Bull Dog Brewery:
Three year old Bull Dog Brewery was owned by three friends–Will Irving (the brewer), Andrew Simpson (the business manager), and Eric Knight (planner for events and promotion). By July 2016, they had established a successful pub in downtown Carrboro, North Carolina, just a mile or two from the University of North Carolina at Chapel Hill campus. With an active craft-brewing scene, North Carolina had lots of people looking for good, local beer in bars, restaurants, and bottle shops. Therefore, it was not surprising that Bull Dog had faced fierce competition from other craft breweries in their first few years of operation. However, their determination led to continued growth, which allowed them to hire three regular employees–Jesus Kino (assistant brewer), Steven Horton (pub manager) and Alfred Kilzi. They also had a group of bartenders who worked a shift or two each week. However, at the start of 2017, the co-owners began grappling with a question?
Should they begin to invest in the machinery and labor to start bottling their beer?
Should they consider different pricing strategies?
What additional ways could they look at for giving back to their community through their social
responsibility efforts?
Craft Brewing
The brewery was in the same space as the pub, and while crowded, had a capacity of 600 barrels of beer a year. The beer was sold in three ways. First, and by far the most profitable, was through the pub. Second, some beer was sold in half-barrels to restaurants and other pubs in the area. Third, some specialty beers were sold in half-liter bottles to bottle shops–stores in the area that catered to the growing audience of people looking for an interesting beer or searching for a special taste.
Financial Constraints
In the
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pub, a 12 or 16-ounce glass of beer sold for US$5 to $6, depending on the beer.
Its biggest seller, Big Mon IPA, sold for $5.50 for 16 ounces
Rubber Room Session Ale was $5.25 for 16 ounces
High-alcohol beers and specialty beers were sold at a higher price in the smaller glass, so thebrewery’s strong Thick Freakness Stout was $6.00 for 12 ounces.
The pub usually had 8 or more of its own beers and one or two guest beers from other breweries on tap.
Bottled hard cider, a limited selection of wine, and various soft drinks were also sold
The only foods sold were chips and nuts; however, North Carolina law allowed food from outside to be consumed in pubs, if the location did not have a kitchen.
One of the regular specials was on one weeknight–if customers ordered a pizza from a certain food truck parked nearby, they go a dollar off their pizza if they bought a beer.
The pub opened at 4pm Monday through Wednesday, at 2pm on Thursday and Friday, and at noon on Saturday and Sunday. There was seating for 55 inside and a shaded patio out front that sat about 35. Winter days were mild in Carrboro and the patio was often crowded, even in January and February–its coldest months.
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Selling to Restaurants and Bottle Shops
Selling half-barrels to restaurants and other pubs was more difficult than most people thought. Therewere only so many taps in any area. If someone added a new beer, someone else’s beer had to be eliminated. Many places had a “rotating tap” that featured different beers at different times. Ifa brewery sold a half-barrel to be featured in that rotation, it could sell to that place only occasionally. On the other hand, filling and delivering half-barrels was easy and breweries could rent empty barrels for almost nothing. Bull Dog charged $190 for a half-barrel of their beers. Big Mon IPA was the beer most often sold in half-barrels.
The specialty beers that Bull Dog bottled were aimed at beer aficionados. The brewery bottled sour beers, beers with fruit flavors, and beers aged for many months in used wooden wine or bourbon barrels. These were bottled using a homemade rig of lumber and tubing. Bull Dog sold these to bottle shops at a high price, often over $75 for a case of 12 half-liter (about 17 ounce) bottles. On the shelf, these bottles retailed for $8 or more. While profitable, putting these beers in bottles using this homemade bottling rig was slow and labor-intensive, and the market for beer at such high prices was limited.
In North Carolina, small brewers could deliver packaged beer to stores directly; however, larger brewers, like all brewers in many states, had to use a distributor–a middle-man. This law allowed Bull Dog to sell its half-barrels and specialty beers directly to restaurants and retailers in the area and get to know the customers directly–a competitive advantage in a market where knowing the target audience was key. Given the active craft brew scene in Carrboro and the surrounding area, the Bull Dog partners wanted to determine the best way to capitalize on locals’ willingness to pay a premium for good craft beer.Altogether, Bull Dog sold about 350 barrels of beer through these three channels. The brewery was profitable, but that excess capacity was tempting to the three partners. They really liked making beer so if they could sell the extra they would happily brew the extra. They also saw it as a business opportunity. More and more, small breweries were putting their beers into 12 ounce bottles and cans–the size most Americans were used to. These smaller containers were then sold in four- or six-packs, just like mass produced beer, though at higher prices.
Beer in Bottles
The partners were confident that they could sell the beer from their excess capacity by packaging their best-selling beers in four- and six-packs of 12-ounce bottles. But, would it be profitable? Big Mon was incredibly popular and was expected to bring a higher than usual premium in bottle shops, retailing for $13.99 per six-pack, while Rubber Room was expected to sell for $11.99 at the bottle shop. Wholesale price was just under 75% of the retail price for craft beer sold to bottle shops. For example, the wholesale price for a case of 24 bottles would be $41 for Big Mon and $35 for Rubber Room. The partners also planned to sell some seasonal beers in four-packs of bottles or cans. They figured on a wholesale average price of $38 per case.
There was a lot involved in bottling. Buying a canning or bottling machine, getting labels and six-pack carriers, choosing between cans and short or tall bottles and getting a loan were a few of the things that came to mind. They had decided to look into it, and Simpson, the business manager, had started making calls and talking to other small brewers in the area.
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First, they needed to figure out how many cases (each with 24, 12-ounce bottles or cans) they could make if they put all of their excess capacity into making packaged beer. A beer barrel was 31 U.S. gallons, or 3,968 ounces. But no manufacturing process was perfect, so they needed to account for some spilled beer and poorly fitted bottles–maybe 5% wastage–while getting the beer into the bottles. Bull Dog’s equipment was set up to brew seven-barrel batches. Irving figured that it would cost about $1,100 for each batch of the beers they expected to sell in four- and six-packs of 12-ounce bottles. However, the specialty beers they sold in the half-liter bottles and in the smaller glasses in the pub often cost more to brew.
After a lot of searching, Simpson found a bottling machine he thought was right for Bull Dog. This machine had two filling heads, and once it was set up and running, filled about eight bottles per minute. Starting it up and getting everything adjusted took about 30 minutes, as did cleaning everything when bottling was over for the day. To operate it, two people were needed to keep things adjusted, take empty bottles from cases, feed them into the machine, and then take full ones off the machine and put them back in the cases. The sales material from the machine manufacturer implied that two workers would need about 5 hours to set up the machine, fill 50 or 60 cases, and clean everything afterwards. The machine worked best if the operators labeled the bottles first and put empty, labeled bottles in six- pack carriers in the cases. The machine would cost Bull Dog $40,452 delivered to their brewery. Training, including gravel and accommodation for a night or two in a motel, would cost another $1,500. However, the travel could be considered a relevant excursion because they would pass through the craft-beer hot spot of Asheville, North Carolina on the way.
Packaging materials were more expensive than people generally believed, based on the fact that consumers usually recycled them or threw out empty ones without considering their cost. The shorter bottles, which worked with the bottling machine that Simpson liked, cost $0.24 each. Each label cost $0.04, including running it through the labeler, and the crown (the official name for the bottle cap) was $0.01. All the cardboard–the four- or six-pack carriers and the heavy corrugated case itself–came to almost $2 per case. The company would then have to buy a labeling machine for $1,750 and those full cases would have to be delivered to the bottle shop shelves or restaurant coolers. If the company packaged 50 to 60 cases each week, distribution would take the driver an average of about 10 hours per week. A van was needed that would hold much more than the cars the company had been using for distribution of the half-barrels and specialty beers. The purchase of a van would cost about $450 permonth. Bas and the driver’s wages would come to about $150 per week.
Social Responsibility
Even though Bull Dog was a small start-up business, social responsibility was important to the partners. The company paid all its workers at least the local living wage of $12 an hour for those who received tips and $13 for others. The spent grain left over after brewing was picked up by a local farm for composting. Fundraisers were hosted for many local organizations. The company allowed voter registration officials to set up a table at the pub and to hold campaign events that kicked off voter registration in the area. The partners joined the Bike-Friendly Business Program in Carrboro, which was created by a bicycle advocacy group called the Carrboro Bicycle Coalition. This organization recognized businesses that supported and encouraged employees to bike or walk to work when possible. Bull Dog joined this program in 2014 and renewed its membership each year. As the company continues to grow, it looks forward to engaging in other socially responsible projects and in expanding the way it sells beer.
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Financial Statements
From the balance sheet, the three partners did not have much extra capital for themselves after getting the brewery started. However, Bull Dog had a good credit record. It paid all its bills on time, including a bank loan to cover some of the costs of getting started, and the bottling machine could be used as collateral. Also, interest rates were low after a few years of low inflation and a soft economy. Simpson thought he could get a bank loan at 5.9% for four years, which was the extent of their future forecast. Taking out another loan and starting a new (though related) line of business was a big undertaking. Simpson, Knight, and Irving now needed to decide: should they start bottling Big Mon IPA, Rubber Room Session Ale, and some other beers?