This month we heard quite a bit about wholesale and expansion, customer and team incentives, and taproom variety.
Let’s go.
About a month ago, y’all ran a business unit analysis for us and, turns out, our distribution earnings are negative. Should we just stop distribution altogether?
Before we make such a drastic decision, we need to see the margins of these wholesale beers.
Reach back out to the consulting team and ask for the “margin siblings” report. If this is the first time that you are hearing of this, please start by watching this video.
More times than not, eliminating your wholesale program is not an option. Rather, we want to make changes to the program.
One common scenario I come across is having a negative net margin, but with a positive contribution margin and reasonable gross margins.
In situations like this, we’d need to take a closer look at G&A expenses to determine what’s outside the acceptable range. Other times, we may be satisfied with a positive contribution margin for a particular style.
Before making the decision to cut the wholesale side of your business, there are several other factors to consider and questions to answer.
Have you seen diminishing returns by offering more variety in the taproom? Say 16-20 taps?
The taproom should be associated with variety, and the more the merrier.
Well, to a point.
As wholesale portfolios become more focused, you need an outlet for creativity and innovation.
At a minimum, you should have twelve taps:
- Four core
- Four special/seasonals
- Four all-inclusive
I’d like to highlight the all-inclusive offerings, since we’re likely already familiar with the core and seasonal options.
The best thing that you can do for your taproom today is offer beverages that invite more people to visit your taproom: Cider, Seltzer, NA, Hop Water, Mead, etc.
The taproom is about offering the ultimate experience, and how can you deliver this without more options? I am not suggesting that you make every product you serve, but do what you can to make it more inclusive.
Regarding the max number of taps: I think sixteen is on the upper end; this should keep your brew crew very busy. If you do four core, up to eight special/seasonals and four all-inclusive, that would be awesome.
My mug club renews first of the year. I am thinking about discontinuing due to declining support. Should I? Have you seen other loyalty programs be successful?
I am seeing more mug clubs discontinued for a number of reasons.
First, they require a lot of hands-on management. You need a very organized individual to maintain one of these clubs. The maintenance is not just renewals, it’s also recruitment, new programming, merch, and special events.
Second, overall engagement is down for these programs. Reasons could range from price to different interests from your consumer. But overall, we can say that engagement is down.
That being said, if you have a team member running it and you have growing participation, then keep the club going.
For everyone else, I do believe that a loyalty program goes a long way in a taproom. So if you discontinue your mug club, then you need to replace it with something.
There are many programs you can implement in your taproom to track visits and reward customers. Some are integrated into your POS, and others are stand-alone. I like the ones that are integrated because it is one less thing that the customer needs to sign up for.
We need to start thinking like a retail establishment when it comes to the taproom. And retail is always giving customers a reason visit.
I’m thinking of setting up an incentive program for my taproom staff to push to-go beer. How should I structure it? How do I measure its success?
This is a great idea.
Did you know that when a customer is prompted to purchase beer to-go, they do 49% of the time! Versus only 9% of the time when not prompted.
Shout-out to Andrew Coplan for that stat. What a huge conversion rate!
If I were to introduce an incentive for the team, I’d begin by reviewing past sales figures for beer-to-go.
For example, let’s say you’re currently selling two cases per week, with a goal of reaching seven. I would ask the taproom GM to set that goal and ensure the team receives the right training on how and when to offer beer-to-go. Often, the taproom staff doesn’t know the best moments to suggest it. By identifying the ideal timing and practicing these conversations, the team will build the confidence needed to increase sales.
If the goal is seven cases per week, I’d start by aiming for five. Once that’s consistently achieved, we’d move up to seven. The incentive works by setting a target and rewarding sales that exceed it.
In this example, two cases would be the baseline, and five cases the initial goal. Any sales beyond three cases would be eligible for a bonus. If you set the bonus at $10 per case, the GM would earn $10 for every case sold over that threshold.
This program is led and tracked by the taproom GM, so giving them the autonomy to succeed is crucial. While the GM runs the program, they aren’t the only one who benefits from the incentive. At the end of the period, the GM should take 50% of the bonus and use it to reward the team, whether it’s with food, an outing, or gift cards—it’s up to them to decide how to celebrate their success.
I am considering expanding geographically for my wholesale. The market in question is in the state, but three hours from the brewery. How do I figure out what it takes for it to pay off?
Ah-em.
Ok, I’ll forget everything that I have been preaching for the past two years and answer this one as if wholesale expansion is a thing right now.
Also, I am assuming this brewery does not have lightning in a can, so their portfolio is like every other one.
In order to launch a new market you must consider the investment factors needed for a successful launch. It doesn’t end there, because without the proper follow through, your awesome launch will fall flat….fast.
Let’s say that you have the launch down, what’s needed to keep the momentum going?
- First is personnel, you will need boots on the ground. A rep, after compensation, benefits, and field budget is going to run you a minimum of $70k.
- Next is going to be marketing spend. Regardless if you are self-distro or working with a distributor, you need to budget marketing spend. Lets say, on the low end, $1,500 per month or $18k per year.
- Last thing to consider is time. It takes time to learn and penetrate a market.
For the sake of this example, let’s assume a timeframe of one year.
Based on the figures mentioned, you’ll need to invest $88,000 in the first year just to launch the program.
Yes, you’ll generate sales in that first year, but this period is really about establishing your presence in the market. So, think of the $88,000 as an investment.
From there, the market needs to perform. One way to measure this is by comparing the sales rep’s compensation to the total sales in that market. Ideally, the rep’s compensation should account for about 10% of the total sales. So, if your rep is earning $55,000 in base salary plus commission, the market’s annual sales should be around $550,000.
If you can maintain a 10% labor expense in any wholesale market, I would consider that a win.
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See you next time.
-cf