Tap account asking for deals

[CasselBrewery]

Yep, we're new in the industry. We priced our kegs according to websites prices posted on other local breweries and reduced it by 10% for our tap accounts. Out of 5 tap accounts,one of them is asking for a deal like : every 5 kegs we want one free. We talked to another local brewery and they refuse to give out deals and we agree as well. Start with one and it never ends. If customers are asking for your beer, then the tap is making money. Plus, if we go in that bar and order 5 pitcher of beer will the 6th one be free? No way.

So, that same tap account is saying we charge them too much for the keg, again the only one out of the 5 we have at this time. They pay 2.50$ per 20oz and they charge 7.50$ to their customer for the same 20oz. They keep saying that with such price on our keg it is hard for them to make a 30% profit. I guess my calculator is defective, in my book buying at 2.50$ and selling back at 7.50$, to me and my calculator this is 200% profit margin!!

We are providing our tap accounts, free glassware and marketing material. We prefer this by far than giving them a buy 5 get the 6th free type fo deal.

What I'm I missing here? Any thoughts?

Thanks!

[CopperKettle]

That is the way capitalism works. Are you struggling to sell enough beer and need to sell to them? If not tell them to take a long walk with their free keg idea. If they have people lined up to give them free beer good for them. Everything is negotiable, you can say no to discounts, and he can also drop your tap handle.

I would say a 200% markup is surprisingly low for a bar. I believe 3-400% is much more typical of the industry. If my math is correct you are charging them about $240 for 1/2 BBL or about $200 for a 50L. That is pretty high for most markets for mainstream craft beer styles, but easy for special release beers like barrel aged stuff. Ask the bar owner to show you invoices for other beers, or ask around at other breweries what they are charging for their stuff just to see how you fit in the market. In the end if their customers demand YOUR beer specifically the bar will keep stocking it.

You are in business to make money, price things accordingly as long as you can sell enough volume. If nobody is buying lower your price as long as there is still enough margin left to make it work. Pricing is a tricky business, especially when you are small and new and trying to break into the market. To me your prices do sound high but I know how hard it is to get by on wholesale. We couldn't survive at our size for $300-500 per barrel, our tap room getting $800-$2,000 per barrel for beer is what keeps us growing.

[Brewtopian]

Walk in there, take your handle back and walk out. If they don't respect you enough to pay for your product then they don't get to sell your product. I guarantee you that the guy that sells them steaks isn't giving them every 6th case of steaks for free.

[ChesterBrew]

Sounds like he's trying to see what he can get away with since you're a new brewery.

[poltz]

Not sure where you are, but we are in Nj. Pricing is public knowledge. All breweries are required to file all their beer prices with the ABC every month. AND those prices are available for public review. You say no, but you probably simply have to ask for prices. We have to go there to review, but then you know how to price. Plus, ditributors here are ok giving pricing info because they know we can get it anyway.... You may be surprised at pricing and find you are way over priced based on your approach. But...not free stuff. Do you like our beer? Do your customers like our beer? Get real price comparisons and lean right back. Be ready to walk. 10 other places to put your handles! Good luck.

[CasselBrewery]

Thank you all for your replies I appreciate it very much!

We might have found the cause of pricing argument, my partner who did the invoicing, charged them retail price while licensees have a 6% off the retail price, we'll see how this plays out.

Thanks again!

[einhorn]

Not to be dissuade you, but I am still baffled how a 'nano' can make ends meet by selling wholesale. IMO by selling $5 pints ($600 gross per keg) it's probably at least paying to sustain itself, but with all the costs involved with a normal business, it just can't work. Someone show me the break even for this!

[CasselBrewery]

Not to be dissuade you, but I am still baffled how a 'nano' can make ends meet by selling wholesale. IMO by selling $5 pints ($600 gross per keg) it's probably at least paying to sustain itself, but with all the costs involved with a normal business, it just can't work. Someone show me the break even for this!

We have been profitable right off the gate (2 months ago) and we're nano

First thing that makes a great impact is the DIY part. I do plumbing and electricity so I built our brewery from ground up, from process control up the makeshift cooling system for plastic fermenters.

Starting with plastic fermenters helps a lot too for the startup capital, for sure not a long term solution but it helps to get started.

I accumulated equipment over the past 2 years waiting for a deal to knock on my door, saved thousands of $ that way.

We have our own store, located next to a busy highway.

But wait don't be fooled, we're profitable but we can't afford a salary just yet. We're profitable in relation to our production cost vs. revenues. We're 3 partners and of course me being the head brewer I have a huge responsablity in terms of production. We all have day jobs except me I work for myself in web development. That is the risk we are willing to take, no salary that is.

Although we are hiring a helper for my side, production.

I see nano as being a gateway to full micro production. Someone might be able to run a nano operation indefinitely but I doubt it (might be some exceptions.)

[einhorn]

I guess there are different definitions of "being profitable". I see this as having money left over after I pay myself enough money to pay my own bills. If you are OK with endless sweat equity and making your hobby into something fun which pays for itself, more power to you.

[CasselBrewery]

I guess there are different definitions of "being profitable". I see this as having money left over after I pay myself enough money to pay my own bills. If you are OK with endless sweat equity and making your hobby into something fun which pays for itself, more power to you.

You partly misunderstood my post. Our nano startup is a 2 years strategy toward getting our full profitable (with full salary for us) operation. Although we will start paying ourselves a small salary in a few months.

See, instead of going to the bank with big dreams and a strong vision and 100 pages business plan, we will go in to the bank and/or investors with 2 years of strong financial statement (in relation to our size). It will make it way easier for us to obtain financing.

In the end if someone starts a business and not willing to pour tons of sweat equity, that person should rethink going in business.

Starting the hard way makes you learn, pretty quick actually. A valuable experience for when the time comes to get all shiny equipment

[einhorn]

I understand your plan. Be aware that even with strong financials, banks still classify breweries and wineries as "high risk" - you might need to consider different sources of financing than the classical bank loan.

I wish you luck on your travels.

[CasselBrewery]

I understand your plan. Be aware that even with strong financials, banks still classify breweries and wineries as "high risk" - you might need to consider different sources of financing than the classical bank loan.

I wish you luck on your travels.

Yes completely agree, we try to stay clear from the banks as much as possible, in fact we financed our startup with private investors only, so much easier that way and the arrangements with them is pretty a traditional loan, except we have people that believes in us.

My 12 years in business already has taught me a lot things that I'm using for our brewery.

Cheers

[Bierkoenig]

Let me preface this by saying that I'm no fan of bankers, but sometimes you need one.

Some (many) bankers are not very smart. I've discovered that many of them think that a brewery is a restaurant. Trying to explain otherwise is like trying to teach your dog to read. We funded our brewery with private investment, but when we needed to fund an expansion we went to our bank (a regional one). The guy told us "looks good, shouldn't be a problem," only to come back a week later and say the underwriters in their undisclosed bunker said we hadn't been in business long enough. This is the bank we had a relationship with and was aware of our cash flow.

Then we went to a local bank. The loan officer and the bank's VP came to the brewery to see what we do, what we needed and and learn about the brewery business. In less than 30 minutes they were on their way out the door saying "I don't see how this could be anything but a sure bet." Now they're chomping at the bit to loan us more money (not that I'm anxious to add any debt load, but it's nice to know it's available).

So there are bankers out there that actual listen and learn. I highly recommend a local bank (which in Canada may mean you're going with a credit union).

[austinbeer]

This is really helpful info. Thanks to everyone who posted here. We are right in the middle of planning a nano-brewery in Texas. We're doing a lot of work on the front-end to project profitability as much as we can.

To make our numbers work, we need to be right around $185 per 1/2bbl keg. My question is, how realistic is that number? We will be a small, local craft brewery.

One more question. What would you say is the average consumption per account? For example, 1/2 bbl per week, 1/6 bbl per week...or what? Trying to forecast sales.

Thanks for any help!

I'm under the impression that talking about specific pricing can be seen as collusion and is best to avoid.

But, generally speaking, $185 would be on the high side of what I've seen in the Texas market. Of course, that is somewhat dependent upon the style of beer. For a 10% beer, that'd probably be about average.

Something else to consider is that stronger beers and/or higher priced beers will have a smaller serving size. Most bars won't sell full pint of anything over 8%. They would also rather sell a 10oz pour for $5 than a 16oz pour for $7.

So, your pricing will most likely result in smaller servings, which will increase the turnover time for your kegs.

[CasselBrewery]

I'd rather sweat myself into that situation then throw down a half million dollars day one and close shop within 2 years like so many do because they simply started to big and took too large of a risk.

Exactly!