Silver Eagle Boycott

Because then that deposit would be passed on to retailers and customers (in the case of stores that sell kegs to the public for home kegerator use), and that would be bad for business.

As far as I know, the smaller breweries aren't charging as much as ABI (I'd imagine they're also not losing as many kegs). Theoretically, they could probably raise their deposit to match ABI. But I'd imagine that many won't due to the fact that they deal with other distributors (or plan to in the future) in other cities that may not charge their accounts as much for a deposit as SE does (SE only operates in Houston and San Antonio). That means they either A) raise their deposits only for Silver Eagle, which would be a logistical pain in the ass and possibly illegal, or B) raise their deposits for all distributors, which is unfair to the distributors that are only charging $30-$40 deposits from their customers.

 

I was thinking along these lines, but why not just a barcode type system where it gets scanned at the brewery, distributor and bar/restaurant. It would be easy to figure out where these kegs go missing this way. Seems like a simple solution to me.

 

Sierra Nevada uses QR codes for their kegs that are laser etched to them, but I don't know what information in contained on them.

Either way that's just one extra thing a brewery would need to do when it's as simple as someone returning the keg. It follows the basic principle of don't be a dick.

 

I don't know that this logic works for me. A deposit isn't a cost. A customer can just put a deposit on a credit card and then they're duly punished if they don't return the keg. If they do return the keg, they were never out any money.

As for retailers, I don't see how they raise prices either unless they're losing kegs. The overhead of a business would be far greater than the increase in deposits. Also, if they lose kegs in the current system, the brewers suffer and have to raise prices to cover costs, which certainly gets passed down the line to the consumer as well.

 

Hey Asa,

To answer your questions:

1) I was not personally notified, but I can't speak for other breweries. I was the last to know about a lot of things regarding this issue. I've expressed my opinion directly to Silver Eagle about the lack of notice I received (it went something like "hey, next time can you let me know about this please?"). I think the lack of notice in general is a problem, and I agree 100% there should have been notice to all parties involved, at least 2-4 weeks worth.

2) If they are charging me less than they are charging you, then yes they would pocket the difference. However, many distribution agreements include a clause for how the additional loss is split between the brewery and the wholesaler. In same cases, the wholesaler picks up the entire loss, in some cases it is split in some % with the brewery. To my knowledge, no retailer has ever received a bill from a wholesaler or brewery for the full replacement cost of a keg. So, in many cases (I can't speak for all... every distribution agreement is different) the wholesaler has liability greater than their deposit. So... Say I charge Silver Eagle $60, and they charge you $70 (using made up numbers in this example)... when you don't return the keg, you are out $70 they are out the $60 deposit I'm holding of theirs. Say this happens 100 times, so they have $1,000 in surplus deposit fees in their bank account. At the end of the year when an audit is performed, I'm missing 100 kegs with a replacement cost of $130. Say we've agreed to split losses 50-50. I'm going to send them a bill for $3,500 ($130 - $60 deposit = $70 loss, split 50-50 x 100).

Hope these answers help.

I've said many time, I understand the perspective of the operator. It sucks to be out additional working capital, but that suckage burden isn't strictly carried by the retailer. The brewery has to spend more on kegs (our friend Andrew from New Belgium told me today that they budget $250,000 in lost kegs every year!), the wholesaler has to put up working capital (think of how many kegs they have in inventory at any time... they are carrying the burden of all of those deposits too), and the retailer has to put up more working capital.

It sucks for everyone is my main point. More than anything, I am looking forward to when we can all put this behind us and share beers together.

Scott

 

For all the problems with the way the 3-tier system currently works in Texas, I respectfully disagree that this is one of them (and I like to think of myself as a bit of an expert on all the problems the system has).

An insurance program is interesting, but I'm not sure that is any better than the current system (which essentially is an insurance system, but one without an explicit expense). The way it works now, a deposit is paid and if the keg is returned, so is the deposit. In an insurance system, retailers would pay premiums that they'd never see again, so now a new expense is added to the pool. Insurance is nice except for when you never use it, then it's just money that sprouted wings and flew away forever.

Cheers,

Scott

 

I know this would add extra expense and tracking to distributors, but would it be possible for a distributor to track which breweries' kegs go to which accounts, and if they aren't returned after X amount of time (quarterly? bianually? annually?) the accounts are billed for the number of kegs lost? (Total Keg Cost - Deposit)?

Enormous amount of extra tracking I see, but it could encourage lower deposits and punish the worst offenders.

 

It is just a lot more places for errors to happen as well.

It is not like bar owners really want to go through each keg on arrival and verify that they have all the numbers right with the correct brewery/type of keg each time. It, in general, is a lot of extra work.

Let's say that it even takes 10 extra minutes to verify all the numbers, organize it, etc for an employee each time it happens. Deliveries probably happen twice a week, so you are talking 20 minutes a week extra time for employees. Over time, you are going to be paying an employee to do the extra work instead of just paying a couple hundred dollars once....which you can get back. It will end up costing more in employee costs as opposed to just paying a deposit.

Time will be money, and a hassle, along with any issues that do arise form it. When it is just easier to have a single cost across the board to make it simple for returns. 20 kegs equals 20 keg deposits. Versus 5 kegs of this, 3 kegs of this, 8 kegs of this, 2 kegs of this, and 2 kegs of this. Just too many places for errors, or chances to lose money on a screwed up count.

 

You know, a good Freetail sour release has always proven a good time to share beers

 

Isn't this just a negotiation between the distributor and whatever business owners are choosing to boycott the distributor?

Isn't boycott is a legitimate negotiating tactic?

Why should the beer drinking public be asked to adjudicate this?

 

I guess having a business supply chain degree I have zero tolerance for negligence. If you can't make the time and pay for the time to audit inventory, you should not operate a business. The end.

 

But there is no need to make time and pay for people to do inventory when they already do it - and there is no gain from having it any more detailed. For you to spend money on this, you would want to see something to gain from it. What exactly would they gain from spending time on more detailed inventory from a bars perspective?

 

You wouldn't have your distributor accusing you of losing or stealing product. Its worth the $100/week to know what you have in stock. And knowing exactly whats your inventory gives you the trust and honesty with said distributor, so they don't hike prices. In the end though, if you own a business and can't prove what you have in inventory you shouldn't own a business. Neglecting to do audits on inventory is the number 1 reason for product loss.

 

What you are arguing is that they should keep track of inventory of how many kegs total they have. I am sure they already do.

I am arguing against that it gains nothing by spending more time keeping tabs on kegs of different breweries from the same distributor.

Basically, bars already have tabs on if they have 20 kegs from so and so distributor. We both agree they need that.

I am saying there is no cost benefit to take it a step further and saying they have to count 3 from Brewery A, 5 from Brewery B, 2 from Brewery C, 6 from Brewery D, and 4 from Brewery E. There is no cost benefit for the bar to break it down to that level. It take time to do - and time is money when you are paying employees. Just knowing 20 kegs should be sufficient.

So, when I made my statement, there is no added benefit in doing MORE inventory than knowing you have 20 kegs from a single distributor.

Basically, it would cost the bar more money to spend time breaking down how many of each type of keg they have than it would just to leave it at all the SE kegs are the same value. It would take more time for employees, which would cost more money over time than the $10 deposit hike that they will get back regardless.

 

Hey there. I'm not aware of any distributor that doesn't have regular audits and inventory counts. And any retailer worth their salt does the same. Same with breweries. The lack of folks taking inventory isn't the problem here, nor do I think anyone is accusing anyone else of losing or stealing. There are no accusations to make, the kegs are either physically there or they aren't. If they aren't, you pay the price (a lost deposit).

The change in deposit amounts isn't about a lack of trust or honesty, it is a response to a real problem: keg losses that cost our industry millions of dollars a year.

Earlier in this threat, you said:

That may not be stealing (by you), but if you are the one responsible for the keg, you are the one who should be held responsible for it disappearing. If I lend you a power tool, I sure as hell am going to blame you if it disappears because you left it sitting in your front yard.

Each person who is responsible for the asset should be able to set a deposit amount that reflects their level of risk. I've seen breweries charge $10 (not for a VERY long time), and some charge $100. I've even seen some breweries charge a deposit for tap handles (another very expensive item for breweries that is just an expense we right off. All those handles hanging around the bar as decoration or sitting in a box in a closet somewhere... they cost a lot more than you might think).

 

It is an interesting idea (though I'm not sure if it is legal... there are lots of odd things that aren't in this state). The only main hiccup here is that it turns breweries and distributors into collection agencies (distributors are probably better suited at dealing with this than a self-distributed brewery). What happens when I send a bill to Joe's bar for the 3 kegs he lost last year, but he never pays me? I could stop selling him beer altogether... but hey, Joe's is a pretty good account and the amount of beer I sell there is more than the money I'm out because of the kegs. Sucks to lose the kegs, but also sucks to lose a big account where I sell a lot of beer. Instant dilemma.

The current system of deposits, which has been in place a lot longer than I've been alive, works well in my opinion. It spreads the risk around to everyone. We (a brewery) share the cost of the lost keg with the account because hey... accidents happen. Maybe their keg vault got broken into? Maybe they had one bad employee who they've since fired but can't get the keg back? Who knows, but they're only out the deposit, not the whole thing. Just my opinion.

 

Freetail sours? Never heard of 'em.

 

Just got a link to Freetail's blog post on their site. Saw that all comments should be directed here. I posted on the original Petrol Station thread, and there seems to be a bit more discussion going on over here, so I created an account. My thoughts:

1. The deposit increase isn't going to "drive prices up" because by and large deposits are a one time payment (fixed cost): Businesses are renting the kegs from the distribution company. If businesses take care of the kegs and don't do unethical things (like sell them for more cash than the deposit but less than the cost to buy one legally) then they get all of the deposit back. (Or it rolls forward as a credit towards a new keg.) A bar that's buying even 300 kegs a week is out a one time $3,000 deposit. (Assuming the bar doesn't destroy or sell the keg...) Sure, that's $3,000 in capital that's tied up in deposits, but it's a one time cost. And if it causes a financial burden, the bar has bigger problems that have nothing to do with ABI or SE.

2. Logically, ABI is the last person you all should be blaming (for deposit increases): Everyone cheered on Hay Merchant when they posted pictures showing proof that Deep Ellum Brewing appeared to have stolen their firkins. HM was in the right if the keg was stolen. Keg theft is a problem. A painfully expensive one. For all the reasons keg theft is a problem, keg damage is too. An unusable keg is no better than a stolen one. Bars involved in the protest acknowledge that the reason for the deposit hike is large retailers returning damaged kegs, or simply not returning kegs. Just like HM was right to do what they needed to do to get their firkin back (public shame), ABI is right to do what they need to do to get their kegs back. Given the scale of ABI's production, public shaming isn't really an option, and it's highly unlikely that people are going to stop drinking Budweiser at ball games no matter how loudly ABI screams about NRG's keg abuse. The deposit hikes force businesses to internalize the cost of destroying and stealing kegs. It's the same reason everyone pays a pet deposit.

3. Legally, every business/bar must be charged the same deposit. (Although penalty charges as an alternative to deposits would be an alternative, though not sure about the logistics.)

4. [Edited] I thought that alcohol restrictions required distribution companies to treat all breweries the same in terms of deposit prices. Maybe the don't. Two "even ifs": 1. I think FreeTail hits the nail on the head about the logistical problems of charging different deposit amounts based on distribution companies. 2. SMALL BREWERIES BENEFIT TOO! If anything, ABI is probably in a better financial position than the smaller breweries, and can more easily absorb the costs of disappearing and damaged kegs. Small breweries thus likely hurt more from the problem. They also are in an insanely competitive market and are price takers, not price setters. That includes the amount they can charge SE for a deposit. They can't ask for more deposit money, but they need it. And even if they don't charge SE the deposit, SE charging the bars the deposit means the bars are less likely to lose or damage the kegs, so small guys still benefit.

5. For reasons 3 and 4, Silver Eagles isn't really screwing anyone over. Their costs went up, and that cost gets passed right along. Petrol Station argued that SE should simply eat the cost of the increase however:

• That doesn't justify the ABI rampage.
• To a single bar that never loses a keg it's a $2-$3K one time cost. But to a distribution company, we're talking millions tied up, plus every time a bar loses a keg (not every time SE loses a keg) they have to lay down more money.
• Silver Eagle isn't the business that's destroying the kegs. They're not the business that's selling kegs on the side for more than the deposit but less than replacement cost. If they pay the deposit hike, the "bad businesses" have ZERO incentive to change their behavior. And when a keg goes missing, whoever paid the deposit is out the entire deposit. Paying for bad businesses practices is NOT a one time cost.
• How much SE makes has nothing to do with this. If Warren Buffet pays my apartment deposit just because he can afford to, the incentive mechanism of the deposit is eliminated. And it is the destroyed and lost kegs that cost money.
• If your landlord charged everyone a $10 deposit, apartments would be destroyed. You raise deposits until they are high enough to disincentivize (that's not a word...) the destruction of rented property. Apartments figure out an amount that is "in equilibrium". That is, an amount that isn't so high nobody rents, but is high enough to keep people from destroying things. Clearly people are destroying and stealing kegs. Clearly that means the deposits aren't high enough. Ideally we'd know exactly how much to charge each individual bar to get them to behave. We don't. We know we don't need to charge the full replacement cost. But clearly we need more than $50/keg.

There were a few other comments in the original post that aren't too relevant. Other issues that came up in their discussion and it looks like have come up here. To the issue that keg deposits in general are on the rise/used to be $25, or that :

• Nice apartments in Montrose used to go for $700/month. Inflation is a thing. Between things like home brewers illegally buying kegs from bars (because bars can sell the kegs at a price between the deposit and market value), bars sitting on kegs forever as they age, and (according to Petrol's post) large accounts returning destroyed kegs, breweries (even the small ones) take a hit on lost and damaged kegs. Those risk factors drive deposit prices up, like oil price hikes drive up gas prices.

On the idea what boils down to a temper fit will lead to some imagined revolution:

• I fail to see how refusing to buy S.A., Karbach, or 8th Wonder is going to do anything to stick it to ABI/macro breweries. It's not like ANY of these bars were buying bulk quantities of Bud Lime. (HM is even protesting Goose Island.) The business these guys give SE is a drop in the bucket compared to the business NRG, Reliant, large accounts, etc delivers. The net effect? The guys most likely to buy local craft stop, and... everyone pats themselves on the back for being "anti-corporate"? That's insane.

My general feeling on the entire matter is:

• It's really off putting to have to suffer through the craft beer guys' constant battle against the macro guys. I just want to drink a beer and enjoy it. If I drink a Clown Shoes it's not because I want to take a stance against Budweiser, it's because the beer is better. If the only thing craft beer had going for it was that it was "not macro", that would be a sad state of affairs. Want to convince people that they should stop drinking Budweiser and should drink a Karbach or 8th Wonder instead? Don't shit all over Budweiser and SE and be the negative Nancys. It's profoundly off putting to the majority of the world. (It's why election season is miserable.) Just market and promote the brands you like and who you can support.
  
• And for the love of all that is holy do whatever it takes to dismantle the stupid 3-tier system! Macro breweries are only "bad" because the government lets them literally buy market power that they don't have, blah, blah... [insert generic anti-lobbyist rhetoric here]. Without the legal roadblocks, ABI wouldn't have nearly the stranglehold they do. Blaming ABI for bending the system to suit their interests is fun I guess, but it misses the point that it's the government taking away the rights of craft breweries that is the actual problem.

I think some of this is a rehash of what's been said, and I wish I'd known about this thread when I posted to Petrol's thread. But I didn't... So now I'm joining the party.

Cheers!

 

From the looks of your response its not the bars losing kegs, but there are millions of dollars lost each year. So it looks its SE is misplacing the kegs, so they hike prices to cover their own negligence.
Obviously I'm not good at explaining what I mean. In the instance of inventory, I mean, each account should be held accountable with the cost of lost kegs vs hike prices across the board. To me that makes it seem like abi is trying to make a profit especially when you(breweries) aren't the ones publicly raising keg deposits. It seems like abi is obviously losing kegs, but to raise prices to accounts who dont lost kegs seems "unfair", and that's why I'm sure these Houston bars are upset. From the comments above it seems like the ballparks are the ones misplacing kegs. A bar should know exactly how many kegs they have from SE, and each distributor. If they keep log of that then there would be no discrepancy about theft. Because like any product a bar owner should monitor and approve of anything that comes and goes out of the business. Ive seen it before at gas stations where a distributor will dolly in more product than the store ordered with hopes the store doesn't notice and just sign the delivery sheet. Then they are stuck with more product, or in the Petrols case not accounting for the right number of kegs that were picked up.

 

How does ABI make any money off of this?

There kegs deposits are less than the value of the keg.

They return that money when a keg is returned.

There is absolutely no way ABI somehow makes a profit from raising deposits.