I get a lot of questions about my path into the beer industry from folks interested in the same. Many of them work in Logistics, IT, or Data Analytics, so I often share information to get their wheels turning on how the two professions coincide and where their expertise may be able to add value to a brewery someday. I've been meaning to get this all written down and out of my head for a few years, so I thought I'd make a blog entry about it:
The easiest way to achieve fresh beer in the market is to run out. Go dry. Take Hop Butcher for the World for example, a small Chicagoland operation kicking out 2,000 BBL of beer per year. They drop 3-6 unique beers each month, never the same as the last. High demand vs supply leaves their retailers out-of-stock before the next brands drop. A rare exception to my stance on date-coding, Hop Butcher’s model, size, and social media efforts leave the measure almost unnecessary. That luxury is more feasible for self-distributing breweries whose retail partners are small and independent.
The strengths of small breweries like Hop Butcher often represent the challenges of larger breweries, and vice versa. When you’re paired up with a large distribution partner who adds value through scale, depth, and optimization, selling a significant portion of volume through chain stores, running out of beer is not an option and that’s where things get challenging, and fun.
While craft beer was experiencing rapid growth 5 years ago, most breweries were selling everything they could produce, struggling to keep up with demand, often putting their distributions/retailers on allocation. The concept of over-producing a product was less of a concern and fresh beer was easier to find. With growth trends today looking modest at best, larger breweries find themselves with adequate (or excessive) capacity, leaving themselves with a tricky, constantly evolving equation: How do you make enough beer so that you’re never or rarely out-of-stock, while keeping code dates fresh?
Production Lead Time
Beer takes approximately three weeks or more to produce, so you have to be minimally that far ahead with your schedule based on when you expect a particular beer to run out. In reality, you have to be planned out significantly farther given the priorities being juggled, where a last minute change isn’t always feasible. When schedule updates are mission critical and thus accommodated, there’s typically inefficiencies which raise the overall cost of the beer.
Flexibility will vary significantly depending on the time of year. In the Winter, you may be able to let beer sit in the fermenter additional days where its kept cold and has yet to be exposed to oxygen, until precisely when you need it. During the Summer months, that luxury often doesn’t exist as other beers/brands need to move into that precious tank real estate, starting the clock sooner on the life span of the beer sooner. Excess capacity, if used wisely, has the ability to circumvent some challenges around freshness. Without that flexibility, if a brewery undershoots their schedule they’ll be out-of-stock, resulting in lost sales for them, their distributors, and retailers. Those conversations are never fun. Overshoot it, and you’ll have beer with nowhere to go, that isn’t getting any younger.
Despite the brewery’s ability to acquire this crucial inventory/sales data, it’s unfortunately only the starting point for achieving freshness. There’s more limitations to this formula that I can count, each of which must be considered regularly and worked into the formula. Failure to consider or accurately predict these variables, which bounce the ROS around unpredictably, can take freshness off course. To deal with these limitations, breweries and their distributors establish Periodic Automatic Replenishments (PARs) which, put simply, is their safety stock to handle the fluctuations in ROS. The variables that the data can’t always see include.
I read comments from frustrated beer drinkers all the time who live on the other side of the country as their favorite craft brewery and struggle to find fresh dates. In most cases, no matter how great the brewery is, they will only sell a tiny fraction of the beer in that far away city compared to their home market, for a host of reasons. As a result, filling up a truck of beer to send cross-country doesn’t make sense every day or every week because the sales are unlikely to support it.
Changes to DOT laws and an overall shortage of truck drivers have caused freight rates to skyrocket over the last couple years, meaning cross country shipments have to be efficient (full truckloads) in order to make any sense financially. Since breweries can’t package every beer each week, usually just their top seller(s), there’s likely some beer going on the truck that’s already 1, 2, 3, or 4 weeks old before it even arrives in the far away market. This is mostly unavoidable. When there’s a big brand launch, like a year-round hazy IPA, breweries wisely try to time those shipments around the canning of that key new brand so it arrives fresh the first time. Keeping up with this year-round for all brands is a big challenge and a big contributor to why fresh is so difficult the farther you are from home. Breweries who built second facilities in North Carolina, Virginia, etc. did so for reasons well beyond production capacity. In addition to fresher beer, the retail opportunities you get from a second home market and the drastic reductions in freight costs are huge factors to consider as well.
To keep beer as fresh as possible, you’ve got to make sure that you’re always selling the oldest product first. This has to be emphasized as part of standard operating procedures at the brewery, the distributor, and the retailer. If there’s a few 6-packs left of a SKU on the shelf when it’s restocked with fresh product, those older ones are ideally pulled off, and the fresher product loaded behind them. Basically the same idea as milk. Mistakes can still happen at any of the three tiers, which can throw off your actual freshness, or customer’s perception of it, depending on which dates they see.
This overview barely scratches the surface of why freshness isn’t easy, especially the larger you get and the farther the beer travels. I get to watch the effort put into this every day and salute the men and women fighting for freshness everyday. Imagine trying to not only manage this process with all these variables, but with 50 different distributors across your region, or 300+ distributors across the country, each with different answers to the equation. It requires a lot of smart people, an abundance of data, and most importantly, great communication across departments.
Slightly Off Topic Q & A:
When I asked for questions via twitter on this subject, everything that came back was outside the scope of what I planned to talk about, but here's some thoughts:
Doug is a CPA with a knack for photography, design, and social media. Professionally, he is the CFO & Head of Communications for Revolution Brewing. Opinions are his own.