De-risking your Brewery for what’s next…

July 20, 2021Breweries

The next world event is just around the corner.

Working with breweries all around Australia before and after COVID-19, we have first hand knowledge of the pitfalls of having all of your eggs in one basket. From dealing with the major supermarkets to independent bottle shops and ‘on-premise’ venues the selling of beer to the right customers, in the right locations has never been so important.

So why are we telling you what you already know.

Because those who cannot remember the past are condemned to repeat it.

The word “Diverse” has more meanings than having a bunch of people who look different in your workplace. It also has an effect on the way you operate the commercial aspect of your brewery.

In addition to the long term financial health of your business, your personal mental health will be directly effected by how far and wide you distribute your product.

Far – E.g How many bottle shops can you get your product into.

Wide – E.g Can you get your product into Bottle Shops, Major Supermarkets and On-Premise.

Far and Wide – Self explanatory.

 

Sales Channels for Breweries

The Majors – The first core sales channel is through the majors. This is where a large minority of product sales should come from. The biggest players are Coles (Liquorland & First Choice) and Woolies, (Dan Murphys and BWS) but make sure you buckle up and get onto it early. With long lead times to meetings and even longer sales cycles, taking 6-12 months to get your first order isn’t out of the ordinary.

Once orders and re-orders are placed, the economies of scale you gain in production, offsets what you lack in margin.

The Independents – The second sales channel you need to build is with the independents. You will see better margins than the majors and a much shorter sales cycle. (most of the time)

Start with the independents. Foodworks, most of the IGA’s and independent bottle shops like Blackheart Sparrow, Thirsty Camel, The Bottle-O and Cellarbrations are independently owned and operated. This means your first conversation could be with the owner or their right hand man.

On Premise – The third and by far most profitable channel is ‘on-premise sales channel you need is ‘on-premise’ or hospitality venues.

This sales channel again is where your margins are made. On-premise venues also have the advantage of being more accepting to your terms as they are much smaller in size and are easier to dictate too. Look into;

  • bars,
  • pubs,
  • clubs,
  • restaurants and
  • cafes.

 

Each channel has its pro’s and con’s.

The majors will play hard ball, give you no margin and 30-60 day payment terns. But they will pay on time.

Most independents might give you 14-30 day terms and generally pay you on time or after a quick follow up.

On-premise is really the choke point in your business. If you can scale, the margins are great, so you can drive a lot of revenue. Only one problem; realising that revenue. Collecting money from the hgospitality sector is hard. Expect to give 7-14 day terms and expect the real number to be double. 7 becomes 14, 14 becomes 30.

 

Some stats

Through the COVID-19 pandemic, the breweries that were exposed to on-premise, really suffered. in 2020 Two-thirds of hospitality businesses reported a hit to revenue, one in 10 paused trading altogether, and 70% of staff in the hospitality sector had reduced hours. Breweries too focussed on this channel saw the largest hit to revenue.

Conversely, all liquor sellers including breweries that had contracts to supply the retail sector including Coles, Woolies and the independents saw an increase in sales. In some states, some sales went up by 40%.

 

Limiting Exposure Summary

A strong brewery is not exposed to any single vertical. If you got a couple of contracts with Coles and Woolies a few years ago, it’s important now that your on premise sales begin to rise.

Your volume will come from the majors, giving you access to mass markets and providing a source of marketing for you.

However, your margin will come from independents and on premise. Focusing on these guys will ensure your profitability.

After these relationships are created, you need to establish and formalise how you will work together. This can take a number of paths, but the best guide is “As the customer gets bigger your control gets smaller.”

Dealing with small bars and restaurants, you can dictate your terms because losing the, as a customer won’t sink you.

Dealing with majors, you will basically be producing beer and selling it at cost, but the branding exercise and economies of scale from increased production may be worth it.

 

Technology

Before you go out and sign up smaller independent buyers, make sure you have some system in place. It will take you just as much time to collect money from a local cafe as it will from Dan Murphys. Probably longer in fact. Make sure you have:

A cloud accounting system like Xero to manage a large volume of accounts and invoices; and

An account application, payment processing and reconciliation tool like PencilPay

Please feel free to email us for any feedback or future articles you would like to see.