spreading risk with hop suppliers

[redlodge.sam]

We recently determined that we were under-contracted on hops by several thousand pounds due to faster than expected growth. We submitted our needs to five suppliers and one of them came back with pricing that was substantially less expensive than the other four. We gave that supplier most of the business, but offered to buy hops from the other suppliers to keep a relationship with several suppliers. Now one of the high-bid suppliers is retracting their pricing because we are not buying enough from them.


My question is this: How important is it to spread risk and buy from several hop suppliers? What are the odds of not getting hops in a 2008-style breakdown of the market if we are adequately contracted with one supplier?


We are a distributing brewery expecting 6000+ bbl this year and have been growing at a 40%/yr for the past three years.


Any insight would be appreciated.

Sam Hoffmann

[Jaltwies]

Sam,
Are you asking if the bid withdrawl is legit, or is it more of a question about professionalism? As a hop producer and processor I appreciate having some sort of agreement with my brewers so I do not over-sell our crop. However, using a contract as a means of force to corner a customer or blackball a customer is just bad business. Traditional hop brokers have had their run of their customers for years because ..."where ya gunna go?". Now that other regional sources are cropping up there is a shift by the large brokers to marketing licensed, proprietary varieties to once again force their customers back into the pen.

Most of these contracts have a "force majeure" clause somewhere that is the golden get-out-of-jail-free card. So the "contract" most likely will not protect you if there is a crash.

Now, ask yourself if the 2008 "shortage" was simply due to a few unfortunate accidents or was that just an excuse to run up prices? No finger-pointing here...but we have to ask these questions.

[redlodge.sam]

I am not that upset by the supplier retracting their bid.

I was more interested in whether brewers contract with many hop suppliers regardless of price to keep relationships with several potential suppliers in the event of a crisis, or just go with the lowest price.

cheers,

sam

[BrewinLou]

I keep several contracts going. I will support small operations as much as I can, a diversified hop industry is a healthy hop industry. It will help prevent irresponsibly large price fluctuation year to year in my opinion.

[porter]

I too spread out my hop contracts. I think competition is healthy and like in the craft brewing industry, smaller growers can be more innovative and attuned to a particular customers needs.

I also like the customer service of smaller suppliers much better than the big guys. Sometimes I think the big guys just assume "where else are you going to go?" and it reflects poorly on them.

The downside may be that smaller farms just do not have the capacity to supply the bigger breweries.

[JJDay]

Risk management can be assessed in various ways:
-Having multiple suppliers: which is not bad, but you might not have the best pricing.
-Having contracts that do not have exclusivity clauses to one vendor. This needs to be mentioned up front in your request for pricing. However some vendors might say that pricing is conditional on exclusivity. Then it becomes a question of adding service/product performance criteria: it cannot be just one way. I many other industries, and from experience, we move away from exclusivity clauses.
-Importance of clear request for proposal terms and conditions.

On your second topic being should a vendor not honour their pricing, it depends on the RFP terms and conditions and contract that you have signed.

Moreover I do believe that on a long term basis, it does not indicate a desire to have your business.

Regards - JJ