Off-site draft sales for brewpubs
by Tom McCormick
As brewpubs continue to proliferate across the country, many are opting to sell their products through retail accounts to utilize excess capacity and increase revenue. Off-site sales can also increase your walk-in business by creating exposure and interest in your brewpub. As attractive as this may seem, off-site sales entail a great deal of time, resources and effort to successfully achieve these objectives. And in some states, brewpubs are not allowed to sell their products outside the confines of the licensed premise.
Where allowed by state law, the practice of off-site distribution has been employed successfully along a full spectrum of implementation. Some brewpubs have grown into full size production plants with the majority of their sales sold off-site through a far-reaching distribution network. This, however, is the exception rather than the rule. Most brewpubs sell their products in draft only to a handful of local accounts. Whatever the applicable scale, it is important to understand the basics of off-site distribution.
Considerations before initiating distribution
Before deciding to commence off-site sales, examine the benefits versus the pitfalls. Keep in mind that you may be perceived as competition to some restaurants, bars and pubs within your local market, therefore making it difficult to make placements in these accounts. Do your homework by partaking in simple market research. Canvass the local restaurants and bars in your target area, and discuss your intentions with the owners. You will generate good will by involving them in your decision, and also get a feel for the number of possible accounts and potential sales volume. If you sense a negative reaction or bad will from more than half of the accounts you talk to, you may want to consider distributing outside of your local market to accounts in which your brewpub does not directly compete with.
To a lesser extent you should also consider local breweries that are distributing in your market. It is best to remain as non-competitive as possible with your local comrades by staying away from displacing their existing tap handles. Target placements by popular imports, large contract-brewed products and lastly, other craft brands from outside your local region.
Next, determine whether distribution will make money or at least break even. Some brewpubs do off-site sales at a break even basis solely as a marketing tool, but most attempt and do achieve a profit. There are many costs associated with off-site sales and writing a simple business plan will help you identify most. Purchasing kegs can be quite expensive and depending on the type, can vary from $40.00 to$110.00 per keg. Keep in mind that you should own four to five kegs for each draft account if you use a distributor, three to four if you do self-distribution. Point-of-sale material can vary hugely in costs but a basic, low budget POS program for local, draft only distribution will run about $5,000 a year (and up!). Added labor for brewing, racking, preparing product for pick-up, cleaning and preparing incoming cooperage and repairs of kegs are all added costs in the production side. Additional office staff time to prepare bill of lading, invoices and sales staff time to assist and monitor your distributor should also be factored in. Set up a separate profit/loss section within your bookkeeping system to track your off-site sales success.
Determine if you will be self-distributing or using a distributor, as this will affect your profits. Distributors typically work on a 25% gross margin. By self distributing you will retain this margin, but the added costs of self-distribution must be paid for with the 25% margin you are saving. The larger the area you intend to distribute within, the less profitable it will be to self-distribute. Selling to 20-30 accounts within a 50-60 mile radius is logistically reasonable for self-distribution and can be quite profitable. Much more beyond that range, you should almost certainly consider using a distributor.
Off-site sales also take the product out of your direct control. Products that are fresh, stable, and pour well when dispensed from serving tanks and through your in-house draft system can respond differently when racked, stored, delivered and dispensed from a system other than your own. If you haven't already done so, rack a few kegs up, let them sit for a week or two and be sure they will pour through all types of dispensing systems which you are likely to encounter in the retail trade.
Finally, make sure you have the time and energy to divert from your primary business of running a small brewery and restaurant. Even if you hire someone to oversee off-site sales, it will require some amount of your attention.
Self-distributing vs. use of a distributor
One intangible, yet important aspect of self-distribution, is that it adds a personal, hands-on component to your product. When a sales person from the brewery makes a sales presentation, they are more apt to know the product and take the time required to make the placement. The sales staff of a distributor has many other brands in their portfolio to sell, and they may not give every brand the attention it deserves. Your own sales staff can focus solely on your product, and can better control the number and type of accounts you wish to carry your brand. You also have a direct link to the retailer to monitor problems, feedback, consumer response, etc. Additionally, self-distribution allows you to promote your brewpub as you are out in the trade, delivering and selling your beer. If you have the time, ability, knowledge and resources to self-distribute, this is the ideal way to promote your brand. In most instances, wholesalers operate more as a delivery mechanism, and ultimately, you may be forced to make most of the preliminary placement calls yourself even when using a distributor.
Selling through a distributor has its advantages as well, and you must consider both sides of the equation to determine which course makes the most sense for you. Using a distributor will free up your time up to concentrate on managing your pub. Distributing beer has a very high level of service, and you must be prepared to respond to the retailers' needs. No matter how hard you try, it seems inevitable that on a busy Friday afternoon a retailer- who declined his regular Thursday delivery- has run out of beer and needs a delivery now. Or the retailer that calls in a panic at 4:30, saying your beer won't pour, and finding, upon your arrival, the keg sitting on the line, crimping the flow. A mere kick and the fix is complete, but retailers often don't take the time to trouble shoot even the simplest of problems and call you, as the distributor, first. Having a beer distributor handle your product may absorb 25% of your profit, but on a Friday afternoon as your pub gears up for a busy weekend, that 25% may be well worth the extra time to enjoy a pint.
Choosing a distributor
Tools of the trade
Other necessary types of POS include coasters, which may include a map to the pub on the back. Have a run of both one-sided and two-sided printed, so if a particular retailer is sensitive to the issue, you can provide the one-sided coaster. The brewery is also responsible for supplying tap handles to draft accounts. Tap handles are not the primary reason driving a consumer to purchase one product over another, but they do create brand awareness. The higher the visibility, the more likely a customer will order that brand; positioning of a tap handle is more important than actual design. Be sure that your handles are front and center on the row of handles, facing outward, and kept clean.
Other, more sophisticated POS is certainly nice, but really only an expensive luxury. These items include neon, mirrors, light boxes, etc. Metal signs are not excessively expensive, and are fairly permanent. Light boxes are a good alternative to neon- considerably less expensive and less likely to end up in nephew Bobby's bedroom. The best way to get ideas on design and effectiveness of POS is to study the profuse amount of point-of-sale "in use" at retail accounts you visit. What grabs your attention, is the most visible and most interesting? Ask retailers what they prefer to use and why.
Working with your wholesaler
You may also need to spend time making the initial placements and then turning it over to your distributor to service. Know all of the products that your distributor carries, and do not displace those in order to place your product unless absolutely necessary. Otherwise you are simply cannibalizing one product for another in the eyes of your distributor. It will also help promote your brand to spend some amount of time at the retail level making public relation type calls. Stop in accounts occasionally and just see how things are going. This will ensure that your distributor is keeping up with the proper service levels, and the account will appreciate that you take the time to care about them and your product. Your distributor is obligated to provide adequate call frequency, maintain adequate inventory, rotate stock, deliver fresh product, service and maintain draft lines (where allowed by state law) and generally monitor and care for each retailer. Promotion and brand building are a shared responsibility.
State laws and regulations