From brewery inception to build-out to consumer transaction, there are a number of facets of the beer industry that could be impacted by crypto platforms. And while the silence of the Securities and Exchange Commission (SEC) on all of this is deafening, we’re going to assume that they won’t completely drop the hammer on the entire decentralized economy (even though most initial coin offerings are absolutely garbage and probably shouldn’t be allowed). Essentially blockchain provides values in a couple of core areas of the ecosystem:
- The middleman’s slice
- An auditable history
- Accountability per the rules of the developed ecosystem
- Distributed decision-making and discovery
Most coins fall in a certain bucket type (largely for regulatory reasons), which include currency (e.g., Bitcoin), utility token (e.g., Basic Attention Token), and equity token (e.g., Decentralized Autonomous Organization). (Most coins try to avoid being labeled as an equity token since they are then deemed to be governed under securities law.) Before we can fully break down the lifecycle impact of crypto on craft beer, it’s important to note a few things about the craft-beer industry that make it a uniquely interesting market for a coin-based ecosystem:
- The craft-beer industry is one of the most collaborative, consumer-driven industries there is. People inside and outside of the industry want to support the industry, be a part of the industry, and potentially own some of the industry.
- There are a lot of “middlemen” in craft beer.
- It is extremely expensive to open a brewery. Many businesses have to take out high-interest loans in order to finance their dream. Most breweries cost between $300,000 and $700,000 to open, not including the land they are built on or the salary that the owners forego.
- The craft-beer industry is moving in the direction of hyper-local. While we see slowing gains or declines from some of the larger brands, smaller brands with a quality product are thriving.
- Consumers would love to help craft brewers while seeing a return on their investment through higher valuation for the coin.
We’ll take a look at three core elements of the craft-beer industry where crypto could aid, starting with inception and build-out, then sales, followed by distribution and trading.
The CraftBeerCoin for Brewery Build-Out and Expansion
Imagine removing banks from the lending ecosystem and instead building the logic that a bank provides into a trustless tokenized ecosystem with 0 percent–interest loans. In addition to that, you could add certain assets to the ecosystem (e.g., land, brewhouses), allowing brewery owners to release them back into the pool for a full repayment of anything they’ve paid off so far (rather than a bank repossessing the asset and selling it for pennies). The assets would be added to the pool based on a proof-of-stake algorithm (essentially, the pool of owners votes to add assets). Lending could also be approved based on an equity stake in the business.
How could that be achieved? Theoretically, there could be a CraftBeerCoin with an Initial Coin Offering (ICO) of $100 million to jumpstart the craft-beer crypto ecosystem. Each person investing in the pool would be given a certain amount of CraftBeerCoin based on their contribution to the pool (in our theoretical world of this article, you also don’t need to be an accredited investor to get involved in this pool) with a certain amount being held in the pool for future acquisitions. The coin can be traded on the open market, allowing the overall value of the pool to grow through asset increase and market forces.
The coin fund would be allocated with pre-defined goals of 55 percent to new/existing brewery growth, 40 percent to swap high-interest loans with 0 percent–interest loans, and 5 percent of the fund dedicated to launching owned breweries or taprooms. Coin owners would have a backed asset that would grow with the craft-beer industry. As the value of the assets in the pool grows, the overall value of the coin grows, allowing the fund to reinvest and grow with the craft-beer community.
Rather than having a bank or a for-profit organization in the middle of the lending process, the team that launches the CraftBeerCoin could be assembled based on industry expertise and be paid out of the CraftBeerCoin reserves. That way, coin value is not diluted, and there is no removal of cash from the reserves. The overall goal of the team is directly in line and balanced with those taking out the loan or giving up equity stake.
Extending the CraftBeerCoin to the Taproom
In taprooms, the middleman has become the necessary evil that no one discusses. Most breweries’ point-of-sale (POS) system typically charges credit-card fees (2.9 percent + 35 cents per transaction) plus a software cost (ranging from a few hundred to a few thousand dollars per year). With that, a typical round for four in the taproom (about $24) would cost the brewery $1.05 in credit-card fees and the POS transaction costs. A brewery that sells 1,000 barrels per year in their taproom is likely paying more than $70,000 per year in credit-card fees.
If you used an Ethereum-based coin (Ethereum is a popular crypto platform developers can build on), you could conduct the “typical-round” transaction for about 50 cents or all annual transactions for about $35,000 per year. That small change would result in saving each brewery more than $35,000 per year (based on the current Ethereum transaction price of 45 cents per transaction). Extrapolating that to a per- barrel figure, you’re looking at the brewery saving $35 per barrel. As the efficiency of crypto coins increases, that will also lead to a drop in the transaction cost. For this to work, the same CraftBeerCoin that was initially distributed through an ICO above could be used for the beer transactions in the taproom through a simple app developed by the stakeholders in the CraftBeerCoin.
Distribution and Trading
Distribution and trading are where things start to get complicated under the current system. In a trustless system, the developers of the coin could codify a reputation-based system that allows the craft world to trade, distribute, and sell beer with much less friction. Generally speaking, each party involved in the distribution and sale of beer takes 20 to 30 percent, meaning that your beer distributor and the retail store each get $2 or $3 of the $10 6-pack you just bought, leaving the brewer only $4 or $5 of your $10. Extrapolating that out to a per barrel of distribution amount, breweries would save about $137 per barrel they put into distribution.
A trustless system would allow a network of mules to sign distribution-smart contracts on a private network that would only release payment to the mules if certain criteria are met (delivery time, care, quantity, etc.). Assuming that the mules in this situation get their 20 to 30 percent, that means each brewery would get $7 to $8 per 6-pack and that consumers would get a better product (a beer that hasn’t sat on warm shelves for weeks or months). It would also open up every brewery for distribution in ways that are not currently possible.
Implementing a system like this would require a lot of change. It would require changes at the state and federal level for alcohol distribution, changes in the way breweries package beer, and changes in the way people receive their beer. Distributors and liquor stores also offer a great marketing channel, which would be a cost the brewery would have to incur if they were to go this route. It’s not impossible but certainly a ways off.
Is any of this possible? Absolutely. The technology exists today to implement everything in this article. It would require changes to laws and human habits and a group of very smart people to implement, but it’s all very doable. If you take the craft production and number of breweries opening according to the Brewers Association in 2017 and run some quick numbers, you’ll see some pretty unbelievable savings for the industry:
- 24,868,276 barrels produced in 2017
- About 1,577,401 barrels sold through taprooms, based on Brewers Association 2017 production and reported distribution sales data
- About 23,290,875 barrels sold through distribution, based on Brewers Association 2017 production and reported distribution sales data
881 breweries opened in 2017
New brewery savings
Assuming an average of $500,000 to open a new brewery and a 10 percent–interest loan (blended rate between SBA loan and other channels), the CraftBeerCoin could have saved new breweries (not counting brewery expansion) more than $44,000,000 in loan payments in 2017.
Taproom sales savings
With 1,577,401 barrels sold through the taproom, the CraftBeerCoin could save more than $55,000,000 in credit-card fees in 2017.
Distribution sales savings
With 23,290,875 barrels sold through distribution, the CraftBeerCoin could have saved brewers more than $3,000,000,000 in distribution costs in 2017.
The above figures don’t factor in the existing debt relief or expansion loans that could be taken on by the CraftBeerCoin. We’re also not taking into account certain economies of scale, specifically in distribution costs.
The goal of this article is not to give an exact dollar amount but to start a conversation. Now is the time to start talking about how we harness the power of community and leverage that into a more sustainable industry.
The amount of capital being extracted through existing systems is massive and could be the difference between long-term success and failure for a number of breweries out there.