Beer Tap

KEG Case Study

Shrinking to Grow

How strategic downsizing helped save a top-30 craft brewery 
Highlights

THE CLIENT

A Top-30 Craft Brewery

THE CHALLENGE

To reverse a six-year trend of declining profitability 

THE OUTCOME

A $1,000,000 net reduction in operating costs, returning the client to profitability

Finding A Solution

When I arrived at this brewery, they were operating in about 1 out every 4  American states. From their perspective, the company was trapped in a paradox: in order to be profitable, they needed to be present in a wide range of regions, but until they were profitable, they could not afford to market themselves.

 

To help them find a new path forward, I analyzed their financial records. What I found was a massive disparity between the brewery’s performance across different states. 

 

Of the markets the brewery had entered, a small handful were weighing the company down. 65% of the markets being serviced were a drain on the company's financial position. Collectively, these states generated less than 3% of the company's revenue while representing over 40% of the company’s expenses. In essence, they were running two businesses – a highly profitable company operating in 35% of the markets and an overleveraged business operating in 65% of the markets.

Barrel Stack
  “You have to spend money to make money.

That phrase is older than you might think. It dates back to about 200 BC, during the Roman Empire. 

 

While that phrase is technically correct, I’d recommend a slight adjustment: “You have to spend money carefully to make money.”

 

Profitable companies often assume that growing their business will be simple. It’s an easy mistake to make – after all, their business is working as it is. If they doubled their storefronts or doubled their staff, why wouldn’t they produce double the profits?

 

When I first started my partnership with this brewer, they were facing the consequences of exactly that line of thinking.

The Problem: Death By Market Expansion

After years of strong local and regional performance, this company made the decision to expand their business in other parts of the country. This decision required a significant investment in equipment as well as personnel. 

 

And yet, growth did not increase their profitability. In fact, a year after expanding, the brewery’s leadership found themselves deep in the red.

Producing Results

Alongside the brewery’s leadership team, I began to disentangle the company from its investments in unprofitable markets. I created the plan to right size the organization. While in theory this process seems simple, it is not easy. Employees had to be let go, assets had to be sold, and certain partnerships had to be ended. 

 

But after only 3 weeks of work, the brewery and I saved the company more than $1 million in expenses over the course of a year, all of which went straight to the bottom line. 

 

By correcting against its excess growth, we were able to build this brewery into a profitable regional company with a sustainable business model – one that is still proudly operating today.

3 weeks

of research & planning

1 year

of implementation

$1,000,000

added to the bottom line
Let's Talk
Phone: 651-775-9078
Email: mike@kegconsult.com
1600 Utica Ave South
Minneapolis, MN 55416
Is your business facing similar challenges?

If you are looking to build a more sustainable business model for your taproom, brewery or bar, we’d love to help.

 

Get in touch with the KEG team today – your first hour of consulting is absolutely free.