Today, I want to talk about capacity at your brewery.
We’ve been busy working on Brewery Business Assessments (BBA) and have stumbled across a discouraging theme.
Excess capacity.
A semi-natural reaction for this is to blame Covid or draught sales coming to a standstill. While this may offer some temporary relief, blame is not going to fill tanks.
Allow me to clarify…
Two Truths
- If your tanks are not 85% full, you are losing money.
- It is impossible to replace draught volume with package.
The breweries we analyzed are currently operating between 40-50% capacity utilization.
Capacity Utilization
Capacity utilization is derived from dividing the prior 12 months production, in BBL, by the total capacity you have.
For example:
- September 2019 – August 2020 production in BBL = 3400 BBL
- Total capacity = 6700 BBL
- 3400 BBL ÷ 6700 BBL = .5074
- Capacity Utilization = 50.74%
While it would be great to be at 100% utilization, this is not realistic.
Our recommendation for capacity utilization is between 70-90%.
This range will ensure the metal is generating the right revenue while leaving you nimble enough to make changes on the fly should an issue arise.
Now, I know what you are thinking….
Chris, thanks for the range, nice food for thought… got any caviar for thought on how I can increase my utilization?
I thought you would never ask!
How To Increase Utilization
If breweries are truly running at 50% capacity then you need to increase capacity utilization by 25-35%.
Lets refer back to my example:
- Total capacity = 6700 BBL
- Suggested utilization rate = 85% of total capacity
- 85% total capacity = 5695 BBL
- Current production = 3400 BBL
- The delta = 2295 BBL in a global pandemic…..ugh!
If we chunk that down.
2295 BBL means:
- Additional 191.25 BBL per month
- Additional 31,625 C/E annually or 2,635 per month
- 4,590 (1/2 BBL) annual or 382 (1/2 BBL) per month
- 13,770 (1/6 BBL) annual or 1,148 (1/6 BBL) per month
A few things to consider here…
- If this seems like a lot to increase, you are correct it is a lot.
- I understand it will take time to fill this gap. It will take time and planning. Use this as a guidepost for where you need to be.
Closing The Gap
Ain’t no shame in the contract game!
Now is the time that you need to be offering contract brewing services if you have capacity, process, and a willingness to stay in the game.
We began detailed planning, back in July, with our larger production customers. We saw they were going to fall way below their capacity threshold and needed to do something about it.
On average, they’re brewing an additional 60 BBL per month.
Favor: Run a quick capacity utilization calc for me, and let me know where you stand.