Why am I excited about the new Porch Drops service?
I have been vested in the retail beer market since I got my start in the beer industry in 2011. I always maintained a side hustle out of enjoyment of seeing retail beer sales. Talking about a product directly to the consumer is rewarding and helps encourage exploration and growth in beer drinking. The market is changing dramatically right now with COVID. We can’t rely on distributors to solely do the job of moving our beer. Some of our distributor partnerships we are unable to walk away from and are hurting the business. Beer production works on love, ingenuity, science, engineering, art and expression. The hidden thing is, it's a business. We have to make money. With beer sales so far down after COVID the dollars don’t make cents on our available consumers and labor. This is as creative as we can get. You the consumer are now allowed to buy beer that we make and our favorite other breweries near and far to acquire cans for home. We can attempt to do something really cool of Nate’s vision and control our production and margins again.
Resistance we are facing with Draft availability?
The demand for draft is so far gone. In our immediate scenario it depends on getting customers. We just don’t have enough to focus on filling kegs when cans offer more versatility in sales. Will this anger some people? Yes, it already has. To be blunt if you still think beer tastes different out of a can versus bottle or draft, you are not our customer. That is the largest uphill battle I have fought on selling beer to the end consumer as a brewer. I just can’t change that opinion and some of those folks are close minded. I will however continue forgoing draft for our brewery until it has more potential to make money then cans. We would go out of business if right now we were packaging draft for outside sales we are not able to obtain. That is part of the motivation for the Porch Drops program.
The race to the bottom and economics. Probably one of the largest problems in the industry.
Beer production has become a race to acquire the cheapest ingredients and make the most volume possible with the lowest labor to achieve the biggest profit margin. Breweries have been racing to make more and more beer and at a cheaper price point. Often these cheap price points don’t leave room for employee benefits, retirement assistance or equity sharing programs. Retail sales have voted for years on price alone. IRI data from grocery stores often proves this. Keeping up with that market and how the beer is treated is a full time job. You have a solid opportunity here. A local large grocery store in Olympia has a year plus old cans of IPA. Sometimes breweries rebrand and those still lurk on the shelves next to the newer beer. We produce 15 Bbls of beer at a time. A beer barrel is 31 gallons. Some batches might yield more and some less depending on the batch. A batch could use between 700-1500 #barley for us. That price can range from 26 cents a pound (Only attainable by large breweries with a grain silo) to 1.05 and upward. For a variety that may make up 40-100% of the beer. Yeast pitches for us when restarting are 800 dollars. Hops can be from 7.50 - 25.50 a # and we may use up to 44#s in a batch. Brewery utilities, labor, time and cost on a square footage should all be kept in mind. You should be pricing beer to get a profit. You should be using quality ingredients while doing so. Quality ingredients drive the price up and we are afraid to share that price point with customers. Fearing the 18 dollar four pack was seemingly out of reach for years. Then breweries started doing it at their own space and doing well at it. 22-24 dollar 4 packs are not a crime. They are often an honest representation of how making money while making beers actually pencils out. Beer has a million hidden costs from brewery build out to selling packaged products. Consumers making breweries feel guilty about high prices is often misinformed and hurts the industry. Just because another brewery charges x does not mean its possible for a different brewery to charge the equivalent. Batch sizing and engineering versus labor costs are almost never equivalent. I urge consumers to think about how much you love a brewery and if they charge x.xx for a 4 pack. Would you feel that much worse about it if it was 1-2 dollars more for an increase in quality of life for everyone involved in the company? Craft brewing is often less efficient than large scale production brewing. This leads to more jobs and growth in our industry if we support it. Rewarding cheap beer economics for more years will unravel the stability of this industry providing healthy jobs.
How did we get to this point?
Brewers don’t often understand economics. They want to focus on making beer and I get it but when you build that culture into society we end up with struggling breweries. Draft sales in taprooms and pubs have hidden this problem for years. How? If a barrel of beer cost you say 70 dollars to make. (close to average for premium ingredient lager) We can then sell two kegs to a bar or through a distributor. We say choose to sell this keg to bars at 150 a ½ barrel. We now could make $230 on a barrel. That may now not include costs of sales team, delivery, gas and all logistics to get the keg to an account. A distributor comes in to promise to do the sales team and logistics for you. They only buy the kegs though at 120. They want to mark up the keg to your standard price to retailer you originally operated with. Distributors pressure you to change your price points lower so they can sell the beer easier. They make a considerable profit and do it on a massive scale for just handling logistics and sales of beer. You control the cost of ingredients (COGS). Large breweries used pressure from distributors to compete with each other. It was thought if the price points could drop more craft breweries could stand a chance to compete with large breweries such as Miller-Coors, ABINBEV and even Sierra Nevada, Dogfish and Sam Adams. We can’t beat those costs to produce a barrel of beer to make the low price point even make more then a 20% margin on any packaged product.
Taprooms and Tastingrooms however were selling beer at 5-7.50 a pint this whole time on draft. The beer still cost $70 a barrel. You could now end up making over 600 dollars to even 800 on a single keg. Breweries overlooked this value of making beer brewing profitable. The race to make more beer and expand more created an explosion in the market with a only slowly growing consumer base. Putting systems in place to make your space more enjoyable and efficient should be a primary goal. Seven thousand breweries in America and now covid will have destroyed over half of them. Why? Not enough energy has been put into the highest margins of beer sales. Self, whether it's distributing your own beer and not letting a distributor get a cut or just through your own premise. They start struggling the market with its steep entrenched competition that competes to under price each other and blame downturn on other variables.
We want to sell a higher volume of our beer ourselves directly to control our growth. We don’t have room for expansion in this space. Selling 80% of this beer to distributors was not making sense. We can move small volumes of distribution but need to focus on selling beers ourselves. This is why we see breweries expanding by not making more beer but additional locations. Additional space for us could allow for more storage, cold or dry this is our biggest hurdle. We are just a small space and this is why most beer was immediately shipped off.
How my experience is leading to an innovative expression of our beer industry.
I am employed by Three Magnets as the Head Brewer. Mainstem Malting as a member of the Customer Innovation team. In addition an adjunct instructor for South Puget Sound Community Colleges Craft Brewing Distilling Program. (SPSCC - CBD) I worked in the Seattle area market as a brewer for 7 years. I watched explosions in growth, breweries close. Breweries sell to other breweries and a whole list of other things. Being a destination brewery became obvious to me that it was crucial. I knew that making more beer at lower costs was the strategy for numerous breweries in Seattle including some I brewed for. What ended up happening was they lost the share in the market and now had too much beer made on sight with no way to sell it. They also priced the beer too low and didn’t give due attention to always improving brewing practices or ingredients. I’ve been the Head Brewer at three different breweries now and that has not been the case at these. I fight a battle talking to brewers about the process and costs regularly for making beer with premium ingredients. If they are not willing to listen to input or brew creatively I cannot help them. I get it, cheap six packs in the grocery store are convenient. The grocery market won’t pay premium prices. It’s the wrong clientele. This site and mission will serve to benefit the connected clientele. You are tapped into a more passionate following of beer consumption. Sometimes you may purchase beer in a grocery store but you also scavenge tap lists for new beers at bars, or even have ordered beer online. Everyday beer brewed well for everyday people is what I would like to see. We don’t want to sell high volume four packs you could get at a gas station. The premium beer maybe more expensive but I assure you my rant about pricing and producing a valuable beer before how cheap it can be made resonates with all these brewery partners. Learning about beer is a never ending quest. After all my years professionally and my degree in Brewing Science and Engineering I don’t pretend to know everything. I am excited to give you beers that in my opinion are made by excellent brewers and interview a couple of them to talk about beer for you.