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Buy American Beer!

As we approach the 4th of July many of us will celebrate by grilling our favorite foods accompanied by the delicious elixir called beer. As the line-up of beers continues grow and spill into different parts of your local retailer (due to lack of shelf space for craft beer), I encourage you to consider the origins of your beer. Is your beer truly American or is it owned by a foreign company?

Although large brewers (i.e. AB InBev, MillerCoors) continue to brew in the U.S. and do provide jobs domestically, they are no longer American owned companies. This may be old news to many; however, there are still those that associate the larger beer brands with the stars and stripes. Some interesting facts about U.S Craft Breweries (Source: http://www.brewersassociation.org/statistics/economic-impact-data/):

- Contributed $33.9 Billion to the U.S. Economy in 2012 (includes non-beer products such as food and merchandise)

- Provided 360,000 jobs

I continue to choose craft beer for a variety of reasons. First, when I began homebrewing years ago, it led me to also seek out more flavorful local beers. One of the first craft beers I tried was Widmer’s Hefeweizen and eventually I “graduated” to Deschutes Bachelor Bitter and Black Butte Porter.

Today, with the incredible amount of craft beers in the market, even I can’t keep up with tasting them all! Don’t intimidated by the hundreds of beers offered, take your time and find the beers that fit your taste buds. Visiting a local craft beer bar can help as they often offer smaller portions or samples to help you decide which beer best suits you. You will also find that the food you decide to pair a beer with will have an impact on the flavor. Some beers may compliment a dish, while others will provide a contrast. For example, I find that a German lager goes well with a brat and India Pale Ale goes well with spicy foods. I recommend experimenting to discover what works for your particular tastes.

So, instead of picking up a Budweiser because it is in a 4th of July can, support your local craft brewery and community by trying their suds. The following link will help you find a craft brewery in your area:

http://www.craftbeer.com/breweries/brewery-locator/find-a-us-brewery

You can also find out more about how you can support your local brewery by becoming an activist for local breweries:

http://www.craftbeer.com/breweries/support-your-local-brewery/current-issues

Have a wonderful 4th of July!

Cheers,

Aaron

P.S. If your significant other insists they don’t like beer, have them try a Lindeman’s Framboise, which you can generally find at retailers with craft beer.

The Power of a Pint

Over the years, I have observed many pricing strategies for beer. Some look to their competitors and try to come in just below or match their price, while others use prestige pricing thus commanding a premium for their suds. Often overlooked is the impact that a slight change in price has over time. Of course, the full impact of your pricing strategy needs to be assessed from a consumer’s perspective and how it will affect the financial health of your company.

One example I can share of how pricing affected a company’s performance occurred at a chain of brewpubs. Their pricing strategy consisted of line pricing their beers with the intent that beers which were less expensive to make would essentially balance out the more expensive. This approach has also been used by large companies such as Southwest Airlines and uses the principle of price elasticity, which relies on large quantities being sold; some at a low price and others at a higher price. After much discussion with upper management I was able to implement a small price change for specialty and seasonal beers, which was needed to offset the additional ingredient expenses, especially when a different strain of yeast was used. After implementing increased pricing for specialty and seasonal beers in one location the benefits were noticed quickly. Revenue increased allowing the management team to attain bonuses consistently and the location became the most profitable out of five locations. This also led to other locations implementing the same pricing strategy.

Eventually this pricing strategy was implemented in all five locations resulting in increased revenue for the company. Revenue also continued to increase as managers adopted the same pricing methodology for other products. Some may have concerns about the price sensitivity of their customers, however, most craft beer connoisseurs (including myself) tend to be more concerned with quality than price. Further, maintaining quality and continuing to offer innovative products requires breweries to allocate funds for QA/QC programs and pilot brews to develop new, interesting beers for their customers.

To quantify the power of adjusting the price of a pint consider how much an increase of $0.25 per pint can make. For example, if you charge $5.00 per pint and sell 75 pints a day it equals $375. Changing this to $5.25 per pint at 75 pints per day increases this to $394. On a daily basis, this may not appear to be substantial, however, over time the difference becomes more significant. The following was constructed assuming a six day business week and the traditional pint size of 16 ounces:

Beer Size Price Daily Quantity Daily Totals Weekly Monthly Quarterly Yearly
Pint $5.00 75 $375 $2,250 $9,000 $27,000 $117,000
Pint $5.25 75 $394 $2,363 $9,450 $28,350 $122,850
Pint $5.50 75 $413 $2,475 $9,900 $29,700 $128,700

Another similar pricing strategy in the craft beer market is to use smaller glasses for certain beers (similarly priced to a pint), which essentially has the same effect. In fact, some craft beer bars use three or four different glasses ranging in size from 6 ounces to the standard 16 ounce pint. If you have the space for additional glassware this strategy is well worth considering as it is also beneficial for monitoring how much your patrons consume.

To be effective and timely, reviewing your pricing strategy should be done on a regular basis due to increases in raw ingredient prices, changes in taxes, and other financial considerations for your business. Being more responsive with your pricing strategy will allow you to quickly address changes in market conditions and ensure you maintain your margins.

Recently, I had the honor of being interviewed about things to consider when contemplating starting a brewery. Some of the information I share includes:

- How to get the planning process started
– Free methods to obtain market research
– How to get support from the craft beer community
– What are the typical costs involved?
– Resources for learning about the craft brewing industry
– The importance of mission and vision statements
– What type of brewery should you open?

The podcast can be accessed via Microbrewr.com a fantastic resource created by beer lover Joe Shelerud Please help support Joe by visiting his website and making comments!

An internship at the Ninkasi Brewing Company for the best business plan has been added to Oregon State University’s Craft Brewery Startup II course. Students in the course will compete by submitting a business plan, which will be judged by Dick Cantwell of Elysian Brewing Company and Aaron Brodniak, Brewery Consultant. This internship provides a unique opportunity to experience first-hand how Ninkasi has been so successful, so quickly!

Thank you to Ninkasi Brewing for their generous support!

https://pace.oregonstate.edu/catalog/craft-brewery-startup-workshop-ii

osu-brewery-beer-cider-courses-poster (2)

Updates!

If you missed the webinar information session you can watch it here: https://www.youtube.com/watch?v=vXPITvWUBzc

Also, a craft cidery class is also being offered. Webinar information session can be viewed here: https://www.youtube.com/watch?v=CjOBgvStKws

Do you want to open your own craft brewery?

How would you like to gain valuable insights from industry leaders to help develop a business plan, create successful strategies and learn about the craft brewing industry?

Given the increasing amount of competition in the craft beer industry, crafting a plan on how you will differentiate is essential to success.To help prospective brewery owners, Oregon State University is offering a Craft Brewery Startup Workshop in Portland, Oregon at the Widmer Brothers Brewery. To prepare for class students will participate online for two weeks where they will begin to learn about the craft beer industry, draft an executive summary and create a business plan outline.

Featured instructors will include:

Dick Cantwell, Head Brewer of Elysian Brewing and author of The Brewers Association Guide to Starting Your Own Brewery, http://www.elysianbrewing.com/about/

Teri Fahrendorf, Country Malt Group Account Manager and former Corporate Brewmaster for Steelhead Brewing Co., http://www.terifahrendorf.com

Aaron Brodniak, Brewery Consultant and former Head Brewer for Pyramid Breweries, http://www.linkedin.com/in/brodniak/
Dates:
Online: April 21 – May 9
Onsite: May 10 – 13

An information session will be held on February 27th at 11 am P.S.T. Sign up at: https://www3.gotomeeting.com/register/816302966 For more detailed information about this course go to: https://pace.oregonstate.edu/catalog/craft-brewery-startup-workshop-ii

Make an Exit Strategy

While reviewing business plans for clients I’ve noticed the tendency to exclude an essential component; that of an exit strategy. Perhaps this is due to the negative connotation associated with exit strategies such as the failure of a business and even the end of someone’s dream. However, exit strategies are set in place to provide the best option for a particular scenario rather than making a decision in haste and increasing the likelihood poor reasoning.

An exit plan can assist an entrepreneur in determining the most beneficial means to divest themselves of their company when they decide to leave their business. There may be numerous reasons for exiting, which can be similar to the reasons an employee resigns from a company. For example, employee’s leave for new opportunities for professional growth, increased salary or other more personal reasons such as a relocating spouse. Although, exiting from a one’s business may or may not be voluntary (i.e. bankruptcy) so having multiple strategies to exit is advisable (Prisciotta, & Weber, 2005).

Part of the exit plan should include the entrepreneur’s goal for exiting. For example, when a home owner decides to sell their home they consider the fair market value, market conditions and owner’s equity. From the preceding information the owner can determine the asking price, how much the sale will cost (realtor fee) and if they have enough equity to sell without supplying additional personal funds if the properties market value has fallen. Just as in selling a home, the best time of year to sell should be determined the particular type of business (Small Business Administration, 2013). Finally, acceptable terms should be determined such as how much cash, stock and if any hold-backs will be withheld in an escrow account (Kaplan & Warren, 2013).
Legal considerations such as filing the final tax return, paying final wages, benefit plans, paying final bills, reporting the business assets and reporting the sale of the business must all be addressed (Internal Revenue Service, 2013). To assist in the preceding tasks the services of a lawyer and tax accountant are useful to ensure legal compliance. Additionally, the Small Business Administration recommends a number of steps to close a business such as (2013):

- Document the choice to sell with a document
– Employ subject matter experts such as lawyers, accountants, bankers and brokers
– File documents to formally dissolve the business
– Cancel licenses and permits
– Adhere to labor laws (pay employees, provide adequate notice)
– Pay bills (taxes, debts), close bank accounts
– Keep documentation for 3 to 7 years

The Beer Shopper

You’re inside the store, so now what? With more stores providing more beers to choose from the task of beer shopping often leads to a paradox of choice for shoppers. I believe going beer shopping should be a joyous occasion especially with the growing selection due to the surge of craft breweries in the U.S. Even if you are a naysayer that claims “I don’t like beer” there is most likely an offering that will pleasantly surprise you. However, the increased selection has also led to some confusion for consumers. For example, I often get asked how to select “good” beer by friends and even other shoppers.

What is “Good” Beer

Plain and simple, whatever you deem to be good beer is good beer (for you). Your personal preferences are the most important factor, not beer ratings/reviews, friend’s recommendations, or following the Beer Judge Certification Program style guidelines. Everyone has their own likes and dislikes so let your palate lead the way.

A Beer’s Journey

Some factors you should know about that affect your beer are often out of your control such as the supply chain for beer or even the beer itself. Before beer is stocked on the shelf it has to be transported from the brewery to a distributor (some breweries do self-distribute). Some distributors may refrigerate during transit and storage while others do not. Once beer is delivered to a retailer such as your local grocery store some will sit unrefrigerated as back stock, on the shelf or in cases stacked on the floor. Also the beer itself may have been produced with certain defects making it more susceptible to becoming stale. So, how do you go about selecting the freshest beer?

Steps to Selecting Fresh Beer

1. Select beer that is on the shelf in the refrigerated section. Perhaps the most obvious choice, however, this also has the beneficial effect enjoying your beer a little sooner after you get home!

2. Go to retailers that have a good turnover on their beer. This will take some time and research as you get to know your local stores offerings, determine the knowledge of their staff and collect recommendations from friends. One shop that goes to great lengths to ensure beer quality is By the Bottle and use low UV screened lighting to prevent light struck (skunky) beer.

3. Read! Know when seasonal beers are being released so you can purchase them at the beginning of their season to ensure freshness. Beerpulse and Beer Advocate are good online sources as is Facebook once you “like” a brewers page. There are many more and you may find a local publication that works for you.

4. Shop! Shopping consistently for beer helps you become more familiar with what is new while providing your beer fridge at home with more variety. This allows for the opportunity to forgo buying refrigerated beer, if needed, since you know the beer has not been unrefrigerated for a long period of time if it is newly released.

5. Network! Social media, homebrew clubs and establishments that offer craft beer are fantastic places to sample and gain insights into what you like, when to seek it out and where. This has the added benefit of enjoying limited release beers that may not be available. I also text my beer drinking friends when I find favorite brands that are on sale.

6. Choices! With so many choices of beer it is easy to get overwhelmed. If you are so inclined it may be useful to track the beer you have tried with an app or written notes. Untappd is an app that enables you to rate and review beers, which also allows you to network with others after you have friended them on Untappd.

7. Take risks! At times you may have to step out of normal buying habits and try a beer you missed despite all your efforts. You may be pleasantly surprised. If you don’t like the beer, try trading with friend that may appreciate the flavor. In the worst case, if the beer is stale, use some to make chili!
Most importantly, drink and enjoy your beer in a glass to better appreciate all the efforts of craft brewers! Cheers!

Concerning the viability of the craft beer industry it is important to note that while it is currently experiencing growth it is still vital to conduct market research before expanding or entering the market. Conducting market research does not have to be an expensive endeavor; in fact, much can be accomplished using inexpensive resources, merely requiring an investment of time. For example, the Small Business Administration has a wealth of information and links to resources available to conduct market research (SBA Demographics). Other sources of data for market research include the U.S. Census (Current Population Survey), Bureau of Labor Statistics (BLS Demographics) and state and county websites such as for Houston, TX. Once research has been completed an identity for a brand should be established.

The craft beer industry identifies itself though product differentiation and consumer education. Swaminathan defines these strategies as “identity for critique” and “identity for education” (2001, p.1171). Identity for critique can been seen in how the craft beer industry challenges the large domestic brewers such as AB InBev by demonstrating how craft beer is produced in smaller batches with fuller flavors rather than mass produced with mild flavors (Swaminathan, 2001). Therefore, a craft brewery may be labeled as a specialist organization while a larger brewer would be a generalist organization (Swaminathan, 2001). Identity for education seeks to “challenge the dominant culture’s perception of itself” which craft brewer’s do by  marketing themselves as local, American-owned companies with strong ties to the communities in which they conduct business (Swaminathan, 2001, p.1171). Conversely, large brewers have been experiencing continued consolidation as evidenced by the formation of AB InBev.

Industry experts such as Dick Cantwell,  Co-Founder of Elysian Brewing and author of The Brewers Association’s Guide to Starting Your Own Brewery was quoted as saying, “They [breweries] can’t all be the same and expect to survive” (First Drafts). Cantwell recommends breweries need to differentiate themselves from other brewer’s by offering an innovative product mix. To address this, more breweries are using a product differentiation strategy by offering barrel aged beers, limited edition beers, collaboration beers and utilizing local ingredients such as honey, pecans, rosemary and thyme. So, as it becomes increasingly important to differentiate, choosing a region to establish a brewery must also be considered.

So, given the growing amount of competition in the brewing industry, is there an area in the U.S. that has the right market conditions to support more craft breweries? According to recent research, the southeast United States has the lowest amount of breweries per residents in the United States (Baginski & Bell, 2011). In fact, Houston, Texas, the fourth largest city in the U.S., currently does not have any operating brewpubs and only within the past two years have there been more brewery openings. Additionally, Houston has over 40 colleges, universities and other higher educational institutions and research has demonstrated there tends to be more breweries where the surrounding population has higher education levels (Baginski and Bell, 2011). Finally, recent legislation has improved the business environment for brewers and the Texas Craft Brewers Guild has indicated the changes in the law will facilitate further growth for craft beer (Texas Beer Bills). Given this information, Houston just may be the next boom town for continued growth in the brewing industry.

 

If you are considering jumping into the craft beer business how do you know if you have what it takes to succeed? There are many attributes associated with being a successful entrepreneur such as having the energy and drive necessary to begin and sustain a new venture. So where do you start?

First, determine why you want to be in the craft beer industry. Some brewery professionals such as Kelly Taylor of the Kelso Brewing Company (www.kelsobeer.com) have stated they enjoy the “challenges, variety and sense of accomplishment that come with being a business owner”.

Second, take a self-inventory of your skill set. What skills do you have that are beneficial to becoming a craft beer entrepreneur? This also varies depending on whether the craft beer business you decide upon is a brewpub, brewery or distributor. Some skills identified with successful entrepreneurs are (Kaplan, & Warren, 2013):

- Ability to be resilient even in the face of failure by learning and moving on.

- Navigating in an uncertain environment by using critical thinking skills and knowing that not everything needs to be perfect or

you will not accomplish important tasks.

- Able to network, communicate, obtain consensus and lead (not micromanage).

- Risk taker, by taking action, however, this is moderated by being realistic and making changes as needed.

Besides entrepreneurial skills it is important to analyze what types of skills you will bring to the business. Are you a passionate home brewer with proven results? Beware!  Going from a five gallon to a 15 barrel (465 gallons) system requires new skills to craft quality beer and safely operate (Warner, 2010). So, obtaining training and hands-on experience, hiring a qualified brewer and finding a mentor are all options to carefully consider. I have experienced many brewery start-up’s in which the owners believed they could perform all the brewing activities and soon realized they were out of their depth. To read some first-hand accounts of some of the pitfalls others have experienced I recommend reading the forums at www.probrewer.com.

Finally, to aid in determining where your skills will fit best for your business the creation of a business plan is helpful and a critical part of ensuring success. Creating a business plan is essential to the initial and continued success of any business, provides guidance for long term planning and takes approximately 200 hours to complete (Kaplan, & Warren, 2013). While this may seem to be a considerable amount of time to invest, the investment is insignificant compared to the costs associated with a failed business venture such as loans, personal investment(s) and other liabilities. For example, the start-up costs for a brewery are capital intensive due to the high cost of purchasing brewery equipment. A useful tool for creating a business plan can be found at the U.S. Small Business Administration.

The next blog entry will discuss areas of opportunity for those considering becoming craft beer entrepreneurs.

If you have ever spilled a beer then you know and accept the amount of ridicule that is normally dispensed by friends or others nearby. At the end of the day it is not going to have an adverse impact on one’s mood, life goes on. However, what if the amount of beer “spilled” is increased to hundreds or thousands of gallons?

While working as a brewer on the day shift a few years back I came across a co-worker with an expression of shock and bewilderment with their back firmly pressed to a fermenter. To my fellow brewer’s left was a 100 barrel fermenter (approx. 3100 gallons) with cold beer rocketing out of the racking port, which was about four feet off the ground. As he proved to be immovable and thankfully uninjured I trudged through foam beginning to crest my boots in search of the missing racking arm, butterfly valve, clamp and gasket. Perhaps I should have been in shock as well; however, all I could think about was saving the beer! After enduring the near freezing temperature of the beer fountain I was able to secure all the needed items to the fermenter, close the valve and attend to my co-worker.

What came to mind later was how was I able overcome the dramatic nature of the situation to come up with a solution. It was not due to training since both of us had been trained in the same manner and had worked on teams to create standard operating procedures (SOP’s) for the brewery. However, it was determined that such a situation could repeat itself due to the design of the fermenter and the need to move brewery hoses to be used for transferring and filtering beer. So, how do you ensure that others know how to properly and quickly apply a solution? This is critical in a brewery as whole or partial batches of beer can be lost in moments by opening the wrong valve or equipment issues.

One method to ensuring employee’s know how to react in an unusual situation is to incorporate scenarios into their training. Although some knowledge is empirical in nature, as it is acquired it should be put into a trouble-shooting section for SOP’s and included in training. Also, refresher training helps employees remember the important lessons from their initial training that they may or may not ever experience. Refresher training can be accomplished as part of regular employee meetings.

A useful process for developing training may be found in the ADDIE model which is:

A – Needs Assessment. What knowledge and skills do employees need?

D – Program Design. What will the training consist of and how will it be delivered?

D – Program Development. Create SOP’s and other training materials.

I – Implementation of Program(s). Initial pilot program and ongoing training.

E – Evaluation. Obtain and track participant perspectives and monitor performance on the job.

Creating a successful training program can be a time and resource intensive project, however, the benefits of higher productivity and increased efficiencies tend to yield a favorable return on investment (ROI). Evaluating the training program should include ensuring objectives are being met, making changes as needed and calculating the ROI. Also, the loss avoided by saving 3000 gallons of beer could just pay for your training program!

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