Keg Management: Creating a Long Term Growth Strategy

Kegs are the lifeblood of any brewery’s growth strategy.
They can also be the bane of everyone’s existence if they’re improperly managed. 

Acquiring kegs is one of the first tasks confronting a new brewery. After all, you need something to put your beer in so you can get it to market. There are many sizes to choose from, both large and small. Usually, a brewery will start with a larger option and a smaller option. Here is an overview of the most commonly used sizes.

Keg Sizes

• 1/2 barrel
• 50L
• 1/4 barrel
• 1/6 barrel

Considering most breweries start with a larger option, let's take a look at the first two on the list. 15.5 gallons of keg (1/2bbl) or 13.2 gallons (50L)? Which is the right choice? Both are common among craft breweries.  Some prefer offering a perceived lower price and faster turn in a 50L. Others prefer a standard 1/2bbl to get the most liquid out the door in a single package. A lesser known factor to consider is insurance. Many breweries who used 1/2bbls and switched to 50L noticed a drop in insurance rates. Simply put, a 50L weighs less which makes it less dangerous for your employees to handle. You’ll need to check with your insurer for actual benefits.

An additional factor to consider when choosing between 50L and 1/2bbls goes beyond your own brewery staff to anyone else handling your kegs. I know that when I was working as a On-Premise Sales Rep, I always preferred working with 50L kegs. They were easier to lift and safely maneuver. All throughout the delivery process, any time you can lighten the load, even a little bit, you can help your distributors and retailers be a bit safer.

Smaller options allow for a trial size option or to service accounts that have limited space. You can acquire both 1/6bbls (5.2 gallons) & 1/4bbls (7.75 gallons)  in a tall, slim format.  This is the most popular shape as it allows the best space usage per square foot of cooler space. Traditionally, ¼ bbls were wide and short. A few accounts still prefer this shape due to height restrictions in certain kegerators but the vast majority of modern users prefer the tall, slim style.

Each of the smaller sizes has advantages. A tall 1/4bbl offers a better price per ounce for customers to sample at only 2 inches increased width. However, the 1/6bbl offers a smaller volume at a final lower price tag. For accounts looking to turn as much variety as possible in a small space, the 1/6bbl may still be the preferred option. The advantage of 1/6bbl becomes even more apparent when you deal in higher priced specialty beers like high alcohol barrel-aged beers or sours. These beers carry the highest price per ounce. Additionally, they’re produced in small volumes. A 1/6bbl will allow a brewery to spread the beer to more accounts at a final price that while high isn’t as intimidating as it would be if there were 2.5 gallons more.

What are the right choices if you’re not going to distribute your kegs into the market? What if you’re a brewpub? A lot of the same factors will apply. If you’re not exclusively using serving vessels, you’ll still need some cooperage. Maybe you want to cellar some of your imperial stout, or maybe you want to send some beers to a festival. You’ll still need some cooperage. In this case, buying a small lot of new or used kegs may be the simplest solution. In this case, look for the size of kegs that will fit your needs at the best prices. If all the kegs are staying in-house, a hand cart will help you handle the kegs safely and the extra volume of a 1/2bbl might be your best solution.

Acquiring Kegs: New & Used

 
Choose kegs that are easy to handle and deliver.

Demand for kegs is at its highest point ever.  With nearly 4,000 breweries in the United States and another 1,000+ coming online, the competition for kegs is fierce. Prices for new kegs are on the increase as demand is outstripping supply while good used kegs are seeing a similar increase in price. Kegs are a large investment, but one that every brewery needs to make.

The advantages of new kegs are obvious. You get the keg at the beginning of its life span.  Your initial maintenance costs are at their lowest. New kegs are highly durable if properly maintained. You’ll also be able to deduct the depreciation (check with your tax professional for details).

Used kegs also have their benefits. You’ll save money if you can catch a deal, but you’ll have to be highly vigilant to catch that deal. With all the new breweries, there’s a lot of competition. Be sure to inspect the kegs thoroughly. If the kegs are in bad shape, you could spend a lot of money replacing parts and getting them into usable condition. Bad used kegs + bad condition can lead to a lot of expense before the kegs are usable again.

One thing to avoid when looking at used kegs is the very old round sided, bung-filled kegs. They are dangerous to handle and fragile. Neither customers nor distributors like these kegs. Many a driver who dropped a keg from too high has had a bung shoot out and 15.5 gallons of beer spill out into a gutter. It’s even worse if it happens in an account. Many accounts refuse to buy a beer if the brewery ships it in one these antique kegs.

Acquiring Kegs: Leasing

The other way a brewery can get kegs is via one of the many leasing or rental options. Leasing allows a brewery to get kegs without the huge initial expenditure of purchasing kegs. The options on how you’re charged vary depending on the company and program you sign up with. Some charge you by the fill, others by the day, and some have a rent-to-own system.

One of the stronger selling points offered by the rental and leasing companies to startup breweries is keeping more of your initial investment capital available to use for brewery expansion/growth and other capital intensive purchases besides kegs.

Another point to consider is when you ship kegs you own (rented or purchased) out of your territory, you have to pay to get them back. Shipping two ways can be expensive. Whether you pay for it or your wholesaler does, the cost of two-way shipping will be passed onto your final customer. This is one of the advantages of a leasing option where you use kegs out of a large generic pool.

Microstar is the largest and most famous of the keg leasing options. Microstar works by moving kegs from a nearby facility or distributor to your brewery. When a brewery puts in an order for kegs, Microstar reaches out to a nearby distributor which they known will have the required number of empties. This allows them to deliver kegs just in time as requested. However, Microstar contracts require a long term and a relatively high volume of kegs filled per month. Unless you’re a particularly large startup, Microstar is probably not a viable options for a new brewery. They do offer a more modest plan under the Keg Craft brand for what they call “mid-size breweries,”  but it’s only available in select markets. Microstar also tracks their kegs, with your help, and services them to keep them in top shape.

Keg Logistics is a rent-to-own keg option. They deliver the kegs you need with your brewery’s name and logo stenciled on. This represents a middle ground between outright buying your own fleet of kegs and owning no kegs at all. The kegs you receive function as if they were owned by your brewery. They offer several plan lengths and repair services beyond the lengths of those terms. While Keg Logistics plans allow you to own your kegs, the total price is more than buying them outright in the beginning. However, if you don’t have the capital to dedicate to buying your kegs and need to keep as much of it for other areas, this will allow your brewery to get the kegs they need now while paying for them over time. They also provide logistics services to help get your kegs back to your brewery.

Keg Credit is a leasing company that operates somewhere in between Keg Logistics buy-to-own and Microstar’s pure leasing option. They kegs you receive function as your keg fleet with your name on the side. Keg Credit will handle the logistics of moving the empties around, but the kegs with your name on them come back to your brewery. They operate on much smaller quantities and shorter terms than Microstar.

Atlas Keg Company is a smaller keg company that focuses on craft brewers and offers a mix of rental and leasing options of various terms and sizes. They are interested in being flexible and creating plans that work for various breweries of various sizes. They recommend you call them directly to discuss the best option for your brewery’s needs.

Deciding on a keg plan depends on having a clear picture of your short, medium, and long term goals. No one option is perfect. Many breweries employ multiple systems to meet varying needs. Perhaps owning a small fleet of kegs for your local service area combined with a leasing option to service far flung distributors is your best option. If you’re a capital intensive startup, perhaps a sour producing brewery with intensive and expensive wood cellars, buying kegs could be too much of a capital outlay in the early days and a rent-to-own and/or leasing scheme might work better in the short term. 

Seek out information from all the sources and weigh the options. Only you can decide what’s the right choice for your brewery’s needs. Ask for references or talk to your colleagues at other breweries, they’re valuable insight can help inform your decision.

Ratios & The Float

The most common number any new brewery owner runs into in regards to kegs is 3 to 1. This is the ratio suggested by most professionals on the number of kegs you’ll need for every pouring account. Some of your kegs will be full at the account; some will be empty at the account; and hopefully you’ll have some in the brewery full or ready to fill.

In reality, this is the bare minimum a brewery will need to get off and running. As a startup, be prepared to spend a lot of time calling up your accounts and checking to see if your empty is ready to be picked up. In the early stages, you’ll have to decide which is the more valuable use of your time: selling product or keg retrieval.  If you can afford it, you may wish to buy more kegs than you actually need so that your initial growth isn’t tied to spending every waking moment running from account to account retrieving your cooperage.

Once you begin expanding outside your initial territory, whether through continued self distribution or by signing with a distributor, you’ll need to increase your ratio. 4 to 1 is probably too thin; a good distribution push can leave your brewery with beer in the tanks and no where to put it. If you can pull the financing together, 5 to 1 is a better ratio. This higher ratio becomes even more important if you’re signing with a wholesaler. An extra step in the process will lead to more time before your keg returns home.

All these kegs moving about the world without your supervision is known as “the float.”  This is also the most dangerous part of your keg’s life.

Tracking Your Cooperage

Once your kegs leave the brewery, they’re out of your control. They can become victims of theft, lost, cellared, or who knows what.  I asked Josh Pfriem of Pfriem Family Brewers how much of his cooperage he loses in a year: “I am not sure, it is hard to tell, but I think it around 10%.”  Some breweries even see higher loss numbers.

There are several ways to protect your valuable property. Josh Pfriem suggests hiring a reliable wholesaler to work with: ”Once a keg leaves your brewery, it is really hard to have control of getting it back.  We work with Distributors who we trust, so we rely heavily on them to do everything they can to get our kegs back to us.  I have noticed that higher keg deposits help get our kegs back quicker.  I am in favor of higher keg deposits.” Your wholesaler will be your most important advocate and ally when it comes to protecting your cooperage.

The next line of defense, whether you're handling your own kegs or your distributor is, is to work with your accounts. This is one of the more vulnerable stages of a keg’s journey. Many accounts are very lax about keg storage allowing thieves easy access to your breweries valued property.  A proper keg deposit will encourage your accounts to protect the keg until it can be picked up.

While having a relationship with your distributor and accounts is key, there are other methods to track your kegs. Even basic a method like stenciling an ID# on your keg will allow you track the comings and goings of your keg in a basic spreadsheet.

For those looking for a more advanced technique, there are a whole host of options allowing your brewery to affix a scannable tag onto every keg so it can be scanned in and out of your brewery. Besides simple tracking, the software offered by the various companies allows your brewery to track the keg’s contents, production/expiration dates, cleaning/maintenance records, and more. Another benefit touted by the tracking companies is a shortened keg cycle, meaning your keg will spend less time in the trade and be filled more times. TrackX estimates about a 25% faster turnaround on your kegs.

If you can afford it, it may be a good idea to start with a keg tracking system before you even send out your first keg. That way all of your cooperage will be tagged from day one.  If you can’t do this, it’s still worth investing in down the road, it will just take longer to get all the kegs in your system tagged as most will be out in the world.

Keg Tracking software offers the brewer a chance to track their kegs and learn where they’re losing kegs and who is doing the losing. This will allow a brewer to address the problem areas so they can recover more of their cooperage. Additionally, by knowing where the kegs are and what beers are in the keg you can estimate how many empties you might have at your distributor. This will allow  you to bring your kegs home sooner so they can be cleaned and filled faster.

The Strategy

Developing a keg management strategy in the very beginning stages of your brewery’s life will allow you to take care of one of your most important and vulnerable resources. Money and time spent building a complete cooperage strategy will allow your brewery to save valuable resources for important things like expansion and brand building. Whether you set up a leasing program or buy your own cooperage, building a well thought out strategy in the early days of your business plan will ensure that your fledgling brewery is starting off on the right foot. When it comes to kegs: “By failing to prepare, you are preparing to fail.” - Benjamin Franklin

If you liked reading this article, you may also like: Craft Brewing: The Love of the Hunt for New and Used Barrels.