With the pandemic, everything that was challenging in our industry—as far as forecasting and supply chain is concerned—has become horribly amplified. There’s a forecasting gap: We’re not taking into account seasonal trending, and we’re not using some of the more advanced methodologies.
The vast majority of what’s being used in our industry—whether it be at the wholesale level or at the brewery level—is rolling-four or rolling-eight forecasts. And those—especially if you’re using a rolling-eight, which in normal times would work well—are going to do terrible things for you. They won’t react quickly to changes, and they won’t tell you where you’re going until you already know you’ve been there.
Contextual Sales Planning
In March, we advised our clients to “grab as much materials as you can possibly get your hands on.” That’s because the trends went crazy, especially for larger packs, such as two-12-pack variety packs. What’s happening now is the opposite—consumers are moving back away from the large packs, and the wholesalers haven’t responded yet. In some cases, we’re watching wholesalers go up to 50 days inventory on ready packs and two-12s right now, because they’re not looking at what’s coming. Granted, there could be another wave, and it could come back into vogue. But those formats are not accelerating away from the train station like they were.
Why? People are less afraid now. They’ll go to the convenience store and pick up that six-pack they wanted. Retail accounts are opening back up again, and on-premise is coming back to some degree. People aren’t thinking, “I need to bulk up and have three months’ worth of beer, because if—God forbid—shit breaks down, I got beer.”
The other thing that’s really important here is that this is not a one-size-fits-all. In other words, there are parts of this country that are doing radically different from others. And the trends are radically different. Painting with a wide brush and saying, “Oh, this is what my flagship IPA is doing” is really naïve because that’s not what it’s doing. That’s what it’s doing by package and what it’s doing by wholesaler.
I can look at Montana, and I can tell you that Montana is now outperforming last year by leaps and bounds, and on-premise is actually outselling what it did last year. Why? Because everybody’s going to Montana from the Northeast and from California.
Even within states, it’s different. Look at my home state of Oregon. The Oregon coast is on fire, selling way more than it normally does. Mountain towns are selling more than they did this time last year. But Portland is still suffering. On-premise still hasn’t really opened. People are just trying to get out with their families to go enjoy something for the summer, so states such as Oregon are tending to be a “Tale of Two Cities.” Portland has riots and many of the restaurants are still closed. Then you go to Bend, and it’s like the Fourth of July every weekend.
Understanding Draft Trends
Draft sales are out there, and they’re real. Breweries need to watch what their wholesalers are doing. Wholesalers aren’t lazy, but they’re scared and will follow the path of least resistance. Breweries need to watch their wholesalers’ inventory and see what they’re selling. You have to be your own best advocate. The wholesaler’s path of least resistance isn’t always what’s best for an independent brewery.
Distributors have hundreds of other brands and thousands of SKUs. If you’re not working to raise their level of interest in you and hit above your weight class, then you will become a lower priority. How are you going to do that? With data, and by communicating in terms they understand, such as days of inventory and future forecasts—things that they think about every day. If you’re not coaching them and advocating for yourself, then nobody will.
Distributor Dynamics
In 1999, a typical beer distributor might have had five suppliers and 250 SKUs, compared to 35 suppliers and 1,200 SKUs today. Yet distributors generally haven’t added any labor or technology to purchasing departments. They continue to use the team they have and figure it out—all while trying to figure out production and procurement plans. They’re buying all this different beer with no way to leverage data, no way to leverage technology. The brewers who take ownership of that are the ones who succeed. The ones who leave it up to their distributors will fall by the wayside.
Look at it from the other side: You may have some poor inventory coordinator at the distributor responsible for 20 different suppliers. They just don’t have time to look at your sales numbers more than once a month. But a lot happens in a month. COVID-19 happened in a month.
Activity for Activity’s Sake
There’s not one way for breweries to succeed, but each needs to choose the strategy that’s right for it. There’s the focused “I have four brands, and if I add a new one, one leaves” strategy. Breweries have also been very successful with the “I’m literally going to make something for everybody” strategy. You just have to know who you are as a brewery and stick to it.
The industry has had to rationalize SKUs because there was just too much activity for activity’s sake. When innovation comes—whether it’s a new SKU of the same brand or just a flat-out new brand—it needs to pull its own weight. Say I buy a pallet of a seasonal beer: I sample out two cases, I sell the other 54 from the pallet, then I pick up eight unsold cases. I wiped 10 of them off the top, and I only net profit from the 46. At that rate, I might as well have not sold the pallet, from a distributor standpoint. I cost myself money.
Distributors and brewers should look at whether we’re actually driving value for our consumers. Is a brand continuing to grow or hold its own? We need to constantly look at that through the lens of the whole vertical chain, from consumer all the way back to the brewery. If you aren’t doing that, you probably have stale products on the shelf, and you’re not consistently earning that shelf space. If you don’t earn that space day in and day out, the market will just decide and remove SKUs for you. Next thing you know, you’ll have all this raw material for beer the market won’t buy.
Having said that, a lot of our clients’ core brands that were dying slow deaths are suddenly back. It’s weird—some “stale,” not-so-sexy brands are doing well. The coolest new stuff is always cool and new, but the growth in legacy brands has been wild to watch.
Broader Financial Impacts
We’ve seen a ton of revenue-per-barrel growth happen, even for our smallest clients. In particular, breweries in the 5,000–10,000-barrel range are really seeing some significant revenue-per-barrel growth.
If, as a brewery, you’re on a smaller scale, you should be asking, “What can I do with a local chain?” Say you’re a small brewery in Tennessee, brewing 7,000 barrels, what can you do to get in front of the local chains? You’re behind the eight-ball this year, but come March, April, or May—when store resets are happening—what are you going to do to get ahead of the curve? Try to get that unique item out there. Tell the story of how you’ve shifted your mix already and how your revenue per purchase and sales through off-premise stores and independents are up, and the chain needs this product. Let them know that consumers are demanding it and are going to find it, even if the chain doesn’t have it on their shelves.
Seltzer and Seasonality
A lot of brewers are forgetting that fall and winter are coming and that people are going to shift their drinking habits. We’re facing an impending crunch as brewers have been behind on supply. Once supply starts to catch up here in late fall, wholesalers are going to try to grab what they can. Breweries will keep the pedal to the floor on production, and suddenly in November or December we’ll be asking, “How the hell did we end up with all this seltzer?”
It’s going to affect the entire supply chain—retailers’ back rooms will be full, wholesalers will be sitting on 60 days of inventory, and then suddenly the breweries will wonder, “What just happened to all my orders?”
It’s not going to be helped by the fact that everybody’s got a seltzer now—the proliferation has been ridiculous. While this view is no different from somebody saying that stock market is going to crash, we can say with 100 percent certainty that winter is coming.
Small brewers, however, still have space to get in the game. They can be successful with the precaution of seasonal profiling. Seltzer is here—the market is still expanding—and craft brewers can play in this space.
There are going to be Bud Lights, Trulys, and White Claws, and they’re going to make up most of the market. But then there’s going to be high-end stuff and local craft brewers who present something unique to their consumers. There’s no reason to believe that smaller craft brewers won’t or can’t be successful in a local market. It’s a growing pizza pie—every piece of the pie is getting bigger, even as it’s getting sliced up more and more.