Whatever the business of craft beer was, it is not that anymore. There was a brief period when it was easy, but it will not be easy again. As our team works with a diversified group of craft breweries, I see some consistent – and concerning – patterns. Here are the top 5 observations and some suggestions:
1. Debt can create wealth. Debt can destroy wealth. Equity financed breweries are stronger businesses than debt financed breweries. This is common sense – the founders who raised equity may generally own a smaller share of the company, but the risk is less. These days, this is where you want to be. If you have more debt than equity on your balance sheet, we recommend you try to raise some capital and retire some of that debt. It was all OK a couple of years ago when sales were growing double digits. Now with little or no growth for most breweries, debt service consumes too much working capital, like when the barber ties that cloth too tight around your neck. If you can’t raise the equity you need, consider consolidating with another brewery…while your brewery still has value.
2. Having more than one? (Can you even say that anymore?) More brewers are coming out with lagers and pilsners, as consumer trends point to health, wellness and lower calorie preferences (in addition to the requisite awesome IPA). We recently tasted several lagers from leading brewers. Here the subtleties matter a lot and freshness is paramount. The consumer has to LOVE these beers and the margin for error is small, so taste test them relentlessly in real life conditions to be sure you have the best lager out there.
3. Your sales people each have to produce more than they cost, otherwise you can’t afford to keep them. This is unfortunately necessary for small business survival. Your distributor sales team is necessary but inefficient. Structuring compensation, KPIs and having the right people properly focused and motivated is the goal, and it’s a hard thing to get right. If you combine sales teams with another brewery you can improve the financial equation, as long as the distributor footprints match. I believe you can manage portfolios and wholesalers welcome suppliers who bring more volume and margin.
4. The top line is the hardest part – the rest is easy. You can control everything except how much beer your customers buy. You have to attract them with your beers, branding, community involvement, your story and your taproom. But you can’t make them buy it – they have to want to. Get that right, and the rest is simply business management. If you don’t get it right, nothing else you do will matter.
5. In order to sleep at night, you need peace of mind. We are all blessed to be in a fun business with the greatest people in our daily contacts. Every craft brewer needs to be sharp and get it right. There’s no room for error. Get good advice, survive and enjoy the good times that are coming after the shakeout.
There will be winners, losers and survivors. Play to win.
Brewers Advisory Group