Growth. It is the lifeblood of business that allows us businesses to hire new employees, borrow money and invest in new equipment.
Craft beer is an industry that has experienced tremendous growth. In 2015, craft beer grew 12.8% despite overall beer consumption declining ever so slightly by 0.2%.
However, similar to the Notorious BIG’s quote of ‘Mo Money, Mo Problems,’ with growth comes … some problems. While they are good problems, they are still challenges nonetheless.
For example, let’s say you’ve been using 20 barrel system that has been able to provide 3K barrels of production per year. Now what do you do what you’ve hit your capacity and demand seems to show no signs of stopping.
Problem 1: Uncertain demand
The biggest problem is that demand is uncertain. While craft beer has been taking off like a rocket ship, securing shelf space continues to be a challenge. Furthermore, new competitors are entering at a rapid pace. The Brewer’s Association reports 433 microbrewery openings in 2015.
What if growth slows? If you end up taking out a large loan but do not have the sales to back it up, you could be in big trouble.
Problem 2: Lumpy Capacity
Capacity is lumpy. That means that you can’t just add capacity as your need it. There is a delay and usually you need to overbuild for the present to be ready for the future.
Even if demand was perfectly knowable, you would be paying for capacity today that you’re not going to utilize until years later. This is just wasted capital.
In the above scenario, even though demand is growing at 25% per year, matching capacity to demand over time is not easy. The space between the red lines and the blue lines shows excess capacity that is already paid for, but not being utilized.
Problem 3: Time
Building out a new brew house takes time and effort. Focusing on the time piece, you may have sales you could be making right now, but you need to wait for your new fermenters and the inspection on your new building. We all know markets move fast and it hurts to turn down business.
Potential answer
Sharing capacity with other craft brewers can provide at least a temporary solution to these problems. First, you can significantly reduce your risk of demand not fulfilling an optimistic forecast. While this is not fun to think about, for some, this can be the difference between running a profitable and an unprofitable brewery. Second, you don’t have to worry as much about lumpy capacity. In fact, you could enter into a contract or tenant brewing agreement while your capacity expands and only purchase equipment when you know you’ll be more fully utilized. Third, by using another brewery’s resources, you can have your beer out in weeks as opposed to months.
Now you may be fully committed to building out your capacity now. That’s great. In fact, sharing capacity can help improve your profitability while demand is still catching up to your newly built supply.
Conclusion
Building a business around you passion is challenging enough. Handling growth can be tricky but there are many clever solutions that can help mitigate the challenges and make you a more profitable brewer.
Capacity Tap is here to help make the matching process much easier so you can focus on your craft of brewing amazing beers for your customers.