Burning questions from the Craft Brewers Conference: Part two

Reprinted courtesy of Beverage Master. 

Continuing with part two of our Q&A from the Craft Brewers Conference from Denver, with additional follow-up questions to our panel of experts. It was clear that times are tough and brewers are feeling the pressure from every aspect of their business. Innovation and disruptive solutions to engage consumers and capture retailer interest were top of mind during our discussions.

Consumers are using their disposable income on more than just beer, with consumption patterns and drinking occasions changing constantly. Generation Y and Z are entertaining spirits, RTD’s and wine as well as new and emerging industries in seltzer and cannabis (medical and recreational). Minimum wage pressures are challenging employee recruitment and retention, forcing pressure on engagement and culture. Virtual distributor models and companies like Amazon Prime are making distributors rethink and retool their sales and service strategies. 

Diving deeper into your business plan and implementing a detailed strategy to scale your business to be more effective and efficient is a must do for brewers who want to enjoy continued success in the future. Here are some additional questions from our audience and answers from our Baker Tilly team of subject matter experts:

Question: There’s a lot of data available and I don’t always have time to utilize it. How can I better use my data to run my brewery?

Answer: Knowing what to track and having a process to capture and interpret the data is 1/3rd of the challenge. Another 1/3rd is knowing strategies and tactics to deploy that will correct or accelerate performance. The final 1/3rd is sharing the information beyond ownership and Sr. Management to really get your team moving in the right direction. At a minimum, record your own historic information to allow for benchmarking and variable pay opportunities that can be used to incentivize and motivate team members to accelerate performance. Here are a few good reports/charts to run:

Sales:

• Pareto charts: They help identify the most frequent factor that you can count or categorize. Distributors, brands, SKU’s, reps, etc. These reports can be created at any level and visualize what’s helping or hurting the business. Brewery reps should spend half their time calling on these accounts.
• Rate of sale: Measures how quickly volume is moving through a given account. This is very important to improve and an indicator of brand health.
• Simple distribution: Number of buying accounts divided by total account base will show penetration of a given brand, SKU, etc. in a given territory.
• Weekly time series (current and previous year): This can help identify significant events from previous years and allow you to prepare for them as they come back around in the current year.

 Production:

• Packaging efficiency such as yield target on loss: This is deeper look at breakage, low-fills and mislabels against a target/goal.
• Yield target on loss: Hitting yield targets in total barrels filtered (by style). This shows tank utilization vs your target.
• Reduce controllable production cost per BBL (by style, etc.): Your P&L should capture controllable COGS compared to last year.

Financial:

• Gross profit trend lines before allocated costs: The overall percentage is important, yes, but the trend line is most important in this view. The reason you want to view prior to allocated overhead is to measure your real costs including labor. Utilization of your production facility will affect cost per BBL with allocated or overhead costs imbedded. This will allow you to forecast new brand costs, pricing and profitability.
• Labor costs: Labor should be tracked not only to real production volume on a cost/BBL, but also as it relates to sales, overhead and management. This should trend down as your overall volume grows and efficiency improves.
• Brewhouse and tank utilization: For obvious reasons, you need to set baselines for each of these and track overall utilization. It will allow the long-term forecasting of sales, capex planning and cash flow management.

Question: When measuring break-evens (ROI), what is acceptable? How do I measure success? How many months/years?

Answer: It depends. A loss isn’t a bad thing if your intention wasn’t profit but rather impressions. Creating a detailed business plan by department is the first step in understanding ROI’s. Each department should have KPI’s established that tie into the achievement of the plan/budget. Agreed upon actions and required resources should be identified, tracked and measured to achieve the KPI’s. Frequency of measure really depends upon what you are tracking. From a production standpoint, it could be by brew, by monthly/quarterly budget, etc., sales by month or distribution by quarter. These are good measures, but recouping profit only tells part of the story.

Breakeven analysis is a great way to understand what is at stake or what you need to get back your investment. A standard percentage return is not always the best approach, but can be a good way to begin the discussion. There will be some things you can and should make more or less on depending upon the intent of the offering. You can put a breakeven on manpower, brands/SKUs, special events, etc., but all shouldn’t be the same ROI. From a timeframe standpoint, it would vary. People and equipment tend to have longer tails with ROI so those could scale quarters to years. Products and special event breakeven could be achieved overnight. It’s best to categorize the opportunity, apply a timeframe and capture it with a tracking/measuring system for future benchmarking.

Question: How do you balance the setting of aggressive goals vs. selling correctly to the right accounts?

Answer: Aggressive but realistic goals are great for any organization’s sales team as long as you have the following clearly outlined:

• Variable pay: Compensation over the target so your team doesn’t stop selling after the objective was achieved in the 3rd week of the month. A threshold also needs to be set so you aren’t paying for easy layups too. 80% of achievement before 40% of payout is realized, or something of that nature.
• Standards: What does execution look like at retail? How many cases actually qualifies for a legitimate display? Is it the same for cans and bottles? Should there be a price on it? Pre-printed or handwritten? There are a number of things that beg to be defined. Salespeople want targets so they can be marksmen with their achievements of the objectives. You get what you ask for, so be specific in your standards with a document comprised of pictures and words.
• Tools such as a POCM (point of connection material), account level data, profit calculator and a toolbox/kit with protocols for inventory replenishment:
  
• Structured selling process to clearly define, communicate and execute the critical actions of a sales call. The benefit is that standardization removes unnecessary steps and improves efficiency, sales productivity and focus of the sales team. The goal is for each salesperson to become a valued business partner with retailers and distributors through service, relationships, knowledge, collaboration and follow-through. Below is a brief example of a structured sales process:
  

Our recommendation is to have the right goals set with the right accounts with the aforementioned in place instead of goals that don’t make sense for accounts and/or geographies that you are targeting based on your plan and budget.

The goal of every good company is to plan for and achieve realistic business objectives that tie into all aspects of your business. The collaboration of departments into one business will help avoid pitfalls of silo development, which lead to mistrust within your organization and hinders the organization’s performance. As stated with these questions and answers, having a collaborated and efficient organization is the key. If everyone knows their role and targets (not just the sales team) then you can start to operate more effectively and efficiently as one company, tackling the industry together and scaling up efforts to drive elements of your business plan.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.