Out of Code: Why Freshness Ain't Easy
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.
Systems
Product is sold to distributors and the large breweries are fortunate to possess the technology to see their distributor’s Inventory Levels and Rate of Sale (ROS), which is used to calculate a key term called Days on Hand (DOH). In other words, how many days worth of sales on average does the distributor have in stock, until they run out of a given product? DOH is the key term used when talking about your production needs and timing.
Data Limitations
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.
Weather: I’m not a big believer in weather’s effect on sales over the course of an entire year, but it can certainly throw a wrench in a given 2-3 week period of unseasonable elements, which will affect freshness. The month of May in Chicago can see everyone out of their hibernation and onto outdoor patios throughout the city. Some years it will be relatively warm and dry, while other years we’ll see three straight weeks of downpours and the slow ROS that comes along with it. If that nasty weather hits on Memorial Weekend, 4th of July, or Labor Day it’s devastating to sales, leaving you overstocked for the weeks following, and throwing your freshness out of whack. Speaking of holidays...
Holiday Timing: Last year the industry learned the hard way just how rough the 4th of July falling on a Wednesday could be on sales. It’s a challenge to plan for as you can’t just easily look back 7 years to the last time it happened and expect that to be useful. You know numbers will be down, but it’s very difficult to predict the extent that the timing of a holiday will have on your beer’s velocity.
Promotions: Large retailers run promotions regularly, not only coinciding with holidays. One dollar off the everyday price to consumers can have a drastic, but tough to pinpoint, impact on sales. The opportunity, which can include an end cap or floor display, means a large amount of beer purchased upfront. The ROS spikes, potentially extending the timing of that stores’ next order depending on the increased velocity triggered by the promotion. This adversely affects future data as that promotion may not occur during a similar time frame, or at all, in future years.
Fast Evolving Market: The life cycle of craft brands vary significantly and change rapidly to the point where year-over-year sales comparisons are merely a starting point before the human element inevitably takes over. Some brands are built slowly over time, while many today get off to a fast start, peak early, then slow down until they’re replaced by something else. The concept of “new new new” can lead to shorter lifespans of brands and wildly fluctuating performance over time. Similarly, new formats have opened a lot of doors for craft brands recently, which leads to inevitable cannibalization, but predicting the extent is typically anyone’s best guess.
Logistics
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.
Production Rotation
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.
Wrap Up
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
There's a lot of things I'd like the consumer to know, like around the quality of a brewery's packaging equipment, which heavily impacts the beer's exposure to oxygen and thus the speed at which the beer deteriorates. But I can't reasonably expect them to keep all that straight. I think the importance of the cold chain is the most important variable beyond the date code, that's realistic for the consumer to embrace. What makes hop-forward beers so great while they're fresh are the oils, which don't stick around forever. Sitting warm on the shelf accelerates that decline, where storing cold keeps it in tact longer. I'd rather buy a three week old beer that's been stored cold, than a three day old beer that's been sitting warm.
Lots of things, but let's focus in on a new one that I'm excited about. At CBC last year, we bought an Orbisphere 6110 Beverage Analyzer. This machine is for taking fast and accurate measurements on the fill quality of cans right as they're coming out of the filler, so that if an adjustment needs to be made, we know right away. It measures direct total package oxygen (TPO) and head-space oxygen. We take a number of measurements throughout each canning to ensure consistent quality of fills through-out the run. Prior to having an Orbisphere, we could still take these measurements, but the results took too long to react to a needed adjustment.
It's very common for certain crop years to be superior to others, but the consumer only hears "Galaxy". I'm just using Galaxy as an example, but all Galaxy is not the same and the nerdiest of hop head brewers will only buy if it's a crop year that they like.
Similar to hoppy beers, the life of hops can be affected by how they're stored. Ideally, hops are frozen, but that can be very expensive or just not available to some brewers. Next best thing is refrigeration, which is still fine. If hops are sitting out warm, they will lose their preservation and start to go down hill.
It's not as simple as cans vs. bottles. An expensive bottling line will give better fills than a cheap canning line, while an expensive canning line will give better fills than a cheap bottling line. You typically get what you pay for in terms of quality.
I'm no expert on wax caps, but I feel confident that the process works well to preserve the beer. However, I'm mostly against aging beers, with a few exceptions.
See my comments on the Orbisphere above, which involves measuring DO, not reducing it.
For reducing it, I look mostly to the technology of the filler and seamer, which comes down to what a brewery can afford and is willing to invest in the ability for their beer to travel and withstand less than ideal conditions.