Today, I want to start with a question that I’ve received for the past decade:
How many barrels do we need to produce and sell in wholesale to be profitable?
There is some misconception out there that if you just make more of something, you will flip a switch and become profitable.
But what if that product you’re making is losing money?
At the end of the day, if we make more of something that is losing money, we just…lose more money.
The answer to the question I give: there is no barrel hurdle to overcome before you become profitable in wholesale.
This is the reason SBS is so laser focused on our profit diagnostic.
It is intended to arm you with information to let you know what is working and what isn’t. As a result, there will be decisions that need to be made in order to course-correct or maintain profitability.
Sometimes those decisions are easy. Other times, they are not.
Decisions, Decisions, Decisions
Once we present our margin analysis to breweries, there are a ton of possible decisions that can come out of it depending on what the numbers show.
Here are just three examples.
A potential decision that comes out of our analysis is contract brewing. You’ve heard me talk about contract brewing over and over.
But it’s important to note that contract brewing is not a one-size-fits-all model. Contract brewing is the result of a specific situation that must be analyzed.
So, what’s an example of when you would not want to turn to contract brewing?
Let’s say you are distributing 20 to 30 barrels a month to key accounts with the ultimate goal of driving business back to the taproom.
If your production and distribution can manage this easily, there’s no need to consider contract brewing. You wouldn’t want to enter into a contract and end up with excess inventory, especially if you’re strategically focusing on driving foot traffic back to the taproom.
On the flip side, if our margin analysis shows you’re profiting from one style (likely just two SKUs within that style), we’ll ask if there’s a local or regional partner who could brew it for you, possibly boosting your profits.
Decision number two that we talk about post-analysis is shutting down the wholesale division entirely.
This is a very unpopular and controversial statement, but we’ve just got to lay it out. It’s got to be an option.
Getting rid of your wholesale would be a pretty monumental task. And it would also prompt 20 or 30 more questions that you’d have to figure out.
This is an option that, after reviewing the margin analysis and considering your business as a whole, might be a decision you choose to pursue—keeping in mind there’s more to it than meets the eye.
The third and final option that we’re going to talk about today: focus.
For the better part of this year, myself, Derek and Julia have been talking about this concept.
We have developed a talk called Winning in Distribution.
And the premise is all about focus.
Portfolio focus, sales focus, marketing focus.
When we talk about focus, it means narrowing your portfolio, tightening your messaging, and honing in on sales consulting and training. As we navigate the current changes in craft, this kind of focus is actually a positive step forward.
We need to consider that offering eight styles in distribution really doesn’t fly anymore. Moving from eight down to four, and ideally down to two styles, is a process that will take time and planning.
What Decisions Do You Need To Make?
I’m giving you a glimpse of some of the decisions you’ll have once you complete our profit diagnostic.
And the great thing about the margin analysis aspect of the diagnostic is we’ll identify which products are your winners—and which ones might need some improvement.
If you’re interested in digging into your margins and really understanding the numbers, click the link below to get started.
Talk to you soon.
-cf
P.S. – You can find Part 1: Margin Siblings and Part 2: Contract Margins on their respective pages.