SUPPLY & DEMAND

With so many beer brands clamouring for shelf space and the attention of punters, how should breweries go about getting their products on shelf and on tap?  Stefanie Collins investigates.

 

In the realms of beer distribution, be that in the retail or wholesale markets, there are various levels of profit and loss involved that need to be considered by brewers. Furthermore, both distribution models have benefits and restrictions that impact on a brewing business.

In retail, brewers can choose to have a brewpub or microbrewery cellar door – this is a very profitable business model as it cuts out distribution/wholesaler margin, as well as the cost of a salesforce.

According to Paul Wyman, Head Brewer at The Monk (WA) a small to medium-size cellar door in a central city location is looking at potential expenses totalling $500,000 per annum – not inclusive of restaurant/bar costs. “To just cover your costs you would have to brew around 70,000 litres a year,” he says. “To make a 25 per cent profit, you would be looking at 85,000 litres a year and for 50 per cent you would need to brew – or sell – 100,000 litres a year.”

Other challenges of the retail model also include attracting enough customers. In wholesale, brewers can choose to sell keg only, keg and bottle – all via their own salesforce, with a salesperson via a logistics company, or solely via a distribution company. The benefit of this model has a much higher revenue potential as the scope of the market is much larger than a single retail outlet.

However, according to Janet Hollyoak of the successful Redoak Boutique Beer Café (NSW), within the industry it is a general rule that a small brewery needs to sell a minimum of 1.5 million litres of beer, wholesale, per annum to be viable. That said, a larger brewery would need to be able to sell at least 50 million litres of beer, wholesale, in order to achieve the economies of scale similar to that of the larger commercial breweries and to be price competitive.

The main challenge with the wholesale model, once the beer is brewed, is being able to sell it into a crowded marketplace.

 

RETAIL

For on premise brewbars and brewpubs there are plenty of issues to confront en route to creating a successful business model. Hollyoak advises that there are no fixed formulas as “each venue will have differing cost structures such as rent, on-costs, wage levels, etc.”

However, it is important to calculate the breakeven point.

“If you are looking to set up a business, then you need to calculate a break-even point for each individual venue/site that you are looking at,” she says. “Some smaller venues may be considered viable only selling several hundred litres of beer per week. Whereas, some larger venues will need to sell several thousand litres of beer per week before they can even begin to cover their costs.”

Based on this theory a small venue in a small town could break-even at 25,000 litres per annum, whereas a large venue in a city location could need to go as high as 250,000 litres to turn a profit.

Additionally, for every new venue there is a list of considerations to be thought through, including council approvals, venue size relative to market, opening times and dates – Christmas is often the busiest time, signage, business differentiation (what is offered that is unique), marketing budgets, clientele, and price points.

Then there is the issue of getting the customers to come – consider how best to market a venue to discerning beer drinkers. For new venues, the power of social media is not to be underestimated. According to Hollyoak, word of mouth is one of the best forms of marketing available.

While a fully functioning website may be too high an expense to begin with, a well regulated and up-to-date Facebook page will not only give venue visitors the chance to work as a personal marketing force but will also work as a great way to publicise events, specials and one-off deals.

Similarly, microblogging site Twitter will keep followers and potential patrons up-to-date with venue happenings and allows valuable access to punters’ thoughts and opinions.

 

WHOLESALE

With wholesaling there is the cost of packaging – either bottles (more excise) or kegs (less excise for vessels more than 48.5 litres).

Bottling can be expensive for a small brewery, however, before ruling it out, consult with expert packaging companies like O-I and Croxons, as well as labelling manufacturers such as AC Labels and Labelhouse to see just what sort of upfront and ongoing costs would be involved. That said, the growler and the squealer scene is expanding at a rapid rate, providing a different sort of take-home product.

In recent times bottleshops like Beer Cartel (NSW), Warners at the Bay (NSW), and Plonk (ACT) – to name but a few – have begun to buy kegs, making beers available to take home in one litre  (squealers) and two litre (growlers) glass vessels. Similarly, small local breweries – like Young Henrys (NSW) – have been able to create demand for their products by supplying growlers to venues that do not have taps, as well as selling beer from the brewery door. And with rumours of a Woolworths Liquor foray into growlers, this route to market is set to get even more mainstream.

The initial cost of buying kegs and growlers is fixed as both forms of vessels are easily reusable. Kegs can be a large upfront cost, however there is a move toward rentable kegs from companies like Bintani. According to Phil Meddings this form of keg utilisation is proving more popular than initially thought.

“The biggest benefit is flexibility over the term you use the kegs for, along with cash flow management,” he says. “Compared to buying kegs, not only do you reduce initial cash outlay,

you can match it to the growth in keg-to-product scale, which means you can scale up easily without needing to find $10,000 initial cash to purchase kegs.”

 

INTERNAL SALES REPS

Employing and controlling a private salesforce is another method of business expansion. The reps are dedicated to a single product – as opposed to a portfolio of brands like at a distribution company – and are fully trained to expand the brand into new areas.

The benefits for this option are many, however the cost can be rather extensive. According to Mark Waghorn, National Sales Manager for Mountain Goat (Vic), the costs can be a little prohibitive. “They say it costs about $100,000 to put a salesperson on the road,” he says. “So it’s an expensive task.”

That said, he is very positive about the potential gains for any brewery willing and able to invest in their own staff. Interestingly, Mountain Goat uses a combination of sales reps and distribution companies to cover the necessary markets across the country – a system that has worked very successfully for them over the years.

 

LOGISTICS COMPANY

Red Hill Brewery (VIC) recently closed down their popular onsite bar and restaurant facilities to focus on expanding their distribution and supply networks across the country. “It’s easier to just work on distributing kegged and bottled stock without having to worry about needing to keep stock on-site,” says Karen Golding. “We have a small brewery so it was hard to keep up with the demand from shops when we had to keep product here.”

Currently, Red Hill utilises a logistics company to store and ship their beer around the country. “It’s the best method for us,” she continues. “I take all the orders and then we simply invoice the company and they deliver the beer to the outlet.”

Sydney is a tough market to crack. For those looking to expand the following companies offer similar services: Warehousing & Distribution Services (Auburn), Bluestar Beverages (Silverwater), Elite Logistics (Five Dock), and Bevchain (Botany).

While this method works well for breweries interested in keeping their product under their own control, it also means dedicating time to being their own salesperson. Mark Mead for Warners at the Bay (NSW) suggests sending samples of brews and information about the brewery to potential stockists. This not only gets the brand name out there but also to help the staff who are on-selling to the public know what makes a certain product worth trying.

For small brewers, restaurants are also a potential goldmine as stockists. David Troup, owner of Three Troupers Brewery (VIC), estimates that half his distribution goes to restaurants. On a menu a brew usually only competes with around five other labels as opposed to hundreds in a bottleshop. Troup manages his distribution to 80 stockists – making short, sharp sales calls – and delivers Furthermore Troupers is very profitable, brewing only 40,000 litres per annum.

Interestingly, there are some sections of the market that are sharing these kinds of services in order to reduce costs in certain sections of the country. According to John Stallwood of Nail Brewing (WA), he and Feral Brewing Co (WA) share distribution costs to Queensland. Both the successful breweries manage their distribution to other parts of the country separately, however, this exhibits a viable option for small brands operating from the same city.

Potential beer freight levels for sending beer across Australia, can price smaller brewers out of the market. The vast distances that need to be travelled can therefore be a roadblock to increased distribution – affecting not only price but beer quality. While brands like Nail and Feral brew together to increase the economy of scale, brands like Two Birds (Vic), Matso’s (WA) and McLaren Vale (SA) are utilising the services of a contract brewer – Gage Roads – to help them reduce the cost of supplying quality beer to the western seaboard. According to Jayne Lewis of Two Birds, using a contract brewer not only helps with market expansion but also ensures the on-shelf product is in top shape. “We were already servicing Western Australia but using [Gage Roads] means we can work harder to expand,” she says. “It also means that the beer is fresh as it hasn’t tripped across the country. It really is about freshness.”

The same goes for Matso’s. As Australia’s remotest brewery, using a contract brewer not only limits its freight costs but ensures fresh product for WA, its biggest market. The partnership has been so successful that Matsos’s has consistently doubled their sales year-on-year since 2008.

For western seaboard brewers looking to replicate in reverse, Mildura Brewery (Vic), Southern Bay Brewing (Vic), and BrewPack (NSW) offer similar services.

In some sections of the craft brewing industry there has been a move to use the logistics company model, without utilising formal services. Instead, smaller brands are paying large microbrewery-friendly bottleshops to use their refrigerated storage space and stock a larger number of cartons than would normally be sold through the outlet. These cartons are then sold by part-time commission-only salespeople who work in their downtime from fulltime jobs (often as beertenders).

 

DISTRIBUTION COMPANY

Utilising the services of a distribution company may be the best option for a company that is unable to afford the time and manpower to sell their own product.

Distribution companies that specialise in beer are less common, however, with the expansion of the craft beer revolution, there has been a corresponding expansion in the number of companies choosing to specialise.

According to Adam Betts of Northdown Craft Beer Movement (Vic), the best way to get on the books of a distribution company is to, not only create a high-quality product, but to do some research and make some enquiries. A lot of the smaller companies have limited space in their books and may only operate in certain marketplaces.

There are plenty of wine distribution companies that have begun to take beer brands into their portfolios. The benefit of going with a wine company is that they have established retail contacts. 4 Pines (NSW) found that its best option for expansion into WA was to go with Off the Vine (WA). Not only does the company have a solid presence in the state, it has reps that are passionate about beer. And as the brewery’s Chief Beer Lover Richard Sweet points out, the brand is not looking to conquer the west, simply to have their brand available for existing and potential fans.

There can be issues with this method, as there are with any other. If the distribution company is large there can be issues with smaller venues getting access to stock.

Additionally, if there is already an established supply chain with a particular venue, they may have issues if the distribution company does not purchase enough stock to supply regular customers as well as the potential businesses that the distribution company will expand the product into.

This is, of course, double sided, with new brands a company will not want to overstock a product that it then finds it cannot move, leading to discounts and devaluations.

With wine merchants there is also the issue of training. While your chosen distributor may have a wide network in which to disseminate a range of beers, there is no guarantee that a traditional wine rep may have the passion or the knowledge to properly sell beers into a venue. This is where training is imperative – either the brewery going on the road for a few days with a rep, or reps visiting the brewery.

According to Sweet this has been an issue for their move into the WA market. While they are very happy with their chosen distributor, they know and accept the limitations of the method they have chosen. “The aim is to get the product out there for those that are interested, and at the end of the day we understand that [Off the Vine’s] main focus is wine,” he says. Furthermore, they are open to change should their presence in the state require an upswing in activity or an expansion in the need to supply bottleshops and venues across the state.

For every beer brand, the choice of distribution method is singular. What works for one could be a disaster for another. And in a competitive marketplace it pays to investigate all the options before choosing a course of action.