November 14, 2017

The Lost Kegs: Why It Pays to Track

Every brewery loses kegs. This is a cold, hard fact of doing business in beer. Whether they are lost by a retailer or stolen by a consumer to make a BBQ grill or to recycle doesn’t matter. What matters is that those kegs are not coming back to the brewery that owns them.

Because kegs are a capital expense item, there really is no “acceptable” loss. Kegs are expensive, and a brewery can only sell draft beer if there are kegs to fill. This raises the questions: When does keg loss have a visible financial impact, and what can a brewery do about it?

Many craft brewers use distributors to move their kegs into the retail market, and small brewers greatly benefit from their distributor networks. Acting as the delivery arm for product, the brewer simply moves kegs to the distributor with no knowledge or vision of which kegs are going to which accounts or how long those kegs sit there – full or empty. And if a keg is stolen from a retailer or picked up by another distributor, how can you, the brewer, find out about this and what can be done?

Should you hold your distribution partners accountable – and is it even worth the trouble? If you choose to go that route, how can you have a meaningful, but not detrimental, conversation about missing kegs with your distributor partners? Ensuring financial stability while maintaining a good relationship with your distributor partners can be a difficult line to straddle.

SHOW ME THE MONEY

Let’s take a step back and crunch the numbers for a minute. Distributors must pay a deposit on every keg a brewer gives them. This deposit is usually around $30. The distributor then delivers kegs to retailers and charges them a higher deposit (often around $50 for each keg). From a purely deposit-based system, the distributor has no financial risk if the keg goes missing and may in fact – even inadvertently – net extra deposit money for the lost keg. According to the Brewer’s Association, craft brewers lose (on average) about 5% of their fleet per year. This adds up to a profit loss of $10-15 per barrel of kegged beer each year. Some brewers even estimate their keg loss to be as high as 20% annually, which is a staggering number!

While distributors are not losing kegs intentionally, it’s clear that keg loss doesn’t have the same financial impact on the distributor as it does on the brewer. This then creates a different priority for the distributor. They are more focused on distributing the beer and may not assign as high a priority for picking up kegs in a timely manner and returning them to the brewer – unless, brewers are tracking their kegs.

GET TRACKING

Keg tracking was invented five years ago in the form of KegID. The KegID tracking system operates on the principle that to manage your kegs, you need visibility into where they are. You can’t manage what you can’t see, and when working with a distributor, you have no retail visibility. You’re going in blind. You hand over your product in the kegs you’ve invested in and hope for the best. An average loss of 5% means that for every 100 kegs you send out, there are five you will never see again. But it doesn’t have to be that way anymore.

With KegID, you can utilize various reports – including the “Aging Analysis” and the “Lost Keg” reports – to gain insight into which distributors have your kegs, how many they have, what beer was in each keg when it was sent to them, and most importantly, how long they have had each keg. But what do you do with this information once you have it?

If you’re not ready to bring up the issue of accountability with your distributor, you have the option in KegID to simply write off lost kegs and include the documentation to support lost keg tax write-offs. This way, you are still able to recoup some of the financial loss of your missing kegs.

START THE CONVERSATION

Now, about that meaningful (but not detrimental) conversation with the distributor. As a brewer (and especially if you’re a smaller brewer), you rely on your distributor partner to assist with your sales and get you placement for your beer in retailers that might otherwise be a challenge. And you may be inclined to ignore keg loss to maintain this distributor relationship. The problem with this point-of-view is that it assigns a negative relationship where the distributor isn’t a partner at all, and a conversation about keg loss is an antagonistic one. It’s not.

Here are a few tips on how you can have the conversation without placing blame.

#1 Start with the contract

Many brewers now put clauses into their contracts regarding keg loss. This is something you should consider doing, as you will have a predetermined arrangement for how to combat the issue and address keg loss with financial accountability. This gives the distributor some stake in the game and encourages interest on their part in getting your kegs back to you. When that time arrives, and you need to work something out, you have a contract to back you up.

#2 Introduce your distributors to your tracking technology – before there’s a problem

You can make your distributors aware that you’re using keg-tracking technology before you bring up the specific issue of keg loss with them. And by introducing your partners to the technology and how you plan to use it, you will help lay the groundwork for solving any future issues you may run into regarding keg loss.

#3 Offer a solution

There’s nothing worse than complaining about an issue without so much as an inkling of a possible solution. If you bring up the topic of keg loss to your distributor, what’s your endgame? How much do you want to be compensated for? How do you plan to reduce keg loss in the future? What’s a reasonable request that will encourage the distributor’s interest? Some brewers accept up to 2% loss and ask that the distributor take responsibility for any loss beyond that. This avoids putting all the burden on the distributor – and with the write-off functionality, the brewer still avoids total financial loss.

#4 Be confident

This may sound silly but it’s worth mentioning. Be confident! You’ve made a wise business decision and you have data on your side. You have answers that will help solve the problem. Have confidence in your business competency and use it to help begin this dialogue with your distributors. You’re well within your rights to hold distributors accountable for how they handle your property.

We cannot eradicate keg loss, but there is a lot you can do to lessen the financial burden it can have on your small business – and SLG is here to help. We offer a variety of tools that will help you manage your business and accomplish the goals you’ve set. If you have any questions, feel free to contact us!