Posted tagged ‘Beer Industry’

Day 588

April 16, 2013

Exam Week.

First up was Human Resources. Relatively straightforward and short, just 40 multiple choice questions.

Next was Beer Industry. This exam featured a mix of multiple choice, short answer and long answer, and was “open book”–we could bring in notes, reference books, a laptop connected to the internet, a smartphone Angry Birds exam app–anything we wanted. As always with an open book exam, you’ll generally do well if you know the material well enough that you only have to fact-check an item or two and you have relatively well-organized notes. Open-book exams are big trouble for the people who have to look up all the answers.

Two more exams tomorrow, so time to get studying! No time to even have a beer or write a blog entry. (As you can see, I lied about at least 50% of the last sentence. And possibly more.)

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Day 581

April 9, 2013

Third-last day of lectures.

In Human Resources, the process of union certification, and other things you need to know if you work in or will be a manager at a union shop.

In Beer Industry, Jason Fisher reviewed the semester. Key metrics. The AGCO. How to get a beer on the LCBO shelves. Compare and contrast the LCBO and TBS. Key trends in craft brewing. What type of beers I should be making (or not making) if I’m a brewpub, a contract brewery or a bricks & mortar brewery.

And like so many courses before this, another entire class spent thinking “Wha…? Did we really talk about that?”

Day 574

April 3, 2013

In Human Resources, we covered discipline. Yes, when an employee has broken the rules, you, the manager, have to decide what discipline to invoke–anything from a verbal reprimand to dismissal.

It was pretty straightforward stuff.

Last week in Brewing Industry, we had a visit from the president of The Beer Store (TBS), who told us what a warm and fuzzy place TBS is for craft brewers.

Today, we had a visit from two representatives of the Liquor Control Board of Ontario, Leanne Rhee, Category Manager (Beer & Cider), and James Hume, Product Manager (Beer & Cider). Not surprisingly, they were there to tell us what a warmer and fuzzier place the LCBO is for craft brewers.

Like TBS, the LCBO is big business in Ontario, the largest purchaser of alcoholic beverages in the world, doing $4.3 billion in sales last year via 617 stores and 5 distribution centres. Beer actually only makes up about 20% of their total sales, or about $914 million last year.

And like TBS, the LCBO has also evolved over the years. Up until the 1980s, LCBOs were horrible places. You walked into a harshly lit room with a counter at the back and a single table in the middle of the room. There were no bottles on shelves, just a list of available products on the table, each with a product code. You wrote the product code on a slip of paper and took it to the cashier behind the counter, a man in a short-sleeved white shirt and fake bow tie. He looked at you suspiciously. If you passed muster, he went into the back, emerged with a bottle of something, quickly slipped it into a brown paper bag, took your money and handed you your ill-gotten goods. You emerged from the store and slunk home to have a shower in a vain attempt to wash away the sin of alcohol.

Needless to say, LCBOs are now much friendlier places with a distinct “boutique” feel–much nicer that The Beer Store. However, whether you decide to place your product in TBS or LCBO (or both) requires some number-crunching on your part. As we heard last week, TBS has a rather stiff placement fee and volume fee that adds up to tens of thousands of dollars for each SKU you want on their shelves. However, once you’ve paid your fees, you get to keep the entire sales price of the beer. (So if you sell a six-pack for $12.95, you keep $12.95.) You also tell TBS which stores will carry your product.

The LCBO, on the other hand, has no placement fee, but they keep part of the purchase price–they decide how much they will keep–and they decide which stores will carry your product.

TBS versus LCBO–which one will be more profitable for you depends on the number of products you want to sell, where in Ontario you want to sell them, and how much volume you plan to sell.

Leanne and James were good enough to share some of the thinking that goes into their purchases of beer each year. First of all, beer is treated a little differently than wine and spirits. For instance, if you’ve been in an LCBO, you know that spirits are subdivided by type (vodka, gin, rum, etc.) with the premium brands placed at eye level, while less profitable discount brands are placed on lower shelves. Wine is grouped by country and region. In contrast, beer is all grouped together at the back of the store, subdivided by packaging rather than by place of origin or type.

Why the back of the store? Partly for the same reason that dairy products are placed at the back of the grocery store–so you are forced to walk by all the other groceries to get to them. Yes, beer is the eggs and milk of the grocery store. While spirits provide the best profit margin, beer is what drives traffic to the store. Get people to walk by the wine and spirits on the way to pick up a 6-pack, and you have an opportunity to up-sell them the latest spiced rum or birthday-cake-flavoured vodka.

(I’m not kidding about the birthday-cake-flavoured vodka–I saw it at a recent party. But I digress…)

In addition, the beer at the back of the store is closer to the warehouse, meaning workers don’t have to carry those heavy cartons of 6-packs as far.

What are the latest trends in beers, as seen by the LCBO? Single serve cans, especially 500 mL cans, have been hot sellers over the past five years, and now make up 36% of all beer sales at the LCBO. Craft beer itself is the fastest growing segment at the LCBO. Strangely, another hot seller has been discount brands of fizzy yellow industrial beers. (Sigh.)

Leanne and James also outlined the submission and acceptance process for new products–something we have covered in other classes–but it was interesting to hear the process from their perspective. For instance, each year they receive over 700 submissions for new products, end up tasting about 300 of them, and approve 150-200. (Last year saw a bit of an up-tick, with 277 approvals.)

Now think about that–tasting 300 new products each year–that’s almost one for every day of the year. I suppose that wouldn’t be bad if the products were tasty. However, I question how the birthday-cake-flavoured vodka slipped through.

Day 552

March 12, 2013

My nascent career in TV over before it really began, it was back to the brewmaster classroom. In Human Resources: what is a a properly planned performance evaluation according to Management by Objectives (MBO)?

  1. Define job objectives
  2. Set employee goals
  3. Coach frequently
  4. Compare performance to goals
  5. Reward goals achieved

Of course, just following this doesn’t guarantee that it will work. If an evaluation finds deficiencies but there’s no plan for employee training, then there won’t be any improvement. If performance evaluation is limited to annual reviews, with no regular feedback the rest of the year, then the employee will have no idea if he or she is meeting goals set out in the last review. And the whole process needs consistency throughout the company, strong managerial skills, and commitment to the process from upper management.

In between classes, I headed over the to the Teaching Brewery to hand in my final report on my specialty brew. There I learned the sad news–the shive (the large plug) in my 20-litre cask of Blackheart had suddenly popped out, the result of a build-up of too much internal pressure. Although I had carefully calculated the amount of priming sugar to use, probably some unfermented sugar left after the original fermentation combined with the priming sugar to provide too much food for the yeast. Too much food equalled too much CO2. Too much CO2 popped the shive out, sending about half of the cask’s contents all over the floor. Although the assistant brewmaster immediately hammered in a replacement shive, all the CO2 in the cask was lost–when we finally tap the cask, the beer that is left will be as flat as day-old Coke.

Alas. This is what keeps brewmasters awake at night.

Back to class. Two people from the Ontario Ministry of Finance visited Beer Industry to explain all about the beer tax that is due on each and every litre of beer we sell . (Well, almost every litre. It turns out that microbrewers–those that produce less than 50,000 hectolitres of beer a year–can get an annual tax exemption for some of the beer given away at special events for promotional purposes. But I digress…)

We covered the tax rates, which differ for breweries of different sizes. We also covered the various taxes:

  • a basic tax (which has different rates for draught versus bottled/canned beer)
  • a volume tax
  • an environmental tax (exempt if the beer is in a refillable container and the brewer intends to refill the container).

These are collected on each litre of beer sold via The Beer Store, to licensees or in the brewery’s own retail store. (However, beer sold to the LCBO is exempt from these taxes, since it collects taxes directly.)

We also studied the beer tax form each brewer has to fill out every month, line by line.

Filled with new-found tax knowledge, we were given a simple practice exercise: The fictional XYZ Brewery has just started up, and in its first month, it has produced 10 hectolitres (1000 litres) of beer. It has sold some of that beer to

  • The Beer Store (100 six-packs of 355 mL cans, 100 six-packs of refillable 341 mL bottles, and ten 20L kegs)
  • a nearby bar (100 six-packs of refillable 341 mL bottles and ten 20L kegs)
  • The LCBO (100 six packs of refillable 341 mL bottles)

How much tax does XYZ now owe?

Clearly, this was harder than it looked, since very few (if any) students got the right answer. I failed to notice that the bottles were 341 mL but the cans were 355 mL. That 14 mL may not sound like a big difference, but it becomes significant when thousands of litres are involved. Others forgot to add the environmental tax on the non-refillable cans or didn’t properly differentiate between draught and non-draught. Still others forgot to exempt beer sold to the LCBO.

So here are the correct calculations (I think), using tax rates for microbreweries:

  1. Volume of non-draught beer (i.e. bottles & cans): 622.2 L
  2. Volume of draught beer: 400 L
  3. Total volume: 1022.2 L
  4. Number of non-refillable cans = 600
  5. Basic tax  on non-draught = $0.2403/L x 622.2 L= $149.52
  6. Basic tax on draught = $0.2161/L x 400 L = $86.44
  7. Volume tax = $0.1760/L x 1022.2 L = $179.91
  8. Environmental tax (cans only) = $0.0893/can x 600 cans = $53.58
  9. Total tax = $149.52 + $86.44 + $179.91 + $19.02 = $469.45

To save wear and tear on your calculator (since this has to be done each and every month), the Ministry provides interactive on-line forms that automatically calculate the taxes you owe once you have input the various volumes of beer sold.

And then you can sadly contemplate life as you consume one of your very taxed beers.

Day 545

March 6, 2013

And so, after nine days of lazing around in pyjamas playing XBox… err, I mean, after nine days of intense work on assignments, of course… we move into the final seven weeks of this 2-year Brewmaster program. Yep, only forty-five more days, doubtless jam-packed with fun and excitement.

In Human Resources, we started a unit on Training and Development. Canadian companies aren’t known for spending a lot on T&D–it is seen as a cost rather than an investment. Well, let’s pretend we’re somewhere else that values better-trained workers.. How would we start up a training program? In a nutshell–

  1. Assessment: Your company has a problem. How much is the problem costing you? Is the problem fixable through employee training? Will the result close the gap between money currently being made and money that should be made?
  2. Design: Assuming training is the answer, plan your training program. Who will the trainer be, and who will be trained? How long? Where? What materials are needed?
  3. Implement: Schedule it. Make sure it’s a good time for both the trainer and trainees. Monitor the program. (And get feedback from the trainees.)
  4. Evaluation: Is there the improvement in production/sales that you expected? Was your cost-benefit analysis correct? How can the training be improved?

On to Beer Industry, where Toronto Star beer columnist Josh Rubin gave a talk on what he saw as future trends in Ontario craft beer. Josh was a business reporter for over a decade before he became the Star‘s beer columnist in 2005, so he brought an interesting perspective to the craft beer scene. He also brought samples of three different beers to illustrate some of his points. The man certainly knows his audience.

Josh first hearkened back to the 1980s, when there was a lot of badly-made craft beer not being sold to consumers who didn’t understand craft beer. Fast forward to the 21st century, and we have a lot of well-made beer being sold to consumers who have a much better awareness of the possibilities of beer.

This will lead to several trends in Ontario:

  • more craft brewers in the future, most of them contract brewers who will simply rent fermentor space.
  • more Quebec and American imports into Ontario

At this point, it was time to taste Josh’s first sample, Wernesgrüner Pils from Germany. This is a solid, well-made pilsner, with floral, grassy notes redolent of noble Saaz hops, and a clean, bright taste with very assertive bitterness. It is also reasonably cheap, only $2.05 for a 500 mL  can.

Point: Our competition in the future may not be the typical Canadian macro beer, but rather tasty imported beers with a low price point like Wernesgrüner. We need to be aware of incoming global beer as well as local competition.

In a small aside, Josh also discussed what he is looking for when he receives a media release. First, make it short–hopefully a page, certainly no more than two pages. Get to the point. Use non-technical language. Give contact information for a person who has further info if needed, and then make darned sure the contact person is available! Don’t send large files–use small thumbnails of photographs and mention that the large-format files are available. Josh chooses which beers to review based on the most interesting media release, the highest quality beer and the brewery with a story to tell.

Strangely, this was exactly what we learned in Professor Sandra Merk’s Strategic Communications class last year. Good to know that this stuff translates well from classroom to workplace.

Time for another beer tasting, this time Sinha Stout from Sri Lanka, a good beer with a good story behind it (over a century of continuous brewing from the days of the British Raj, despite the recent civil war.) This is also an example of a good beer arriving on our shores at a competitive price despite the cost of shipping it halfway around the world.

Our third sample was Muskoka Brewing Double Mad Tom, Ontario’s first year-round double IPA. Josh’s point was that even five years ago, there might not have been a market for this type of strong bitter beer. The fact that Muskoka’s “rent beer” is now their regular strength Mad Tom is an indication of how consumer palates have become more educated,  which in turn has created demand for extreme tastes as well as consistent quality.

beer

“50 Shades of Grain”

End of class, but not end of the day. 50 Shades of Grain, the 50-ingredient brown ale I brewed up a couple of weeks ago, was being tapped at a bar in Toronto.  As mentioned in previous blogs, when you make a cask of ale, you don’t know exactly how it will taste is until the cask is tapped. Haha! 50 Shades of Grain  turned out to be very drinkable. The taste? Well, there was some difference of opinion there. Some detected jalapeño. Others got cocoa, coffee or citrus or spice. They were all correct, of course. The beer had everything in it except the kitchen sink.

Day 531

February 20, 2013

Mid-term week is like a thunderstorm. You know it’s coming. In the distance you see a massive stratocumulous anvil head, blindingly white at the top, dark black at the bottom. There’s nothing you can do except tie down the patio furniture, close the windows, and hunker down.  Then just before the storm breaks, the restless winds fade away. There is a moment of exquisite hushed calm.

That was today.

In Human Resources, how to handle job interviews (as the interviewer, not the interviewee). You can do interviews one-on-one, of course. The panel interview is popular with some companies, with as many as five people ganging up on the poor job prospect. Then for long distance, there is the telephone interview, or for the more plugged-in among us, the Skype interview.

The most effective is probably two interviewers–that way, one can be keeping comprehensive notes, which often isn’t possible during one-on-one interviews.

In order to make valid comparisons between candidates, you’re going to want to ask the same questions. So that requires some pre-planning. Do the interview in a quiet room, free from distractions and people passing by. Needless to say, turn off your cellphone. Once you start the interview, take some time to establish rapport–perhaps ask some questions about hobbies or secondary interests indicated on the person’s resume. Then get started with your list of prepared questions. There are two basic types of questions:

  • Situational: What would you do if _______? (This can often result in textbook answers, but does give you a sense of what the person knows, at least in theory.)
  • Behavioural description: “Describe a time when you _____________.” (This can be a good indicator of actual experience, and a valid indicator of future behaviour in similar situations.)

A mixture of both types of questions probably works best. Be an active listener, and be aware of non-verbal clues as well (i.e. body language.)

Once you finish your questions, you  can validate your interview with a test. This can be an ordinary pencil and paper test, or an actual physical skills test (“Show me how to ______”). Remember to check references too.

On to Beer Industry. A special guest had to back out at the last minute so Plan B: Jason Fisher simply presented a class he had planned for a later date, a summary of the craft beer industry featuring three speeches by well-known members of the industry.

First up was Scott Metzger of Freetail Brewing in San Antonio, Texas. Scott’s thesis was that for craft brewers, economies of autheticity trump economies of scale. (Jason’s interpretation: “Your business has to have a core value of authenticity or you will eventually end up making [insert name of well-known generic lager here].”) Another interesting take-away from the same video was, “If you want better business [in your city], then be a better business.” In other words, are you running your business in such as way that it helps your city be a better place for everyone?

Next up was a video  of Sam Calagione of Dogfish Head Brewery. Sam told the story about how he was inspired to leave the path of “traditional” styles of beer in order to research and make beers from prehistoric times. (One could argue that these beers were even more traditional than “traditional” beers. But I digress…)

Jason’s wonderfully condensed take on Sam’s talk: “Find your own path.”

Finally, a video of Greg Koch of Stone Brewing. Greg is a fairly good speaker, if somewhat off-the-wall from time to time, and his advice to craft brewers was fulsome:

  • “Be remarkable. It’s a good business model, but it requires ethics, camaraderie, passion and collaboration.”
  • “Be mad passionate”
  • “Your brand is you–don’t let others lead you astray.”
  • “Craft brewing is a place for artisans.”
  • “Authenticity is required.”
  • “Don’t serve the mozzarella stix of beer–make passionate customers.”

A good video, and well worth watching again.

And with that, the storm is upon us.

 

 

Day 524

February 13, 2013

It’s still all about hiring people in Human Resources. First the application, then the first interviews to weed out the people who didn’t read the ad, possibly some sort of test to ensure the remaining applicants actually know what they are talking about–apparently a test increases the chances of picking a qualified candidate by 50% to 60%–then final interviews by the supervisor to actually pick one of the final candidates, reference checks and finally a decision. Pretty straightforward.

In Brewing Industry, Jason Fisher wanted to talk to us about competitive advantage. What is the thing that will give us an edge in a crowded marketplace? Price? Location? Energy? Authenticity? Brand? Style of beer? Partnerships?

How can you tell if one of these should be the important factor in your business? Well, for one thing, someone has probably already tried it. Look around, see who was successful  (and who wasn’t.) Don’t try to re-invent the wheel–emulate the success story. Jason quoted Steve Jobs quoting Pablo Picasso: “Good artists copy, great artists steal.”

But before you decide what you are going to make your competitive edge, find out if anyone cares. Suppose you’re going to be the first brewery in Ableville. You market yourself as “the first brewery in Ableville!” (Ta-dahh!) Do people in Ableville really care? What happens if a second brewery moves in? Get out into Ableville and poll some potential customers: Do they care whether you’re the first brewery there? Is that why they would buy your beer? If they say yes, then being first will give you a competitive edge over the second brewery. If they say no, you’d better start looking for a different competitive edge.

Price is often the first competitive edge companies think of, but it can also be the most vulnerable–all it takes is for one other brewery to underprice you, and there goes your edge.

Brand is another tricky one because it requires total commitment. If you’ve decided you are going to be the weirdest brewery with the weirdest beers, you will have to fulfill that branding each and every day. If you ever do anything ordinary–or brew anything ordinary–you’ve just destroyed your brand.

Jason also gave us another useful tip: when you are testing your business model–running some assumptions on potential production, sales, cost of goods sold and fixed costs through a spreadsheet to see if your business will soar or plummet–many entrepreneurs believe their own hype. They start with the assumption that, for instance, they can sell to 10% of the bars in the area. They run those numbers through the spreadsheet, make a few adjustments, and voila! They have a viable business model. That’s the top-down approach. Don’t do that.

The bottom-up approach simply addresses reality: the day you open your doors for business, you are going to have no sales accounts. So between making some beer, fixing the boiler that wasn’t installed right, painting the office and phoning to find out where your yeast shipment is, maybe you’ll also convince two bar owners to buy a keg each by the end of the first week (and then maybe one of them phones back and changes his mind). Maybe you’ll add two more accounts the second week. And maybe another two the third week. Okay, plug THOSE figures into your spreadsheet and see what bank balance rattles out the far end. It’s guaranteed that the number you produced using bottom-up assumptions will bear little relationship to the figure you produced from your top-down assumptions.

So okay, you may not want to present that exact bottom-up figure to potential investors–perhaps you can be a bit more optimistic during your pitch. But keep it in mind. You, the owner, should have a realistic idea of where you’re headed, and what it will take to soar rather than plummet.

 

 


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