Expert Topic Rent or Own: Keg Questions Answered

As draft beer comes back to life following the pandemic and brewers look to get their beer to a wider swath of customers kegs have come back into focus.

To own your own stainless or to rent come a company is a question many ask. Justin Meier, the senior vice president of sales for Keg Logistics answers some questions on the topic.

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With the most flexible payment terms even the smallest operation can get the highest quality German-made kegs with our rent-to-own and short term keg leasing programs. And every rent-to-own keg features your branding front and center.

ProBrewer: For new breweries, when in the start-up process should they start thinking about draft beer as an option and learning about kegs?

Justin Meier: For new breweries, draft beer is a very important part of a successful business strategy. In the early stages of a business plan, kegs should always be included in the operational budget of the brewery. One thing for a new brewery to keep in mind during this process is that keg prices are not stagnant.

They are always moving with the price of steel, exchange rates, and shipping costs. It is always good to check in with your keg partner periodically to make sure you have the most up to date pricing in your business plan. The many moving parts required to set up a brewery can be overwhelming. Often the source for kegs may be the overlooked and this is where suppliers like Keg Logistics can be very helpful to the brewer who needs kegs quickly. Keg Logistics can source, custom brand and deliver the kegs, often within a week or two so the kegs are available, and tanks can be emptied.

How many kegs, what size, new or used are among many of the questions a brewery needs to answer.

There are several different ways to determine the best answer but a key first question for the brewery is are they just selling beer only on-site for taproom use, and or will they be self-distributing or distributing via a wholesaler(s).

At the beginning for taproom only, Keg Logistics may suggest having twice the number of kegs by volume needed for each batch or flavor of beer the brewer plans to brew. Batch Size determines the number of kegs along with a deduction for any beer that will be packaged. Typically, 1/2 Barrel kegs account for most of kegs used for taproom sales. The reason is the brewer can use less kegs to sell the same volume versus using smaller size kegs. That translates to operational efficiencies because of less keg cleaning, less keg time filling kegs and most importantly less time changing kegs out in the cold-room on a busy Friday night.

A key recommendation we always make is to never over order kegs.

Unused kegs sitting in the corner, whether leasing or buying, is using up capital that could be deployed to other parts of the brewery more efficiently. As a brewery starts to expand and enter distribution, the keg mix and demand will start to change. Going into distribution usually requires more of the smaller keg sizes, 1/6 bbls or 1/4 bbls.

It is important to speak with a distribution partner on what size kegs they anticipate the market will demand based on the geographic areas served. If your distributor is serving a larger area, the kegs will likely be spread out further and keg turns will be slower. A “keg turn” is how often a keg is filled, emptied, returned, cleaned, and refilled. So, with slower turns, a brewery will need more kegs to sustain sales and keep their beer on the tap handle at retail accounts.

Another key point is not all kegs are equal. When evaluating keg options, a brewer should remember that there are different manufacturers out there and there are different price points. Not all kegs are built to the same quality and specs. Make sure that you do your research – valve types, valve manufacturers, pressure vessel thickness, and chime thickness are all crucial to ensure a keg will hold up over time. Some kegs out there at lower price points may not have the same specs or the same useful life as the top European manufactured kegs.

ProBrewer: For brewers unfamiliar, what is the difference between rent-to-own and lease-to-own?

Justin Meier: Rent to Own and Lease to Own are two terms that are used to essentially describe the same type of program.

Anyone who starts a brewery can attest that the startup costs can be very cash intensive. Kegs are one of those expensive, but necessary items when starting out and not all breweries are able to purchase their kegs on day one.

A rent to own (RTO) program is a great option for any brewery looking to secure the kegs they need without the high upfront costs of a purchase. With an RTO program like those offered by Keg Logistics, a brewer can obtain the right amount of kegs for a low monthly rental cost while still earning equity toward an eventual purchase of the kegs. Keg Logistics enhances the benefits of the RTO program, by allowing the brewer to purchase ALL or ANY portion of kegs out of the lease at any time allowing the brewer controls the timeline.

ProBrewer: How should brewers go about determining which of the above options is right for them? What are other options?

Justin Meier: There are a few different type of keg leasing options available, but the most common are Rent to Own, straight Rental Only programs, or a Pay Per Fill program. All three have upsides by conserving a big capital outlay for the brewery, but the program that the best fit really depends on the business structure of the brewery and its distribution approach and footprint.

For straight rental (RO) programs, or Flex Rental program, an equipment lease is typically offered. These leases are typically set up with an associated timeline (or term) and have lower rates than RTO programs. Keg Logistics offers RO leases with different length terms to fit each brewers need, with short four month terms and to longer 60 month terms. The length of the term is correlated to the monthly rental price of the keg and allows the brewer to pick a term that meets their price and duration needs. The most common term length chosen by brewers is an 18-month term lease.

Many breweries prefer this duration as it allows them to adjust their kegs as needed providing flexibility without having clear knowledge of future sales and keg needs. The brewer can choose to renew to keep the kegs longer without expiration or they might return kegs of one size to trade out to a new size that the market is now demanding.

The ability to pivot from one size to another without any issues has proven to be very helpful to many Keg Logistics customers.

The RTO program is a great program designed for brewers who ultimately want to own their kegs at some point in the future. Breweries get access to kegs at a low monthly cost and get the flexibility to purchase the kegs on the timeline they choose.

Under both programs, Keg Logistics will brand the brewer’s kegs at no additional charge allowing the brewer to choose a striping scheme or to silk screen a name and/or logo onto the kegs, to identify their asset.

The other keg program offered is the Pay Per Fill (PPF) program, or a one-way keg program. This program is intended for breweries that have a larger geographic footprint. Some breweries sell kegs in multiple states across the country and the investment to own and operate their own keg fleet, with the slow recovery and potential of keg loss, doesn’t make sense for them financially.

This is where the one-way keg program works great. It allows brewers to participate in a shared asset pool and to get kegs delivered to their facility on an “as needed” basis and ship them out to their wholesalers anywhere in the U.S. or even internationally. The price per keg, or fill price per keg, is directly associated with the distance from the brewery to the wholesaler to which they are sending the kegs.

The operational benefit for the brewery is to get kegs as needed making it easier to adjust for seasonal needs and spikes in sales. Another major benefit of this program is once a keg shipped, there is no further responsibility to the brewery. There are no lost keg fees or freight expenses to return kegs back to the brewery. Keg Logistics handles all aspects of the empty keg pickup, and the brewers only responsibilities are to order kegs on time and declare where the full kegs are shipped.

ProBrewer: How has draft beer evolved since the pandemic began and what do you encourage brewers to be thinking about for the months/years to come?

Justin Meier: Overall, draft beer is still recovering from the pandemic in most markets across the U.S. and it has changed how a lot of breweries look at kegs and on-premise sales in general. After the pandemic hit, brewers ended up with idle assets with kegs sitting in the warehouse, unused and generating no revenue. This caused brewers to quickly shift focus to cans and bottles, change their offerings, and which sku’s or styles to emphasize.

And even though draught beer has always been a higher margin format, in many cases many brewers have not completely shifted back. That said, draught will always be offered and continues to have unique benefits beyond just the higher margin. For environmentally conscious consumers and brewers, serving beer from a reusable container that lasts 25 to 30 years will always have a place in the brewer’s portfolio and be preferred by many customers.

Draft also facilitates on-premise trials, and that first pint by a new customer, is still central to building a brand and helps lift package sales over time.

Today new keg prices are as high as they have been in 15 years, as a result a way for a brewer to conserve their own cash, they are turning to Keg Logistics and opting for one of the rental programs to launch keg sales and continue to expand sales to more accounts, new markets, and to capture distributor attention.

ProBrewer: Most beer is designed to move quickly. What do you suggest, with your model, for brewers that want to age beers in kegs. Like imperial stouts, or ones that are supposed to become “vintage.”

Justin Meier: There are certainly beers that lend themselves to some keg conditioning, but we discourage long term aging in kegs. If a brewer is using a lease program that is billed monthly, having kegs sit idle for an extended period is not an efficient use of that type of program.

As a rule, we think brewers should strive for at least 4 turns a year when using our programs, while they can’t control all the factors in a keg turn, laying down beer for months and months or years should be avoided.

This can be better achieved with the use of barrels, larger stainless containers or even opting for used kegs that are not capable to perform in the field but work great for storage with minimal handling. The “finished aged” beer can then be moved into a keg for active distribution.

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