Roll Out The Barrels!

On a daily basis we're reminded of how challenging it is to open a complex manufacturing operation like a brewery. There are a million pieces to the puzzle; we've completed the border and are slowly making headway as we try to fill in the rest. Given that we've ordered the bulk of our brewing equipment, submitted a site plan, and are close to completing our building plans, we've now moved on to other pieces of equipment that are equally as important but require less lead time.

A beautiful sight, especially when full of VBC's finest #BurgBeer.
A beautiful sight, especially when full of VBC's finest #BurgBeer.

One of those items is our keg float. The beer we produce will only be as good as the container from which it is served! While kegs may seem relatively minor in terms of the entire brewing process, they are a major expense for a brewery and can become a bottleneck for production if there aren't enough available. Cleaning kegs is a repetitive, thankless job the best job in the world, is anyone interested?

Understanding the lifecycle of a keg is important before considering how to procure them. Kegs arrive at a brewery and are then cleaned and sanitized according to the brewery's procedures. The keg is filled with finished beer and then transported a wholesaler's warehouse. From there the wholesaler delivers the keg to a retailer upon order. The wholesaler returns to the retailer to pickup the empty keg once it has been served. The empty keg then returns to the wholesaler's warehouse and is eventually returned to the brewery. 

This process can be quick (2 weeks or so) but is generally between 4-6 weeks. Retailers will sometimes hold onto a keg for a long period of time before serving the beer. Basically, breweries have no idea when their kegs will be returned! Another issue to consider is keg loss. This can happen due to simple misplacement of kegs, wholesalers returning kegs to the wrong brewery, or somebody stealing kegs and scrapping them for cash. The Brewers Association calculates that keg loss costs every brewery between $0.46 and $1.37 per-barrel of annual keg production. That really adds up over time! 

Standard keg dimensions and volumes. VBC will be using 1/6 Barrel and 1/2 Barrel kegs.
Standard keg dimensions and volumes. VBC will be using 1/6 Barrel and 1/2 Barrel kegs.

There are a few options when it comes to procuring kegs. One is to simply purchase new kegs from well-known manufacturers like Franke or Schaefer, or from companies that resell kegs from China and other places. There are some used kegs available for purchase as well, but prices are generally high (everybody is looking for kegs!) and you never know how well the kegs have been treated/cleaned over time.

One of the industries that has benefited most from the enormous growth of craft beer is the keg leasing industry. There are multiple companies (like Keg Credit, Keg Logistics, and Atlas Keg) that offer daily lease rates for new kegs. Most offer either set term leases or lease-to-own programs that include a purchase option after a certain period. Some companies, like Microstar Keg Management, go even further and integrate the logistics of the packaging process into the keg lease. Microstar provides breweries with as many kegs as they want from a pooled set of kegs, and once those kegs are filled and shipped to a wholesaler the tracking and return is completely handled by Microstar.

Every brewery handles their keg needs differently depending on a multitude of factors. We are currently considering each of the options laid out here and are planning to make a decision within the next month or so. At least we get to put together another spreadsheet to help evaluate our options! It's like we never left the world of finance. But it's better to be evaluating kegs instead of hedge fund performance!