New Craft Brewers To Distributors: We Don't Need You

Posted: Oct 05, 2017

Industry consultant Bump Williams of Bump Williams Consulting scared the tar out of Kansas and Missouri wholesalers recently with a speech focusing on several major challenges the industry faces. A few we've covered (particularly the Amazon effect, something we'll be focusing on at our Beer Summit at the Breakers in January), but one that was particular interesting was the growth of brewery taprooms.

The business model works for many: Small breweries support themselves by selling full margin beer right out of their tanks to the consumers at their facility. Not only do they get full margin, but they forgo the huge cost of packaging or even kegging beer. So how profitable is this model?

Bump, who counts several breweries as clients, helps us with the math. But first let's look at where we are at as an industry.

. There are over 6,000 operating breweries in America.
. A new brewery opens every 11 minutes.
. An average consumer consumes 48 different beer brands.

So what we've got is a crowded market and a promiscuous consumer who is always looking for something new.

What model serves this need? Tap rooms. And as Bump puts it, "They don't need distributors."

THE NEW BREWERY MODEL. Here's why: The economics are compelling. "You have a limited run, and people drive thousands of miles or even fly here to wait in line at the brewer for hours to get one or two cases of" whatever the offering is. Heady Topper is often mentioned, but there are hundreds of other breweries just in the Northeast who are sought out.

TAPROOMS A BIG BUSINESS. But selling directly to the consumer in pint glasses at the taproom is where the real money is.

And here's the math: Let's say a brewers sells the equivalent of 1,000 cases a day directly from their tanks to consumers in their taprooms (which is a lot, but not unreasonable for a brewery with a strong following). They sell beer 50 weeks a year, which is about 250k case equivs a year. The average price-to-consumer (PTC) at the tasting room is $100 a case. A hundred bucks times 250k cases is about $25 million a year. Add in merchandise and growler sales, you're looking at about $30 million a year, with net margins at around 80%. That's over $20 million of EBIDTA a year. Without a single distributor. I don't know about you, but that seems like a pretty good living to me.

"They don't need you," Bump told the distributors. "It's a big business, and it's growing every year. And very underreported." I agree, it's a bigger issue for distributors which has crept up from below.

Source: Beer Business Daily
October 4, 2017

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