Brewpubs and distribution
by Stan Hieronymus
What's wrong with this picture?
A loyal customer, one of those regulars who act as goodwill ambassadors, comes into your brewpub with five friends in tow. He adores your pale ale and he introduces his friends as pale ale lovers who have never had your beer. They are here to drink, have dinner and run up a good-sized bill.
Sorry, you have to tell them, but you are out of the pale ale. It will be back on tomorrow, but a sudden run on the beer by outside accounts has left that tap dry. You suggest that they head to the Italian restaurant down the street because you know you just sent them a fresh keg earlier in the day. You watch a sizable ticket and five potential customers head out the door.
When you laid awake at night, balancing your dreams of becoming another Deschutes Brewery against the nightmare stories you'd heard about distribution, nobody mentioned this could happen. There are two very good reasons to sell you beer away from your brewery -- to make more money and to boost your pub's profile to attract new customers. These can easily make it worth dealing with potential problems, but any brewpub considering distribution should realize it is like starting a separate business.
Brewpubs across the country have boosted their profits by distributing their beer. Some self-distribute, others work with a distributor. Some sell a packaged product, others stick to kegs. Some follow Peter Austin's adage -- that beer shouldn't be sold farther from the brewery than a horse can walk in one day, about 20 miles -- and others send their products on long voyages. Some have visions of becoming regional breweries (passing 15,000 barrels annually), others just want to push past 1,000 barrels in sales.
Before considering distribution, every pub brewer should honestly answer the question: Is my beer good enough? It doesn't have to be as good as Sierra Nevada Pale Ale, Anchor Porter or Samuel Adams Boston Lager, but it will be on tap beside them. Consumers make judgments about what a brewpub's food and ambiance may be like based on their impressions of the beer.
Why do it?
If Santa Barbara Brewing Co. founder Larry Kreider could sell 1,500 barrels of a beer through his own taps, SBBC wouldn't be delivering beer at all hours of the day and night. "Obviously we'd rather sell it at $3.50 a pint than $89 a keg," he said. The math is pretty simple. Although there are expenses involved in pouring beer in a brewpub, it costs more to sell it off premise, making the difference between $300-plus per keg (half barrel) and $80 even wider.
Santa Barbara began distributing about two years after opening in 1995. "We bought a few kegs for festivals and to keg off when the tanks got low," Kreider said. "As we went along, we saw that this was feasible." SBBC had 19 accounts in May, and they sold 20 percent of the 970 barrels the brewery produced in 1998.
"I think we can do 1,300-1,350 this year," Kreider said. While in-house sales are growing at a double-digit rate, most of that growth will have to come from outside accounts.
Park City Brewing Co. in Park City, Utah, sold 600 barrels in 1998, its first full year of operation. About 60 percent of sales were off-premise, even though the brewery didn't start distributing until mid-year. Head brewer Matt Beamer said he hopes to produce 1,500 barrels in 1999.
Off-premise sales have helped Park City fund an off-site brewery. The pub is located just 30 yards from a chairlift, making real estate expensive, particularly for a manufacturing facility. By moving the brewery operation, the pub can expand seating and sell more beer on-premise as well.
Park City has 20 accounts around town, including handles in two of the three major ski resorts. "(Tourists) see the handles and realize it's a local brewing company, then maybe come check us out," Beamer said. "There are over 100 restaurants in this little town, so it's helped with the locals, too."
Wolf Canyon Brewing Co. in Santa Fe, N.M., expanded its brewery just nine months after opening, specifically to begin distributing. "We saw a nice way we could add income," brewer Brad Kraus said. It is also a way to attract customers to the brewpub, which is outside of town and well away from Santa Fe's most popular tourist stops.
"We thought people would see the tap handles, try the beer, then come see the mothership, as it be," Kraus said. Wolf Canyon sold between 800 and 900 barrels of beer in 1998. About 40 percent of that was off-premise, and the percentage continued to climb in the early months of 1999.
What about actual distribution?
Somehow beer has to get from the pub/brewery to retail accounts. In many states brewpubs are allowed to distribute their own beer, in others they must go through the three-tier system. SBBC and Park City Brewing both self-distribute, while New Mexico law requires that Wolf Canyon work with a distributor.
Although distributors usually charge about 25 percent (and to be competitive, a pub can't just add 25 percent to what it wants for a keg), price is not the best reason for a brewpub to consider self-distribution. A major topic of discussion at the Craft-Brewers Conference in April was about problems when working with distributors. While these were often worse for microbreweries, brewpubs must deal with them, too.
"What do consumers look at our products as? Beer. What do wholesalers look at is as? Boxes," said Gary Galanis, director of the Brewers Association of America.
"Distributors deliver beer," said Kraus, who also worked with distributors when he was brewing at Santa Fe Brewing Co. in the early 1990s. "I think that is a misunderstand among many brewpubs or small micros, that the distributor will sell your beer. You have to sell your beer."
Brewpubs have the opportunity to turn what appears to be a disadvantage into an advantage. "Bars develop a more personal relationship with us," Kreider said. "We literally deliver the beer any hour of the day."
Park City has the same policy. "We'll deliver on Saturday and Sunday if necessary," Beamer said. Since weekends make the difference for bars and restaurants during ski season, that's appreciated. "We've backed up our word with results, and tried to take service to another level," Beamer said. It helps cement relationships with accounts, particularly those relatively close to the brewpub, that are otherwise competitors for the same entertainment dollars.
SBBC's first accounts sprung from casual conversation with other bar owners. The very first account was the pool hall next door. "We took a 5-gallon (converted soda) keg, squeezed it between two kegs in their cooler and added a tap tower," Kreider said.
Beamer and his brewing assistant make the sales calls in Park City. They offer incentives to staff members at the brewpub to help get a foot in the door. "It's worked fairly well," Beamer said. "Doing a blind sell is a lot more difficult."
Dealing with distributors has also been difficult. "It's been interesting when we take over a handle from one of the Coors or Bud guys. We've run into situation where they want equipment back from the bar that shouldn't legally be theirs," Beamer said. "I really didn't expect the negativism of the other distributors. We're breaking into the 'good ol' boy' network."
How much will it cost?
At a minimum, distribution means buying kegs and a keg washer, providing handles for each tap sold and probably some point-of-sale (POS) support. When it first started distributing, SBBC began using the partners' own vehicles to deliver beer. The brewery has since bought a van and had it painted. Of course, that van has to be insured.
Then there is the time involved, not only for kegging and delivery but also for brewing the additional batches of beer and for bookkeeping. "We had to get better at accounting," Kreider said. "At first, somebody would leave a slip of paper that said, 'Took a keg over to Fig & Haley at 11 last night.' It's a whole different way of accounting. For the first time we have accounts receivable at our end."
Kraus carefully tracks when each keg leaves the brewery and when it returns. Cooperage is one of the biggest expenses. An optimistic rule of thumb is that a brewery should have four kegs for each account served by a distributor and three for each it distributes to itself, but many breweries find they must own more. Both Park City and Santa Barbara supplement their half-barrel kegs with converted 5-gallon soda kegs.
"They take the same amount of work to fill and clean as the others, but they've helped us get taps we wouldn't have been able to otherwise," Beamer said.
Wolf Canyon distributes beer in non-returnable "party pigs." Most are sold directly to customers right out of the brewpub, but they are also available in some liquor stores and large grocery stores. Like 5-gallon kegs, they get Wolf Canyon beers in some bars they wouldn't otherwise be available. "Some restaurants (that don't have draft systems) use them, and some catering companies," Kraus said. "For the time being, they fill the need."
For more about kegging, see (however to refer to the other story). Buying a bottling line and distributing a quality product in bottles is a story unto itself.
What are the pitfalls?
Pub brewers have the advantage of monitoring the progress of their beer from brewing kettle to serving glass. Those who self-distribute retain control longer but know that eventually some stranger will be pouring their beer. It may be served through dirty lines or in dirty glasses, freshness becomes an issue, carbonation, serving temperature ... In other words, it may be treated like any old domestic beer.
That's just one reason for a brewer-owner-salesperson to be in touch with the marketplace. Kraus points out that customers there may be much different from those in your pub. "It's really difficult in a brewpub to know what your customers will be drinking on any given day," he said. "Trying to balance production and consumption is hard enough here. In the marketplace, they may be entirely different."
Wolf Canyon's top-selling beer in the brewpub is Golden Ale, an award-winning Kölsch, but the Pińon Nut Brown Ale is the best seller off-premise. Santa Barbara primarily distributes its Santa Barbara Blonde, while Park City's top sellers are its pilsner and steam beer. Park City brews five regular beers and one seasonal, offering any of them to accounts. Five-gallon kegs make this easier but also require closer monitoring. "Those can disappear in a hurry," Beamer said.
"Once you create demand, you have to keep up with supply," Kraus said. If it comes to a crunch, a brewer may have to decide whether a keg is headed out the door or staying behind the bar. "What's most important? Both of them," Kraus said.
SBBC sells its kegs for $89, Park City for $84. "It would have been easy for us to lowball the market, since we don't have to pay a distributor," Beamer said, "but I think that would be detrimental to the whole industry." Park City charges $3.25 for a pint in the pub, and Beamer said most accounts sell pints for $3-$4. "I see my beer cheaper out of the house, and it kind of bothers me, but there's not much I can do," he said.
Roll out the barrels?
Despite the obvious challenges, brewpubs reap profits daily from distributing their beer. Even though it seems unlikely, another could some day duplicate the story of Deschutes Brewery & Public House. Founder Gary Fish was a restaurateur who expected nothing more than to run a brewery-restaurant in downtown Bend, a town of 20,000 in central Oregon. Fish knew that making beer was hard John Harris, a terrific brewer who has since moved on to Full Sail Brewing, even had to dump some of the first batches in 1988 and put as much emphasis on the food as the beer.
However, soon tavern owners from Portland, who vacationed in Bend, told a distributor they wanted to put Deschutes beers on tap. "We said, 'Great, where do we get kegs?' " Fish said. Soon the brewery was busting out the back of the building. "There were semis in the middle of the street. We had to do something," Fish said.
Deschutes built a separate brewery, also in Bend, then expanded and expanded again. In 1998, the brewery sold 76,000 barrels of beer after boosting sales 18 percent over 1997.
Meanwhile, Deschutes' pub remains a fine brewery-restaurant, proving it is possible to run two businesses at one time.
Published in the July 1999 issue of BrewPub Magazine.