Beer Business Unplugged

The career options for young professionals in today’s beer industry are much different than they were years ago.  As a college helper on a Coors truck, I became convinced that I wanted to pursue a career in the industry.  Working on a beer truck did not give me a clear picture of how a brewery representative operated; however, it did give me a well-defined idea of the inner workings of a distributorship.

I knew I wanted to own and operate a beer distributorship, which was an achievable goal at that time.  I soon realized that dream, but the demise of Schlitz put an end to my distributorship.  I seriously doubt that in today’s economy I would have an opportunity to own my own distributorship under any circumstance.

There is one standard today that did not exist 40 years ago, and that is the craft brewers’ model.  There are multiple opportunities for young professionals today in the craft industry and most of these jobs involve learning all facets of the business, including an education about breweries that self-distribute.  Because crafts brewers provide many opportunities for this generation, there may not be a better job for a recent college graduate than being a brewery rep. in a major town.

When I taught a class for the beer certificate program at Portland State, the students were highly committed to their beer, wine, and/or cider operations.  These students were like the proverbial pig in the breakfast menu; the chicken is part of the breakfast, the pig, however, is committed!  The students at Portland States left no doubt of their resolve to the industry.

When I discuss the industry to a class or group one point I always drive home is to ensure those with whom I am speaking understand that the beer industry, no matter what tier one is discussing, is not a 40-hour-a-week industry.

I recently had dinner with a long time executive-search owner who specializes in the beer industry. During our conversation, he mentioned the challenges he is having finding Millennials to work in the industry.  I have heard this same story multiple times. It has become quite difficult to find an employee who is willing to put in the necessary time on the job to be successful.  Many wholesalers are struggling to find good and hard-working employees.  I sometimes wonder if I would have stayed in the beer industry knowing that acquiring ownership in a beer distributorship would be virtually impossible.  Perhaps limited opportunities are seen by today’s young professionals? This point is obviously a generalization of a generation. There are many, hard-working, dedicated Millennials who love what they do and are committed to their breweries.

As past posts have discussed; there are ways in which a distributor might structure their working environment to attract and keep Millennials.  Providing Millennials what they are looking for in a company, perhaps they could simply return the wholesalers’ effort by putting in the work that is required.

By the end of the next decade, the last of the Baby Boomers will have retired, and Generation X and Y will be approaching retirement.   The Millennials will remain to be the key to the industry.  One wonders what the beer industry will be like when this generation assumes the leadership role!

Wherever you go, go will all your heart!

In the late 1970s and early 1980s, the prime rate for loans was in the mid-teens and prospective homeowners faced interest rates of up to15%.  Because the cost of money was so expensive, most people interested in purchasing a home or business looked for creative financing options, which typically meant the owner carrying back all, or part of the loan. Even at that, one would have been lucky to obtain rates lower than two or three points of prime.

Because an investor could invest in short-term CDs with no risks, it was unlikely that anyone during this time period would consider purchasing a beer distributorship with high rates.  This is exactly the position I was placed in when purchasing the Schlitz distributorship in South Texas.  Of course, this was also the era of highly leveraged buy-outs.  Purchasing any business with little to no equity, coupled with loans that were tied to the prime rate plus-one led to a road map for disaster.  While the distributorship had positive cash flow, the interest on the loans was too much to handle.  The interest rates, the selling of Schlitz to Strohs, and the unexpected collapses in the market, eventually quelled that opportunity.

On December 21st, Big Bend Brewing Company announced that they were closing their doors.  Big Bend, which opened six years ago, is located in the far West Texas town of Alpine.  While Big Bend enjoyed success in West Texas, the cost of freight across the state put the brewery at a disadvantage against other local beers. Big Bend thus decided to build a brewery in San Antonio in the hopes of easing the freight costs.

One year ago, Big Bend leased a building and reportedly paid Diversified Metal Engineering (DME) of Canada one million-plus dollar for the brewing equipment.  Soon thereafter, DME went into receivership reportedly owing $13.5 million.  Big Bend faced other challenges including difficulty in raising additional capital to build the San Antonio brewery.  Today, Big Bend continues to look for new capital but faces an uphill battle.  The brewery does have options:  they could sell their labels and the Alpine Brewery, but any new investor will demand control of the business.

With the Federal Reserve raising the prime rate coupled with the publicly announced future rates, the craft industry now faces its biggest challenge.  Big Bend could be the beginning of the real shakeout of the crafts.  Investors can now invest in low-risk notes or CDs with an acceptable return.  The question is: why would one invest in the brewing industry, an industry that many see as saturated.

The cost of entry into the craft industry is relatively low, however, as the industry has learned, long-term growth in crafts is capital-intensive, without the ability to finance or raise the funding, brewers such as Big Bend will hit a wall.  2019 might be the first year that the industry sees more breweries closing than opening.  The days of zero interest rates are gone, as are the venture capitalists.

Nobody likes high-interest rates.