Aug 182020
 

Finding and purchasing a beer distributorship forty years ago was not that difficult. Though many of you may find this hard to believe, during the 70s one could frequently find an AB, Schlitz, or a regional distributorship advertised for sale in the Wall Street Journal. In addition, there were brokers, Pohle Partners being one of them, who represented distributorships that were for sale. If one qualified and could be considered a distributor by a brewery, then the broker would assist with locating and purchasing a distributorship. Those days, however, are long gone.

Now, because of the near impossibility of acquiring a distributorship, those who had once dreamed of being in the beer business, have moved their focus to building their own craft breweries. The relatively low cost of entry into the craft brewing business is peanuts compared to that of purchasing a major distributorship.  And, as a brewery grows and expands, it becomes capital intensive. This, combined with the fact you are truly your own boss, and that there are no franchise fees in building and owning one’s own craft brewery, makes ownership in the craft brewery business even more popular.

Many, if not most of the startup craft breweries first go to market with kegs as this is easiest and least expensive way to market. Keg sales require no bottling or canning line, nor is there the need to purchase/lease additional space. Even using mobile canning lines can extract a heavy cost for a small craft brewer.

The question at start up becomes one of deciding to buy or leasing cooperage? Typically, most brewers decide to lease in the beginning as this is most cost effective. Many crafts have signed with MicroStar, the industry leader, only to learn that leaving their contract would then be difficult due to a seven-year commitment. This contract, along with the overall growth of the craft industry, produced opportunities for cooperage companies with shorter terms and lower costs. GlobalKegs was one of these companies.

GlobalKegs’ largest customer outside of the U.S., is AB; and until December 2019, GlobalKegs’ largest U.S. customer was Pabst.  This relationship, however, ended last November. Lagunitas Brewing Company, once a client, sued GlobalKegs last February for not returning over 5,000 kegs.  Over the last couple of years, GlobalKegs started to slow-pay distributors for their keg deposits. Distributors would return the kegs to GlobalKegs yet GlobalKegs would not pay the distributors. After Pabst left GlobalKegs in late 2019, the keg company stopped returning deposits all together.  GlobalKegs reported that their financial troubles were largely attributed to small crafts not paying deposits for the leased kegs. This, coupled with a two-million-dollar internal accounting issue, resulted in the CFO of GlobalKegs being terminated.

With the virus closing on-premise accounts in March of this year, the keg business dried up. The early reopening of the bars in many states in June gave GlobalKegs a ray of hope. That, however, ended with the resurgence of the virus and the repeat closure of the on-premise accounts. At that time, Global quit returning all calls and on July 23rd, GlobalKegs filed for liquidation in Florida. Although this is not a surprise given the history of GlobalKegs, it has created issues with cooperage in the U.S. Many distributors who have inventories of GlobalKegs now have no way of recouping their deposits and distributors are viewing their breweries as responsible for returning that deposit money. This now becomes an issue with the bankruptcy court.

Holding the brewers responsible for GlobalKegs’ demise might be considered a stretch, as had the brewers known they would be held liable for the cost of the kegs, they would not have retained them. GlobalKegs’ management is to blame, but the damage has been done. The question now is: can the industry get through this?

A bankruptcy judge can fix your balance sheet, but he cannot fix your company.

 Posted by at 6:00 am