[craft brewing industry report excerpt]

Keg Challenges

Most breweries we spoke with reported a variety of keg challenges.  Many of the issues were minor and simply part of the daily routine.  For example, storage for empty kegs, keeping enough keg collars in stock and so on.  However, a huge percentage (46%) of the breweries I spoke with reported significant challenges with kegs.  Some of this bled into challenges with distributors and communications with those distributors.  What is interesting though is that many of the challenges we heard from breweries that worked with distributors were also echoed by breweries that self-distributed beer.  In other words working with a distributor may have made a keg management challenge more complex, the problem still occurred with breweries that self-distributed.

The absolute best suggestion for resolving communication issues with your distributor is that you need to personally approach them with specific ways they can improve. Clearly, it is in the best interests of a distributor to keep their brewery customers happy and distributors are extremely likely to appreciate a clearer communication with you and work with you once the challenges are articulated to find solutions.

Most states are very strict regarding contract termination with a distributor and if you end a contract without acceptable just cause then you may find yourself having to write a pretty big check to legally compensate the distributor.[1] [2]  Obviously it is in your best interests to discuss this with a lawyer to ensure you and your business is protected.

One of the two biggest sources of conflict with distributors however is kegs (the other is selling enough of the breweries beer). Some breweries we spoke with leased their kegs. That solution while costly seems to greatly reduce the issues and challenges involved.  There are still problems here though. Typically, breweries felt the lease cost could only be justified at regional and larger breweries.  For these reasons, many smaller breweries chose to not lease their kegs.

Leasing kegs might help solve a lot of the operational problems for the breweries; however, it comes with a sacrifice.  The breweries no longer have the “breadcrumbs” of data that kegs can provide.  Additionally, there is a lead-time required to get the kegs to the brewery.  Lastly, should the industry continue to become more and more competitive, lower production costs are likely to provide a competitive advantage for the breweries.  Strategically, every brewery that closes that owns kegs means cheaper second hand keg prices for the industry as a whole.  If you are concerned about the saturation of the market and believe competition will increase then we believe owning your own kegs and optimizing your operational process around these owned kegs will create a competitive advantage for your brewery.

For the breweries that do not lease kegs, they all had fairly similar challenges and challenges:

  • they didn’t know where their kegs were at any given point in time
  • they couldn’t tell us exactly how many kegs they had circulating
  • they didn’t know how long a keg took to go through their use cycle (keg throughput time)
  • they needed to invest one to two days a week just to inquire where their kegs where
  • they did not know how many empty kegs they currently had available
  • they almost all used some form of spreadsheet and zip tie or masking tape process to attempt to keep track of everything

While at small output volumes this might be doable, at larger volumes of output this of course does not work and while there are some tracking solutions out there, many breweries felt existing solutions were not ideal at mitigating their challenges.

What’s actually going on here?  Why hasn’t this been solved yet?  Some of the problem is due to extraordinarily low deposits for each keg.  The actual amount varies but a deposit of $15 for the keg shell when selling to a distributor is not unheard of.  Further investigation later revealed that same distributor then charges the retailer (bar) a $45 deposit for the very same keg shell.

Kegs cost typically between $100 and $150 brand new.  So a best case 15% deposit ($15/$100) seems extremely low.  It is almost pointless.  Additionally while most distributors are honest and ethical; this dollar spread clearly removes their incentive to be diligent with tracking down the kegs.  It’s just not their problem anymore when the difference works out in their favor.  They naturally are going to want to apply resources toward activities that are generating revenue. For whatever reason these practices are the general norm of the industry and basically lock up a lot of capital as well as puts the risk entirely on the brewery.  Kegs are brewery assets so maybe that makes sense…right?

According to KegReturn.com (a service that assists in locating lost kegs which can then be returned to the brewery), the industry cost of keg loss (just the cost to replace kegs that have gone missing) is between $5.3 million and $15.8 million.

The interesting finding here is that keg loss is actually not the majority of the challenge with regard to keg management.  The majority of the challenge and cost is forecasting keg needs (related to sales and production), knowing who (retailer) has what beer, where their kegs are at and the high cost of an extraordinarily slow throughput time (the time through the cycle, aka lead time) on the kegs.

In fact the financial models DashBrew has put together in researching KegMetrics indicate that the actual cost to manage kegs (including loss) is above $50 million annually at the industry level.  There are variables like delivery driver costs, time to manage the kegs per week and so on that cause these numbers to fluctuate however, these numbers are fairly conservative and highlight that $5 to $15M is really just a percentage of the total overall cost to the industry that managing kegs incurs.  Yet kegs are the perfect sustainable packaging and sustainability is something most brewers care about.

If you are experiencing keg management challenges, we invite you to check out http://www.dashbrew.com/kegmetrics to understand what we are doing about it and to clearly see how you may benefit from our solution.

[1] “Distribution Contracts, What to know before you sign”  http://www.craftbrewingbusiness.com/packaging-distribution/beer-distribution-contracts-tips/

[2] “Craft Brewers’ Battle with Distributors Continues” http://www.wbjournal.com/apps/pbcs.dll/article?AID=/20150930/NEWS01/150939991&template=printart

 

“I’d love some kind of Keg tracking”

 

“I don’t actually know which ones [kegs] are actually out.”

 

“I have about a 2-3% of keg loss per year”

 

“Last year I lost probably about 4% of my kegs”

 

“I want more insight into what the distributors are doing with my beer!”

 

“I just estimate 4 kegs needed for every tap in the city I am on”

 

“Sometimes there are just not enough kegs.  I’ve had kegs gone 3-4 months on average and some as long as 9 months”

 

“Keg management is kind of a problem, but we are close to the distributor so we just call them up regularly and what get our empties back in like 2-3 days”

 

“I don’t know where my kegs are at”

 

“I don’t know the status of my keg at any given time.”

 

“I don’t know if a bar liked the beer, had an issue or what.  I mean was the beer infected from a dirty keg?”

 

“Where are my kegs?”

 

“I don’t know who has my kegs.  Even customers I sell directly to require I invest time to track down who has had my kegs out for a while.”

 

“If you could figure out how to collectively get the entire industry to raise keg deposits to $125.00+, you would free up hundreds of millions of dollars that could be put to better use.”

 

“I just invoice for the keg deposit, but getting at that information takes time”

 

“I need a final count and an accurate count!”