengths give you as a competitive advantage? Whether you have a business, marketing, technical, accounting, tasting, bartending, packaging, or engineering background, identify and capitalize on your team’s unique skillset to make a lasting mark in the industry.

Understand Your State

  Not all states are craft distillery friendly. Some states permit craft distilleries a great deal more flexibility than others. Colorado, as example, permits self-distribution and sales direct to retailers or bars, bottle sales direct to consumers, and sales by the drink out of the distillery tasting room. Washington State has similar distillery-friendly legislation. For these reasons, there are more craft distilleries in these states than any other. States, including some control states, can have very restricting laws making turning a profit very hard. Successful distilleries have come from restrictive states but their struggle is uphill. If you have flexibility in deciding where to open a new craft distillery, research the laws and find a state and a region that is distillery friendly.

 Foot Traffic is King

  The most successful craft distilleries leverage their location. Ole Smoky Distillery in Gatlinburg, TN handles thousands of thirsty tourists each week, all lining up for free tastings of their flavored moonshines. Port Chilkoot Distillery in Haines, Alaska has cruise ships dock 500 feet from their distillery that unload 2,000 thirsty passengers right into their backyard. Hotel Tango Distillery is turning into the hangout bar for locals in downtown Indianapolis, Indiana. Dancing Pines Distillery in Loveland, Colorado is in the middle of a Denver suburb and has gained a significant following. Is there a successful brewery or winery near you that draws a large crowd? A new craft distillery in the area can offer exciting opportunities for co-branding like bourbon barrel aged beer or a wine barrel finished rum. Urban distilleries can require expensive real estate but the opportunities for distribution and loyal foot traffic can lead to big returns.

Quality is the Only Option

  First and foremost a successful craft distillery must have a high quality, great tasting product. If a consumer is going to spend $35-$70 per bottle on a local craft spirit, it better taste good. If the spirit does not meet expectations, the risk is a bad mark on the entire craft industry. Take your time on your formulation. Get feedback from professional tasters, bartenders, distributors, and consumers before you release the product. For example, finding the right combination of gin botanicals does not happen on the first batch. For aged spirits, don’t rush bottling your product if the spirit is not ready. Time, experimentation, research, blood, sweat and tears go into a successful brand and it does not happen overnight. The even harder challenge is making a high quality product in a process that is scalable to meet increasing demand.

Do the Math on Still Size

  The most common question I get asked when consulting on a startup is “How big of a still should I buy?” My answer is, “How much money do you NEED to make?”

Here is a simple example:

Distilling a batch of spirits from grain on a 60 gallon pot still will make you about four 12pk cases a day (about 7-9 Proof gallons), depending on the mash bill. If these bottles retail for $40 per bottle, you can probably sell those bottles to a distributor for $20/bottle. That is a total possible revenue of $960/day.

Assuming a healthy 40% profit margin after Cost of Goods Sold for raw materials, you can net $384/day.

Assuming you distill Monday to Friday for 250 days per year, can $96,000 per year after material costs cover overhead, rent, other expenses, and payroll?

Assuming reasonably similar labor inputs and profit margins on materials, a 600 gallon pot still will produce 10x the spirits in the same number of working days.

At that production level, a distillery can both sell unaged products and lay down spirits for aging. Estimate your revenue needs to cover your overhead and back into how many cases you need sell. Reasonability account for year over year growth and calculate how big your still needs to be to keep up with demand.

Source or Not, but be Transparent

  Large distilleries know they can make vodka from scratch for $15-$35 per proof gallon. They also know they can buy beverage grade Grain Neutral Spirits (GNS) that can be used for vodka, gin, liqueurs, or “moonshine” for $1.50-$4.50 per proof gallon. Instead of aging spirits for years, if available and cost effective, sourcing aged spirits from established distilleries can allow start up craft brands to add aged whiskey to their portfolio immediately. Without debating the pros and cons of sourcing spirits, it is important to follow all labeling guidelines and regulations. If you take pride in making it from scratch, let the world know. If you don’t distill the spirits at your distillery, do not imply as such on the label.

  Sales and Marketing

  Once you’ve distilled or blended an award winning craft spirit, you have to get the consumers’ attention. The most successful craft distilleries with growing market share know that marketing dollars are key. Tasting events, radio promotions, print advertisements, and social media blasts are not only expensive, but take up your time.

Distributors can be great partners to help open new markets but the ultimate responsibility is on you to provide boots on the ground support for your brand. Convincing brand-loyal consumers to try your product is hard and expensive. Sharing the cost of promotions, samples, and incentives with your distributor is common, especially for new brands, but can take a big piece out of your margins. A rough estimate for a marketing spend budget is 10% or more of your annual revenue.

  As a new generation of craft distilleries open, standing on the shoulders of those who opened before them, they have an incredible opportunity to be a part of rapidly growing industry. The path has been lit by history’s pitfalls trying not to repeat themselves.

The time is right to start a new craft distillery while learning from the most successful in the industry. No matter what your background, find your strengths and create your story. Find a location that is both craft-friendly and draws visitors. Make smart business decisions about equipment and marketing. But most of all, embrace your responsibility to ensure your product tastes good and be a positive reflection of the craft community.

Contact Donald Snyder at donald@whiskeyresources.com or www.whiskeysystems.com.

Starting a New Craft Distillery: Part 2

By: Donald Snyder

There has never been a better time to start a craft distillery. As previously explored, new distillers can stand on the shoulders of established craft distillers who have paved the trail over the last five years. There is an abundance of resources available including online forums, distillers’ conferences, craft-focused trade shows, local distiller guilds, experienced consultants, and a Tax and Trade Bureau (TTB) that has never been more approachable.

  However, this is by no means an easy and well-lit path. It can be a very expensive and frustrating adventure. What can we learn from others who have successfully accomplished the startup gauntlet? Hopefully the history of toe stubbing and blindly stumbling through starting a new craft distillery doesn’t need to repeat itself. Here are some of the most common pitfalls of starting a new distillery:

1.   No Business Model or Minimal Operations Cash Reserve

  This is the most common issue I have seen. Distillers should ask themselves some fundamental questions like: What are your revenue goals? How many cases do you need to sell to make those goals? What are your Costs of Good Sold (COGS) for the raw materials needed to make those cases? What are your fixed expenses like rent, full time labor, and loan interest? How much capital investment do you need to start up? How much cash do you need in reserve to run the business until the distillery starts shipping orders? An easy to understand business model is invaluable to setting sales and production goals, getting a loan, or enticing investors.

2.  No Chilling System

  Distillers will spend lots of time and money to add heat, steam, and energy to cook their mash and to run their still but completely overlook the equipment needed to remove that same heat from the system. Crash cooling a hot grain mash with chilled water can help to minimize bacterial growth. Having an abundant supply of cold water keeps your chiller running efficiently. Cold water can also be used to cool your fermenters to help avoid overheating and stalling fermentation.

3.  No Thought to Waste Water

  I have seen many craft distilleries rely on cheap, abundant municipal city water to cool their condenser but run that water straight down the drain. Many distillers waste thousands of gallons of water daily. Even if waste water is practically free to dump down the sewer, that water could be re-used and recycled. Try using the hot, clean water from your condenser as the water for your grain mashing. Investing in a cheap poly tank to hold some of the water as part of a recycling system can save thousands of gallons of water every day.

4.   Not Understanding TTB Compliance and Reporting Regulations

  This issue appears to be systemic with new craft distillers. Passing the DSP application process is only one of many hurdles to running a federally compliant distillery. Meticulous records must be kept and Operations Reports must be filed monthly. Excise taxes must be calculated correctly and paid on time. It is not a requirement to memorize the CFR chapter and verse, but a deep understanding of the regulations is a must to avoid penalties, interest, or even being shut down. Like other resources, there are systems available to help craft distillers manage their TTB reporting, operations tracking, and excise tax liabilities to minimize the learning curve and headaches.

5.  Not Involving Local Regulators

  A local craft distillery is not something that most county or city regulators have ever had to license. If you are the first craft distillery in your area, the odds are your local zoning, health, environmental, and fire regulators will have to create new codes to accommodate your operations. Getting the officials involved early on in your planning and development is key. After completing all your building renovations is an unfortunate time to discover the fire marshal requires installing an unbudgeted $20,000 sprinkler system.

6.  Difficult Layout, Too Small of a Space

  Distillery equipment is big. Vodka columns can be 20+ feet tall. A 600 gallon pot still kettle can be 8 feet wide. Fermenters, pallets of glass, racks, grain sacks, bottling equipment, finished goods, mash cookers, storage totes… they all take up space. Can you access and move everything with a forklift? Are your doorways big enough to move equipment and materials? Do you have a dock door for truck loading? Don’t underestimate the space needed to operate an efficient distillery.

7.  The DJ Dilemma

  While sitting in a dark studio it is very easy for a radio disk jockey to play the music he wants to hear, even though it may not be the music his audience enjoys. Just because a distiller wants to make something, doesn’t mean it will sell. I know a distiller who adamantly wants to make brandy even though the market for brandy in his area is next to nothing. It is important to be passionate about what you make but don’t let that blind you from making a solid business decision. Find the line between running a profitable business and having a hobby.

8.  Making Whiskey with No Available Barrels

  Whiskey is hot right now. Brown spirits like bourbon are experiencing double digit growth with record high shelf prices and consumer demand. But there is a serious problem for new craft distillers hoping to jump on the whiskey bandwagon. There are no new oak barrels available. In order to make bourbon, you need a consistent supply of new, charred, white oak barrels. Although cooperage capacity is slowly opening back up, the waiting list for barrels is anywhere from six months to over a year. If you want to open a craft distillery today, white spirits like gin, vodka, rum, non-grape brandies, corn whiskey, or flavored liqueurs may be your only options to make for a while.

  A common lesson I hear amongst the established craft distillers who survived starting up is, “I didn’t know what I didn’t know.” While there is no way to predict every issue while starting up any new business, these are some of the common obstacles that future distillers can avoid. We are in an exciting period of growth for the craft distilling industry as more and more consumers are seeking something new and different. The first distillers muddled through complete darkness and came out successfully on the other side. We may all stub our toes while wading through the unknowns of beginning a new distillery but learning a few of these cautionary tales will help light your path.

Contact Donald Snyder at donald@whiskeyresources.com or www.whiskeysystems.com.

“Standing on Shoulders”

By: Donald Snyder

Smooth Ambler Distillery – Maxwelton, WV
Photo Credit: Donald Snyder

Ask any established craft distiller what they would have done differently and you will get a common answer, “How much time do you have?” For most new distillers starting from scratch in the last few years, it was a learn-as-you-go venture paved with blood, sweat, and tears. The promise of high margins in an exciting and rapidly growing industry with local laws now changing to be more “craft friendly”, the draw to join the liquor industry today is almost intoxicating. Today, new craft distillers are starting up following in the footsteps and standing on the shoulders of those who came before them to bring something new and unique to the market.

There are over 800 active micro distillers in America and dozens more opening every month. Domestic and international consumers have developed a palette for unique distilled spirits and have not seemed to quench their thirst for all things different and local. If that wasn’t a big enough reason to join the party, there is now a wealth of resources available to get started without repeating the painful road paved by others.

An aspiring distiller today does not need to look very hard to find resources to help them start up a new distillery. There are distillation classes across the country offering everything from a hands-on introduction to the distilling industry, chemistry-based fermentation and mashing lessons, blending and product development classes, to advanced distilling techniques classes for those looking to sharpen their craft. As a lecturer at both the Moonshine University in Louisville, KY and at the Six & Twenty Distilling class in Greenville, SC, I get to give people a taste of the industry before they decide to jump in with their hard earned money. Being able to touch, look, and feel for a few thousand dollars can be well worth it.

  Another hands-on and immersive way to learn about the spir  its business are the annual craft distillery conferences with break out informative sessions for all levels of experience. The American Distilling Institute (ADI) and the American Craft Spirits Association (ACSA) both have annual conferences where all the players in the industry converge to discuss current market trends and distillation issues of the day. For new players in the business, the biggest advantage of these conferences are the vendor booths which are a literal one-stop-shop for all the suppliers you will need to start a craft distillery. Imagine having every major glass bottle supplier, chiller and equipment vendor, grain sources, and even the Tax and Trade Bureau (TTB) all represented and able to answer your questions in one space. I hear the established craft distillers groan every year having had to research and hunt them all down one by one.

  However, even before an aspiring distiller books an air plane ticket to a conference or to a class, there are now vast repositories of information available on-line. There are several popular and active forums and blogs on-line with communities of distillers sharing their experiences and responding to questions. One of the most active is the ADI Forum where new and established distillers talk about the issues du jour and share techniques. There are active home distilling forums with resources as well but I’ll remind everyone that distilling spirits without a federal permit is currently against the law.

  Finally, once a person is ready to start a distillery, there are now a plethora of consultants with years of experience in the distilled spirits industry. There are consultants for every specialty, issue and budget. There are consultants like Richard Wolf of Wolf Consulting who can help prepare a solid business model including cash flow, cost of good sold (COGS) and profit projections to help articulate capital needs and find investors. Consultants like Jim McCoy, who retired from the TTB after 32 years, can help navigate the licensing, federal permitting, or audit headaches and assist with label or formula approval. Sherman Owen of Artisan Resources can help with developing a mash bill, fermenting, distilling, equipment sourcing and may other tactical operational issues. There are retired master distillers who worked for the large distilleries who can help teach the up and comers how to make a high quality product while leveraging their connections in the industry. Nancy Fraley of Fraley Nosing Services can help with blending and differentiating your product in a crowded market space. There are even “one-stop-shop” consultants who act like a general contractor that can walk a distillery from concept to reality while bringing in specialized consultants and network resources as needed.

  With all that said, even with all the incredible resources available, it can still be a hard and expensive road to travel. A typical new craft distillery will require hundreds of thousands of dollars in equipment and investment. Older buildings will need expensive renovations to be both visually appealing and up to local code to operate a still. A green field distillery built from scratch sized to expand could easily cost a half million dollars or more. For distilleries hoping to make an aged product such as a bourbon, they must prepare to spend a thousand dollars per barrel in raw materials, labor, and other conversion costs and see no return on that capital until it is dumped and bottled. Cash flow and operational reserves for a startup distillery can easily trip up even the best business model. It is possible to start a distillery on a “shoe string” budget, but it is a tough road to travel.

  If you are considering opening a craft distillery, know that there have never been more resources at your disposal. It is not an easy or cheap road to go down but the return can be big. Reach out to a local craft distiller, make a connection with a consultant for an introduction, or be an active participant on-line and you will be well armed to decide if your next business card will say Master Distiller.

Contact Donald Snyder at: donald@whiskeyresources.com or www.whiskeysystems.com.