Should your brewery get into distribution, and how would that work?

For every craft brewery the time will come where you’ll need to make a crucial decision: should you distribute your product, or sell it out of your taproom only?

This is a big decision. It’s worth taking the time to really reflect on how selling your beer outside of your taproom could affect your business as a whole. There are a lot of factors to consider:

• How would distribution affect your profit margins?
• Do you have a large enough team to support this?
• Do you have the space to store product pending pickup and/or delivery?

You then have to decide how you want to distribute your products. All of this to say: there’s a lot to consider. Which is why we are rolling out a three part series on all things distribution for craft breweries. 

In this article we’ll discuss:

• Whether or not you should sell your product beyond your taproom
• The pros and cons of self distribution
• The pros and cons of third party distribution

Our goal is to give you the building blocks you need to lay the groundwork for a strong and profitable distribution model. We’ll build on this over the coming weeks with tips, tricks and best practices for implementing a distribution model.

Let’s dive in!

What would your profit margins look like?

Usually breweries who distribute their product will have at least two separate price sheets: a wholesale price sheet, and a retail price sheet. If you’re considering going into distribution it’s crucial to consider how this would affect your pricing strategy. 

Do you have wiggle room to sell your distributed product at a lower price while maintaining a strong profit margin? The first step in figuring this out is understanding what each product costs you to produce. If you’re not already tracking this closely it might be wise to pay special attention to this for a little while before diving into distribution.

Check out our article on accurately tracking the cost of goods sold without brewery management software for more information on how to do this.

Do you have the people power?

Selling beer to retailers can be time consuming in more ways than one. It’s no small feat to find contact information and reach out to stores where you want to sell your product. Plus, the market is crowded. Strong relationships are needed if you want to maintain a steady stream of outside sales, and those relationships take time to build. You’ll need to dedicate at least a few hours a week to sales activities as you get your distribution off the ground. Is there someone on your team that could handle this, or do you need to hire someone new? 

Once you’ve gained a few customers and they are ready to buy your products you’ll need to make sure you have enough in stock. This can put added pressure on your production team so make sure they are well-equipped to handle a busier production schedule. 

Last but definitely not least, you’ll need to invoice your customers. With a small amount of distribution to a handful of regular customers this can be fairly manageable, but getting an invoicing system in place will still take time and effort. If you do decide to go ahead with distributing your products, it's a good idea to develop standard operating procedures as you figure things out. This will give your team more autonomy in the future, and make training new staff much easier. 

What About the Shelf Space?

As we’ve mentioned, in order for you to distribute your product, you need to make more of it. This extra product will need extra shelf space, is that something you have available? 

For a lot of craft breweries, extra shelf space simply doesn’t exist. But there are still options for you! Working towards a just in time inventory system can help by empowering you to brew what you need, just when you need it, rather than sitting on excess product for weeks on end. Check out this article to learn more about how to achieve this. 

Alternatively, you might want to consider partnering up with another local brewery to contract brew extra stock. This can serve as a stepping stone while you figure out what distribution looks like at your brewery, with less risk. Plus it gives you a chance to connect and possibly collaborate with another local brewery - it’s a win win. 

Alright, so you’ve decided you definitely want to distribute your product. How is this going to work? 

There are really two main pathways people take: self distributing, or working with a third party distributor. There are pros and cons for each option. Let’s start by taking a look at how self distribution works. 

You’ve got a dedicated sales rep, and potentially a delivery driver. You have to find and build relationships with your customers, schedule and drop off deliveries, and make sure that invoicing is taken care of so that you can get paid.

Pros of Self Distribution

There are a few benefits to this method of distribution. First of all, your profit margins tend to be higher since you aren’t paying a third party distributor a portion of your earnings. 

Self distributing also forces you to build strong, personal relationships with your customers. This can help spread the word to other potential customers, and it means that your contacts are your own. 

Additionally, you have full control over the distribution process. You can make sure that your product shows up at a customer’s store free from dust, nice and cold, well within its expiration date. And you can sort of fly by the seat of your pants when it comes to offering promotions and sending out marketing material.

Cons of Self Distribution:

There are some drawbacks to self distro. The obvious one is that it’s difficult to manage. Self distributing is much more hands on and can be time consuming. Everything from finding a lead, to getting in touch, negotiating pricing, educating them on your products and finally selling and delivering the product is up to you. 

Self distribution also comes with less visibility than working with a third party. Third party distributors already have established relationships with many popular customers, you are starting from scratch. The market is competitive and getting a good spot on a crowded beer shelf can be tough.

Similarly, you will have less geographic reach. If you work with a large distribution company they can likely get your product to customers across your province or state, maybe even beyond that. If you are self distributing this might not be feasible. You only have so many hours in a day to travel. Not to mention, you’re sort of a small fish in a big pond.

Selling through a third party distributor is a more hands off approach. You work with a distributor who has contacts in the industry and buys and sells your products for you. It can be a little easier, but it’s also less profitable. Let’s jump in!

Pros of third party distribution

An obvious advantage of working with a third party distributor is that they have connections, established connections with a lot of key industry contacts. These can take time to build, so working with someone who already has this built in can definitely help.

Working with a distributor also often means you can sell across a larger geographic region. Distributors often pick up product from you, and then keep it at a warehouse that they can deliver out of anytime. This means they take care of the orders and deliveries, and they can often do this across a larger region than you would be able to do yourself. 

But this does come with some downfalls.

Cons of third party distribution

Remember how we mentioned that distributors often pick up your product and store it in a warehouse? This means you have much less control over the quality of your product by the time it gets delivered. The cans might be dusty or dented from being moved around and then sitting on a shelf for a long time, and you can’t be certain that your beer hasn’t expired. Typically this is something you want to look for in your contract with your distributor. 

Working with a distributor who is well connected to your industry can be a powerful way to get your distribution sales off to a strong start.  But keep in mind that if you stop working with your distributor, you might lose these connections too.

Finally, and perhaps most importantly, working with a distributor often means lower margins. You’ll need to pay your distributor a portion of your earnings. Depending on how much you are selling through them, this could make or break your distribution plan, so pay close attention to what these fees look like while you’re shopping for a distributor.

Whether or not you want to sell beer beyond your taproom is a decision that every craft brewer has to grapple with. Ultimately, only you know what’s best for your business, but here are some key takeaways to help you with your decision:

• Evaluate whether or not you have a big enough team to keep up with the increased demand without sacrificing the quality of your products, or overworking your team.
• Consider contract brewing as a way to save space, time and money as you dip your toes into distributing
• Make sure to weigh the pros and cons of each distribution option - the best option is different for every brewery.

We have a lot more to say on this topic so stay tuned, we’ll be publishing a few follow up articles over the coming weeks!

Curious about how Brew Ninja could help you implement and manage a distribution system? Check out our 5 minute demo video, or get in touch with our team.