Where’s My !*#@$% Beer?

by

ERP Market Analyst

Chances are, you’ve experienced this before. You go to a bar and ask for your favorite microbrew, only to discover that they are fresh out of it. “We’ll have some more in next week,” they probably said. “Why don’t you have it right now,” you probably thought.

It’s a fair question: why can’t our bars always have our favorite beers? Is it so hard for them to keep a beer in stock? After all, it seems like they never run out of Bud Light.

It’s no secret that most bars stay well-stocked with the popular macrobrews. As Anheuser-Busch InBev and MillerCoors acquire and merge their way to an oligopoly, their low-cost, mass-produced beer will continue to dominate the average bar’s inventory list. Meanwhile, microbrews fight for shelf space because they draw less attention and often cost more money. There’s a reason you pay more for microbrews than Miller Lites: retailers and distributors pay more for them, too.

Because of these high costs, retailers can’t afford to keep large stocks of microbrews coming in at all times. Instead, they usually wait for regularly scheduled deliveries. In the same way that retailers like Best Buy get new DVD shipments every Tuesday, your local bar may receive new arrivals every Friday.

But beers are not Blu-rays. Is this the best way for a bar to do business? In this article, we take a look at the traditional model for beer distribution, which can leave you with the unfortunate choice between going with a macrobrew or just going without. What do you usually do in this situation? Take our survey to let us know, and explain your answers or share past experiences in our comments section.

Remnants of Prohibition: The Three-Tiered System of Beer Distribution

After Prohibition was repealed, the alcoholic beverage industry still faced a number of challenges. Vertical monopolies, through which producers owned the retailers that sold their products, had to be broken up in order to eliminate anti-competitive practices. Also, temperance leagues and the breweries that feared them continued to look for ways to discourage consumers from consuming too much.

Ultimately, a three-tier system was established for alcohol distribution, which requires (with some exceptions) that producers (breweries, importers, etc.) sell their products to distributors, distributors to retailers, and retailers to consumers. With the distributor added in as a middle man, the cost of beer rose and, as a result, the level of drunkenness fell.

Now, there are nearly 3,000 beer distributors licensed by the government to ensure the safety and freshness of beer during the storage and delivery process, and they’re expected to provide more than temperance. While some of these distributors offer third party logistics (3PL) services (i.e., warehousing and transportation) for a number of different brands, others are part of a vast network that mostly serves one brewing company like Anheuser-Busch or Coors.

Regardless of which brands they serve, the responsibilities of each beer distributor are generally the same. Once the distributors receive shipments of beer from the brewers, it is their responsibility to sell and deliver the products to retailers. Initially, the distributors contact local retailers to find out what their operating margins are and establish a replenishment schedule based on how often that retailer runs out of stock. When the scheduled delivery date arrives, distributors pull from their available inventory and deliver the order. Throughout this process, these operations must keep their temperature-controlled warehouses and delivery fleets properly maintained and within regulations.

We Have the Technology…

This system seems to have everything under control, and yet, for all its efficiency, bars still find themselves occasionally out of beer. Why? First of all, as with any business dealing with inventory, a bar’s ultimate goal is to have just enough inventory to meet demand. It’s costly to hold more inventory than you need, but it’s also costly to lose customers because you’re frequently out of stock.

So, what can bars do to make sure that they always have your favorite microbrew available without taking on huge costs? The most obvious suggestion would be to find a better solution than the traditional methods of scheduled delivery. Considering the inventory monitoring and reporting capabilities provided by 3PL software these days, it seems unnecessary for a bar to ever go without. For example, vendor managed inventory systems could help distributors monitor their retailers’ inventory, determine how soon each retailer’s stock will run out, and prepare new shipments in advance.

If every keg and bottle were labeled with barcodes, bars could be scanning each of them as they are sold or dried up. This information would be sent directly to the distributor. Recognizing that one of their customers only has a few kegs left from the last delivery, a distributor could send out a new shipment to reach the bar just in time to replenish stock. This would allow bars to spend money only on inventory they need and would make sure that customers get the beer they want.

It seems like everyone wins in this scenario, but there are a few other things to consider. Most bars simply aren’t interested in obtaining the necessary technology to scan their products, and with good reason. This technology is usually pretty expensive, and most bars (at least, the good ones) are often too crowded and chaotic to deal with the added step of scanning every bottle they sell. Would it be smarter for bars to use costly technologies to keep microbrews in stock, or are they better off dealing off with a few disappointed customers? Don’t leave before taking our survey above and letting us know how you react when a bar gives you the bad news.

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  • http://www.beerconnoisseur.com Shawn Connelly

    3PL software would be ideal, but like you mentioned, it’s just not practical for most retailers in terms of cost or commitment of time to learn and use the software. I can’t speak as much to bars or pubs, but in the retail segment, I know of a popular craft beer retailer locally that has respectable 3PL capabilities built into their systems, but they’ve never had the time to learn and utilize it to its fullest extent.

    This retailer knows the value, but things just don’t slow down enough to focus on mastering its use. Plain and simple.

    Further, occasionally running out of a particular beer is simply going to happen, especially when you factor in how many sought-after craft beer labels are seasonals or one-off offerings. I don’t consider this a bad thing, necessarily. In my mind, this builds anticipation and increases buzz around a beer that can be parlayed into an effective traffic builder for the store or pub. The classic “get it before it’s gone” approach.

    Tried and true standards – the beers that are the year-round benchmarks of their respective styles – should always be available, though. These tend to be more ubiquitous and their absence probably speaks more to the apathy of the retailer than the failings of the distribution system. In other words, I don’t see any good reason not to stock these beers all the time.

    Interesting conversation! Thanks for delving into it.

    Cheers,

    Shawn

  • http://www.vacraftbeer.com Edmond M.

    I read your article and had to give it some thought. I’ll be honest, I am not sure I could find myself in a situation where I would have to take some drastic measure such as leave or order another drink altogether.
    If I go to a bar it is usually some place that is well stocked in craft beer. If I order something that catches my eye and find that they are out, well then I always have something else I have never tried or I really enjoy. I think that is beauty of craft beer. With the growth the industry has experienced, we are fortunate to find more options are out there. If this question were asked just two years ago it would have definitely been “pick some thing else to drink”. Today, however, I don’t think that is an option any more. Bars, restaurants, retailers are seeing the growth in craft beer and people are more aware of that you will always find something to enjoy.

  • http://www.localogist.com Rick Graner

    Great article and insight as our company is focusing our location based iPhone app squarely on breweries right now so I’m learning all about how this industry and it’s workings.

    I don’t think that we’ll be able to fix the “we’re fresh out” problem but we think that creating social feature that allows users of the iPhone app to notify everyone that the establishment is “out” or that the establishment has a new shipment “that just came in” and it’s shared with everyone as a way to handle this.

    I’ll get my developers on it :)

  • Dmitry

    Tracking the rate/patterns of beer consumption is not a bad idea. I’m not so sure this is that big a problem, though.

    This is just one beer geek’s take. Your mileage may vary. I never order the same beer twice in a night (if I have options).

    If I’m going out specifically for a few beers (which I do quite frequently), I’m generally going to go to a place that I know has a good selection, both quality- and quantity-wise. Even if I am going out with my heart set on one specific beer (which is rare), if the place is out of it, I’ll move on to the next-best option. That doesn’t mean more or less expensive, just whatever else I feel like drinking. No, I won’t be drinking Bud/Miller/Coors, but if those are the only remaining options, then I’m not drinking there in the first place. I know enough to not have to “ask for the closest thing” to what I wanted, and I don’t get beer style tunnel vision. If something else was the main draw for me coming there (food, company, band) then I probably won’t sweat the beer shortcomings that much.

    I guess what I’m saying is there was no option for “it depends” or “whatever I deem to be the best available option, regardless of price” option in the survey, which is really what I’d do. As far as the bar is concerned, it would do better keeping beer geeks like me happy by just having a decent selection rather than focusing on having a particular beer always present. Just have something to put in its place when the keg blows.

  • http://N/A Bartender

    You “connoisseurs” need to understand that you are probably the only person in the immediate area drinking that specific beer, and you probably drive 20 miles out of the way to find it at a liquor store! Get over yourself! When you drink a rare beer, it doesn’t make you more refined or worldly! Better yet, move to Seattle with all the other yuppie-grunge, over-educated, under-dressed mud-water swilling jackholes!

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