2.14 Principles of Strategic Planning

What is Strategic Planning?

Strategic planning is a management activity that is used to…

Set priorities

Focus energy and resources

Strengthen operations

Ensure that everyone in the business is working toward common goals

Establish agreement around intended outcomes/results

Assess and adjust the organisation's direction in response to a changing environment.

It is a disciplined effort that produces fundamental decisions and actions that shape and guide what

an organisation is, who it serves, what it does, and why it does it… with a focus on the future.

Effective strategic planning articulates not only where an organisation is going and the actions

needed to make progress, but also how it will know if it is successful.

A strategic plan is a document used to communicate the organisations goals, the actions needed to

achieve those goals and all of the other critical elements developed during the planning exercise.

Strategic management is the ongoing activities and processes employed to align use of resources to

achieve the desired Strategy Implementation.

Effective Planning

VIDEO: https://www.youtube.com/watch?v=yCz0zjy23fo

What Are the Steps in Strategic Planning & Management?

There are no absolute rules regarding the right Strategic Planning framework, but however it is

carried out, the process must go through some variation on some very basic phases:

1) Analysis or assessment, where an understanding of the current internal and external

environments is developed

2) Strategy formulation, where high level strategy is developed and a basic organisation level

strategic plan is documented

3) Strategy execution, where the high level plan is translated into more operational planning and

action items

4) Evaluation or management phase, where ongoing monitoring, review and refinement of the

Strategy occurs

VIDEO: Overview of the Strategic Planning Process https://youtu.be/sU3FLxnDv_A

Analysis or assessment

The first step is to define your business (or prospective business) by answering the following

questions.

WHAT is our product or service? (and what is unique about what we are offering) WHO are our customers? (markets and distribution channels) WHY do they choose us? (what do we do for them or provide for them, what functions are

served by our products or services) HOW do we produce our product or service? (What are our resource conversion processes

and technologies)

Source: Derek F. Abell, Defining the Business: The Starting Point of Strategic Planning

Once these questions are answered they are the foundation of the strategy development process. A

process of evaluating the resources at your disposal, and the environment in which your business is

trading is a next logical step in developing the overall strategy for a successful business.

One process to follow is to examine the Internal Environment of the (prospective) business (that

which can be controlled directly), and the External Environment in which the (prospective) business

operates (that which cannot be controlled directly) and identify where the Strengths, Weaknesses,

Opportunities and Threats lie. Based on this information a realistic and achievable strategic plan can

be developed based on identified Sustainable Competitive Advantage.

How to carry our an Internal Analysis

An internal analysis is an exploration of the company’s competency, cost position and competitive

viability and will incorporate an analysis or the resources available to the business, the capabilities

that these resources enable, and identification of the core competencies which the business has that

can be mobilised to achieve competitive advantage and market share.

The Internal Analysis has 3 core components:;

1) Resource audit,

2) Capability analysis

3) Identification or core competencies.

1 – Resources

Identify everything that your business has available to it to help you deliver your product or service

in the best way to your customers. Resources may include any or all of the following;

Physical resources - buildings, equipment, materials (ingredients) etc. (what age, condition &

capacity)

Human resources - numbers, capability, adaptability (e.g. ability and reputation of head brewer,

management expertise, sales & marketing)

Financial resources - sources of finance, working capital available, control of debtors & creditors

Intangibles - brands, image, reputation, network of contacts & customers

2 – Capabilities

Capabilities represent the business’s ability to employ the available resources to achieve a desired

objective (mission) e.g. to make great craft beer, that is recognised for quality and consistency by

newcomers and craft beer enthusiasts alike, and to do this while making a profit, ensuring

sustainability of the business and betterment of the company staff, investors, and the community in

which we operate.

Identify all the capabilities that are at the disposal of the business to work towards this outcome.

Capabilities stem from skills, expertise, and experience as well as production capacity and financial

resources.

3 – Core Competencies

A capability becomes a competence when the well-performed activity is central to the company’s

competitiveness and profitability. A Core Competence is a competence the business has that cannot

be easily matched or imitated by competitors

4 CRITERIA THAT CAPABILITIES MUST MEET TO BE CORE COMPETENCIES

Valuable - Capabilities that either help a firm to exploit opportunities to create value for customers

or to neutralise threats in the environment

Rare - Capabilities that are possessed by few, if any, competitors

Difficult to imitate - Capabilities that other firms cannot develop easily, perhaps due to unique

historical or geographical conditions, or individual expertise, or well protected intellectual property

Non-substitutable - Capabilities that do not have strategic equivalents, such as those arising from

specific knowledge or relationships

Examples of core competencies…

Ability to develop innovative and new/next-generation products to market

Skills in manufacturing a high quality product

Better after-sale service capability

Innovativeness in developing popular product features

Speed/agility in responding to new market trends

System to fill customer orders accurately and swiftly

How to carry outr an External Environment Analysis

An external analysis is the examination by a company of the things outside the company, such as the

economy, the competition, legislative factors. These are factors that the company does not have

direct control of but that that might affect its success.

A useful tool to help with an external environmental analysis is a PEST or PESTLE Analysis.

P for Political

E for Economic

S for Social

T for Technological

L for Legal

E for Environmental

A useful resource to help with this is provided by ISO9001help.co.uk

https://www.iso9001help.co.uk/free%20templates/PESTLE%20Analysis%20Template.docx

Things to consider in the External Analysis

Important Environmental Variables

Socio Cultural Technological Global

Working Population

Diversity

Work Quality

Career expectations

Lifestyle changes

Industry R & D

New products

New Processes

Communication

Online Trading

Political Events

Global Markets

Cultures

Industrialisation

Resources

Demographic Economic Political/Legal

Population Size / Structure

Distribution

Ethnic Mix

Growth rates

GNP trends

Money supply

Inflation rates

Interest rates

Trade Differentials

Antitrust Laws

Tax laws

Deregulation

Environmental

Foreign trade

Things to consider in the External Analysis

Key Questions About Competitors

Who are the competitors? Where are the competitors located? What are the competitor’s weaknesses?

What are competitor’s objectives? What are competitor’s strengths? How vulnerable are we to competitor’s strategy?

Things to consider in the External Analysis

Political, Governmental, Legal and Economic Forces: Examples of Variables to be Monitored

Social, Cultural, Demographic, and Environmental Forces: Examples of Variables

to be Monitored

Interest Rates Inflation Rates Currency Exchange Rates Government Regulations and Deregulation EU Legislation Special Tariffs Environmental Protection Laws Import-Export Regulations & Charges

Per Capita Income Levels of Disposable Income Population Changes By Race, Age, & Area Attitudes Towards Leisure Time Average Level of Education Attitudes Towards Customer Service Regional Changes in Tastes and Preferences Rising Consciousness for the Natural Environment Unemployment Trends

What are the Industry’s Dominant Economic Traits?

Market size and growth rate Scope of competitive rivalry Number of competitors and their relative sizes Prevalence of backward/forward integration Entry/exit barriers Nature and pace of technological change Product and customer characteristics Scale economies and experience curve effects Capacity utilisation and resource requirements Industry profitability

Identifying the Critical Factors for Competitive Success

In business, Critical Success Factors (CSF) spell the difference between profit and loss, success or

failure. It is important to understand the industry CSF’s before finally assessing your business’s

potential sustainable competitive advantage on which your strategy will be built.

Competitive elements most affecting every industry member’s ability to prosper will include;

Specific strategy elements

Product attributes

Resources

Competencies

Competitive capabilities

Further examination of CSF can be achieved by asking;

On what basis do customers choose between competing brands?

What resources and competitive capabilities does a brewery need to be competitively

successful?

What does it take for breweries to achieve a sustainable competitive advantage?

Common Types of Critical Success Factors

Technology-related

Scientific research expertise; Product innovation capability; Expertise in

a given technology; Capability to use Internet to conduct various

business activities

Manufacturing-related

Production efficiency; Quality of manufacture; High use of fixed assets;

Low-cost plant locations; High labor productivity; Flexibility to make a

range of products

Distribution-related

Strong network of wholesale distributors/dealers; Gaining ample space

on retailer shelves; Having company-owned retail outlets; Low

distribution costs; Fast delivery; Care in storage and transport

Marketing-related

Courteous customer service; Accurate filling of orders; Breadth of

product line; Merchandising skills; Attractive styling; Clever advertising

Skills-related

Superior workforce talent; Quality control know-how; Design expertise;

Ability to develop innovative products; Ability to get new products to

market quickly

Organisational capability

Superior information systems; Ability to respond quickly to shifting

market conditions; Superior ability to employ new technologies; More

experience & managerial know-how

Other types

Favorable image/reputation with buyers; Overall cost management;

Convenient locations; Pleasant, courteous employees; Access to

financial capital; Intellectual Property (IP) protection

Example CSFs for the Beer Industry

High utilisation of brewing capacity to keep manufacturing unit costs low

Strong network of wholesale distributors to gain access to retail outlets

Clever advertising to induce beer drinkers to buy your brand

Offering great variety in flavours and categories

Controlling and reducing unit cost and margins

Flexibility to respond to changes in market trends

THE SWOT ANALYSIS

To help identify what are the Strengths, Weaknesses, Opportunities and Threats that relate to the

Business, a SWOT analysis is used.

S trengths > Internal W eaknesses

O pportunities > External T hreats

For a business’s strategy to be well-conceived it must be matched to both internal resource

strengths and weaknesses, and best market opportunities and external threats to its profitability.

VIDEO: How to Conduct a SWOT Analysis

https://www.youtube.com/watch?v=goxMsPCs_z0

SWOT Example

Potential Resource Strengths

Potential Resource Weaknesses

Potential Company Opportunities

Potential External Threats

Powerful strategy

Strong financial condition

Strong brand name image/reputation

Widely recognized market leader

Proprietary technology

Cost advantages

Strong advertising

Product innovation skills

Good customer service

Better product quality

Alliances or JVs

No clear strategic direction

Obsolete facilities

Excess debt

Limited working capital / liquid assets

Higher overall costs than rivals

Missing some key skills/competencies

Sub-par profits or tight margins

Internal operating problems

Too narrow product line

Weak marketing skills

Serving additional customer groups

Expanding to new geographic areas

Expanding product line

Transferring skills to new products

Vertical integration

Take market share from rivals

Alliances or Joint Ventures to expand coverage

Openings to exploit new technologies

Openings to extend brand name/image

Entry of potent new competitors

Loss of sales to substitutes

Slowing market growth

Adverse shifts in exchange rates & trade policies

Costly new regulations

Growing leverage of customers or suppliers

Demographic changes

From SWOT analysis to Strategy

A list of strengths, weaknesses, opportunities, and threats is the basis to create strategies and plans

to improve your business.

To do this make connections between each quadrant of your analysis, combining information from

two quadrants to create actionable strategies. Here’s how:

Strengths – Opportunities: Use your internal strengths to take advantage of opportunities.

Strengths – Threats: Use your strengths to minimize threats.

Weaknesses – Opportunities: Improve weaknesses by taking advantage of opportunities.

Weaknesses – Threats: Work to eliminate weaknesses to avoid threats.

When you’re finished you will have an insightful look at your business and a list of strategies that

you can implement to make the best use of the resources at your disposal.

Final Steps

1. Devise a plan. The strategy element of planning is to focus on what you’re good at, what matters,

which people are most important to you and what you can do for them. It’s about positioning,

determining your target market and product focus.

One of the fundamental tasks of the management is to create a vision, i.e. identify the future

objectives of the business and then develop the strategy that will allow you to achieve these

objectives. It is important to document these details in order to communicate your vision to

employees, investors etc.. There is also value in referring back to your original thoughts regarding

the path for your business and comparing those to actual results.

2. Define success. In order to chart your path, you'll need to define long-term goals. Think broadly

about how you see your business in several years. From there, get specific. You'll want to establish

milestones for when you want to accomplish certain goals, and know who you will want to carry

them out. Go beyond sales, costs and expenses, and look at what really drives your business. It

might be number of clients, repeat orders, clicks, products, collaborations, financial metrics or

something else. Then, establish a review schedule - when you and your team review changed

assumptions, track results and make changes as necessary.

Writing a business plan is an opportunity to carefully think through every step of starting your brewing business so you can prepare for success. A well-written business plan can help convince landlords and funding awarding bodies to invest in your enterprise. A good business plan is clear and concise so a person outside of your industry should be able to understand it. How to write a Business Plan VIDEO: https://www.youtube.com/watch?v=PDWvcsTloJo

3. Put it in motion. By planning and comparing projected performance against actual performance

you will be in a better place to recognise and highlight what’s working and what isn’t working for

your business. Suppose you are ahead in the number of retail outlets stocking your beer, but sales

per outlet are down. You collect your data, review it with your team and develop a plan to make

changes toward reaching your goals.

Whether results are better than expected or worse, the planning and tracking makes your follow up

easier. The process itself adds commitment and peer pressure to the team. Highlighting good

performance is easier when there are agreed-on numbers to define it. And, probably most

important, dealing with poor performance is always hard, but not quite as hard when you can focus

on the specific numbers instead of personalities or office politics.

2.2 Principles of Budgeting and Finance

Financing

Setting up a brewery business doesn’t have to cost lots of money and if extra financing is required

there are options available.

Video 4: Start-up funding explained Reference: https://youtu.be/677ZtSMr4-4

The first place many entrepreneurs go to look for financial support is sometimes referred to as the

three F’s (friends, family and fools). Other sources include;

Grants - A grant is an agreed amount of money given by government or other legal organizations for

a specific purpose. You may be able to apply for grants to business support agencies or similar. Seek

out information locally.

Loan Finance – Funding from a bank would involve the usual process of sharing the business plan

and the valuation details based on which the loan is sanctioned.

Angel Investment - Angel investors are individuals with surplus cash and a keen interest to invest in

upcoming start-ups. They also work in groups of networks to collectively screen the proposals before

investing. They can also offer mentoring or advice alongside capital. Seek out information locally.

Crowdfunding – Crowdfunding has been used with great success by some in the Brewing business,

none more so than ‘Brewdog’. Crowdfunding has so much to offer and you can use your

crowdfunding campaign as a marketing tool for your beer too.

Video: What is crowdfunding https://www.youtube.com/watch?v=hDolkY27I7I

Website: www.crucialcrowdfunding.com

Budgeting

Budgeting is a fundamental tool for any business. Once you start planning you will have a much

better idea of what you need to budget for. Budgets represent a detailed analysis of how a brewery

plans to receive and spend money in future periods.

Video: Budgeting Tips for Your Business https://www.youtube.com/watch?v=RgrniTAf61s

The following are the main reasons why breweries should build an annual budget.

1. Cash Flow

Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a

business.

Video: Cash Flow Statement Tutorial for Cash Flow Statement Analysis Explained

https://www.youtube.com/watch?v=mh-eTgiUO0s

With regard to day to day expenditures in a brewery, usually the owner gives it a thumbs up or

thumbs down based on cash flow that week. A budget will help manage this discretionary spend. It

will help identify seasonal effects, possible cash shortfalls and potential cash surpluses. This allows

the business build contingency funds for unexpected issues like equipment breakdown or cancelled

orders.

Read more about Cashflow: https://www.investopedia.com/terms/c/cashflow.asp#ixzz5WjK0SC7l

2. Capital Expenditure planning

Capital expenditure (and debt payback) is a strain on cash flow. Consider CapEX in the budget and

see how it impacts on cash flow, and if the payback justifies the investment.

Capital expenditure, or CapEx, are funds used by a company to acquire, upgrade, and maintain

physical assets such as property, industrial buildings, or equipment. CapEx is often used to undertake

new projects or investments and can include everything from repairing a roof to purchasing a van, or

even building a brand new brewery.

Read more about CapEX: https://www.investopedia.com/terms/c/capitalexpenditure.asp

Payback period (PP) is the number of years it takes for a company to recover its original investment

in a project, when net cash flow equals zero. In the calculation of the payback period, the cash flows

of the project must first be estimated.

Read more about Payback: https://www.investopedia.com/exam-guide/cfa-level-1/corporate-

finance/payback-period.asp#ixzz5WjMzE0uo

The Cost of Making Beer

Two components of the total cost of running a business are Fixed and Variable Costs.

Fixed costs have to be paid regardless of business activity, i.e. even if you brew/sell no beer you still

have to pay fixed costs. Examples of fixed costs include rent, insurance, debt repayments, salary

costs.

Variable costs increase and decrease with the production/sales volume. Examples of variable costs

are sales commissions, direct labour costs, cost of raw materials used in production, and utility costs.

Read more about Fixed and Variable Costs:

https://www.investopedia.com/ask/answers/032515/what-difference-between-variable-cost-

and-fixed-cost-economics.asp

Fixed and variable costs in the brewery can be further broken down into labour, materials and

overheads.

Labour Direct labour is the total cost you pay for people to make the beer.

Materials Direct materials are the ingredients you combine to make the product. Including

ingredients like water, hops, yeast, malt as well as other materials used directly in

the production of the product like bottles/cans, labels, boxes etc.

Overheads Overheads include the cost of everything else and don’t directly tie to the production of

the beer. These include the costs of running a business and going to market regardless

of your manufacturing or sales volumes. Overheads are typically referred to as “fixed

costs” because these costs do not necessarily increase (or decrease) if volume increases

(or decreases).

Manufacturing overhead (indirect material): used in production but do not directly

contribute to the product, e.g. cleaning supplies, paper and printing supplies

Manufacturing overhead (indirect labour): can include the cost you pay for people to

sell your beer, or office administration.

Other overhead: rent, insurance, light, heat and power, equipment costs, loan

repayments, bank charges, cleaning products, maintenance, advertising, marketing,

logistics, distribution, accountants fees, sales and marketing expenses etc.

Generally Accepted Accounting Principles require that you capture overhead so that you can

properly value your inventory and cost of goods sold. There is also a business benefit to knowing

direct and indirect costs, i.e. you will get a better look at your true costs of producing your beer, and

the costs of doing business.

There may be some debate about what category certain costs fall into, but consistency is key. Be

consistent from month to month with what costs you include in which category. This consistency will

allow you to compare like numbers from one period to the next and have confidence in the results.

Financial Statements

There are three statements that are essential to any business

Income / expenditure statement

balance sheet

cash flow statement

The income statement showcases your profit margin and ultimately shows efficiency over time.

Because it shows income, owners often mistake this as the only statement they need to assess their

success, but do not confuse income, or profit, with cash!

The balance sheet is a snapshot of your business at a single moment in time and is important when

looking at ratio calculators and key performance indicators (KPI’s).

Lastly and arguably most importantly, your cash flow statement shows how money flows in and out

of the company, not only operationally, but also through investments and financing.

Key performance indicators (KPI’s) are a set of quantifiable measures used to gauge performance

over time. These metrics are used to determine a company's progress in achieving its strategic and

operational goals, and also to compare a company's finances and performance against other

businesses within its industry.

Read more about KPI’s: https://www.investopedia.com/terms/k/kpi.asp#ixzz5WjO0budK

Pricing strategy

Pricing strategy is used by business to increase sales and maximize profits by selling their goods and

services at the optimum price.

Pricing affects both your overall profitability and how your company is positioned and perceived in

the marketplace. It’s also one of the key factors you need to get just right for your company to

succeed.

Figuring out how much to charge for your product is ultimately a strategic planning question. In fact,

the pricing of a product is one of the most important aspects of your marketing strategy, and general

business strategy.

Video: Pricing Strategy Reference: https://youtu.be/mmm0ccYPliU

Video: The Marketing Mix - Pricing https://youtu.be/2tzd7XivFqk

Video: Pricing Strategies - How to price a product

https://www.youtube.com/watch?v=4t_MEO_la_k

Generally, pricing strategies include the following:

Cost-plus pricing—simply calculating your costs and adding a mark-up

Competitive pricing—setting a price based on what the competition charges

Premium Pricing —setting a high price to position your product as Premium Quality

Penetration pricing—setting a price low to enter a competitive market and raising it later

Price bundling—combining products and/or services to increase value, and therefore price

Price Skimming – Set a low price to effect market penetration, with a view to increasing the

price once established

All pricing strategies are two-edge swords. What attracts some customers will turn others off. You

cannot be all things to all people. So you have to pick your primary customer segment and price

based on that segment’s needs and buying behaviours.

6 Steps to setting the right price for your products

1 - Calculate Costs

As a business owner, it is important to set your product prices high enough to cover your costs, turn

a profit, and still remain competitive. To accomplish this, you must track your firm's production

costs, which include your direct costs, such as raw materials, and also any indirect costs, associated

with producing your product.

2 - Calculate Break-Even Point

The break-even point is the amount of sales you need to generate to recover all your costs.

The break-even point is the point where total costs (expenses) and total sales (revenue) are equal.

Break-even point can be described as a point where there is no net profit or loss. The firm just

‘breaks even’.

Calculation

Break-even point is the number of units (N) produced which make zero profit or loss

Break-even point (BEP) = Fixed costs / (Revenue per unit - Variable costs per unit)

Learn how to calculate Break Even Point: https://blog.projectionhub.com/startup-brewery-break-

even-analysis-template/

3 Check the Competition

Your competitor’s prices will have a direct impact on what customers will pay for your beer so it is

key to know your marketplace. Learn everything you can about your competition, what they’re

offering and their prices, that will give you a sense of the going rate and can also give you some ideas

about how to differentiate.

A brewery that has already paid off all its equipment may be able to charge lower rates than

competitors that haven’t, or one that brews under licence. Another may be operating at lower profit

margins. It is not always possible to compete on cost, instead you want to offer something better or

different.

4 Know the Market

Mark-up = the amount added to the cost price of goods to cover overheads and profit.

It is important to remember that you can’t choose your mark-up based on maths alone. Many

factors impact on what customers are willing to pay, and where you can position your product

within that range, and you must remember that your product is tangible i.e. your customer can see

the quality, smell it and taste it, so the value is visible.

5 Determine the Mark-Up

The mark-up is expressed as a percentage of cost of goods sold or cost of sales. It is set to try and

ensure that a company receives a high enough gross or profit margin to be able cover costs while

also earning a target profit.

Mark-ups are normally used in retail or wholesale businesses as an easy way to price items.

With information on your cost of goods sold and break-even point, as well as understanding of

competitor pricing and where you want to position your brand, you can decide on the size of your

mark-up.

Read more about Mark-Up and Profit Margin at

https://www.investopedia.com/ask/answers/102714/whats-difference-between-profit-margin-

and-markup.asp

6 Monitor & Control

The business environment is constantly changing, and that can affect your goals and margins. Annual

budget setting is a good time to look at how your prices, costs for inputs, energy, labour, interest

rates, taxes etc. are evolving.

And keep looking at what the competition is doing.

2.3 Principles of marketing beer

Understand trends in beer sales

Beer is an integral part of Europe's heritage and collectively, the EU is the world's second biggest

beer producer. The Growth in the European beer sector can be primarily attributed to the increasing

demand for specialty beers and low/non-alcohol beers in the EU. Globally, a surge in female

drinkers, a rise in youth population and an increasing disposable income also fuel the growth of the

beer market.

(Graphics courtesy of Professor Johan Swinnen, University of Leuven, co-author of ‘Beeronomics –

How Beer Explains the World’, and ‘Economic Perspectives on Craft Beer – A Revolution in the Global

Beer Industry‘)

Globally, upward trends in beer consumption in large emerging markets is being capitalised on by

the Largest Beer Companies and Beer Brands in the World.

https://www.nbwa.org/sites/default/files/Global%20Market%20Share%202014%20Top%205_0.jpg

Top 5 Global Beer Companies

1) Anheuser-Busch InBev.

2) Heineken.

3) China Resources Snow Breweries.

4) Carlsberg.

5) Molson Coors Brewing.

In Europe, Russia is now the largest consumer of beer, followed by Germany, the United Kingdom,

Spain, France, Poland, and Italy. Currently, France is the fastest-growing market for beer

consumption. Eastern Europe encompasses huge growth opportunities for the beer market.

More in debt analysis of the beer industry in Europe can be found in the Brewers of Europe Beer

Statistics publication.

https://brewersofeurope.org/uploads/mycms-files/documents/publications/2017/Statistics-201712-

001.pdf

The Craft Revolution

Craft beer is the rising star of the beer industry registering a triple growth rate of the total beer

market between 2015- 2016. There has been a substantial increase in smaller markets such as Italy,

Spain and Denmark. The Polish Craft beer market rose by 16% in 2016 compared to the 2% for non-

craft beer. The UK has seen double digit increases since 2011 with a 22% increase in craft beer

product launches in 2016. It is estimated that the increase in demand for craft beers will boost the

beer market in Europe through to 2020.

The key driver is new product development. Consumers are drawn to innovative flavours and

demand for speciality beer and low / non-alcohol beers has been increasing in Europe.

Future Trends

Overall, the Global Beer Market is poised to continue to grow despite healthier lifestyles and greater

awareness of risks associated with excessive alcohol consumption, resulting in consumers changing

their attitude to alcohol. Quality and not quantity is the new trend.

37% of global consumers state they plan to reduce alcohol consumption for health reasons. This can

be aligned to a growing popularity of sporty lifestyles, as well as ever-increasing image-

consciousness, as consumers try to limit their intake of calories

The desire for fun, indulgent beverages, along with the growing amount of consumers looking for

healthier lifestyles, has boosted the number of launches of low-ABV or non-alcohol beers.

Increasingly consumers are checking the alcohol content before choosing a beer. This is especially

prevalent in Asia; Latin America and North America. Low or no alcohol beers can give manufacturers

plenty of space to experiment with unusual recipes and flavours.

Predictions for future trends

The global beer market is unlikely to grow by more than 2% per annum for the foreseeable future

Consumers are more experimental in their consumption habits and looking for new experiences

and experimenting with different beer styles. Flavoured Beers and Beer Mixes in particular appeal

to the new discerning beer drinker.

Premium brands are driving growth as consumers are increasingly drinking less but drinking

better. Craft beer drinkers in particular tend to seek premium or higher-end beer and

craft/artisan beer is most likely to be perceived as featuring high-quality ingredients, made by

hand, and authentic.

‘Craft’ beers have grown spectacularly since 1998 and growth of localism (anti-globalization

attitude); a desire for small scale exclusive products; and an interest in artisanal production

methods will continue to be a factor in the future, although growth rate will surely slow down.

The word ‘Craft’ is in danger of being devalued, threatened by lower quality or inconsistency

from producers and from continuing growth of craft volume. These factors contribute to a

deterioration of the perception of quality and exclusivity.

Alcohol-Free beers are likely to grow in popularity and become mainstream choices as consumers

manage their alcohol consumption and calorie intake. This could precipitate a new opportunity

and a new challenge as the beer industry competes directly with the soft drinks industry.

Online beer sales will increase.

https://www.youtube.com/watch?v=MFs-8B2j-4o

101: Saugatuck Brewing Co. - How Brewery Marketing Works

Important aspects of marketing beer

Marketing is one of the most important things a business can do. A brewer that can get their beer

right and their marketing right will be in a strong position Not only does marketing build brand

awareness but it can also increase sales, grow businesses and engage customers. There are so many

core business functions that stem from a good marketing plan that any brewery would be silly not to

give it due consideration;

A Marketing Strategy developed in a Marketing Plan is important because it is not a one-time event,

it is an ongoing strategy that helps businesses maintain long-lasting and ever-present relationships

with their customers.

Know what your customer wants

As a brewer, the decisions in the brewery must be made with consideration for the final user (the

customer). Knowing your customer is key for any business endeavour. Successful business owners

understand what their customers want and the most effective way of giving it to them at a price

they are prepared to pay.

As a business owner, knowing your customer’s age, income, hobbies, tastes and interests along with

what they watch, listen to and read, as well as understanding your customer’s buying behaviour can

be a profitable advantage.

Breweries that know what their customers (or fans) want and what they expect can also work on

customising the customer experience to create loyalty and repeat business. Smaller breweries

already have the upper hand for achieving this competitive advantage through a more personal

approach that the larger international breweries simply cannot manage.

By extending the length of your customer’s interaction, through tastings, beer festivals, tap rooms or

any other innovative means will provide a greater opportunity to create a positive experience and

build a strong relationship.

Ten things you need to know about your customers when developing your marketing strategy.

1) Who they are

2) What they do

3) Why they buy your product

4) When and where they buy your product

5) How they buy your product (bottles/cans in supermarkets/off-licensed premises,

bottles/draught in bars etc.

6) How much money they have to spend on craft beer

7) What makes them feel good about buying a particular beer (style or brand)

8) What they expect of you and your beer

9) What they think about you and your beer

10) What they think about other beers and beer producers small and large (i.e. your

competitors)

Important components of marketing strategy

One of the core components of the marketing mix is the Product. Beer is perishable and it is vital as

a brewer to ensure that the beer your customer tastes is consistently in its best possible condition.

This means that distributors, wholesalers and retailers have to do their part and make sure that your

product is handled and stored properly.

To find out more about how to manage your beer quality from the time it leaves your brewery until

it ends up in your customers class, the ‘Best Practice Guide to Quality Craft Beer’ from the brewers

association provides general guidelines for distributors, shippers, publicans, sales staff, off-trade

sellers, bars and restaurants to better deliver high-quality craft beer.

Another consideration is where your product fits by category. The beer market is categorized into;

Normal category

Premium category

Super premium category.

This will help you define another of the corm marketing components, Price.

https://www.brewersassociation.org/attachments/0001/3980/EDP_Quality.pdf

Another key component is Packaging. The choice of packaging is not only a consideration from a

process or price point of view, but it is a key component of the marketing strategy.

By packaging, the market is segmented by

Draught beer.

Canned beer.

Bottled beer.

The choice of packaging must also consider how, when and where your customer will buy your beer.

i.e. Place. e.g. Online, Supermarket, Bars or Restaurants, Specialist bottle shops, direct from the

brewery etc.

Online Resource: Further learning on the Marketing Mix (4P’s and 7P’s) here…

http://marketingmix.co.uk/

Video: The 4 Ps of The Marketing Mix Simplified

https://www.youtube.com/watch?v=Mco8vBAwOmA

Trends in advertising beer

Brewers traditionally have promoted their beer through all kinds of media. TV ads, radio, interactive displays,

point of sale (POS) materials, sponsorships, merchandising etc. These can be costly for the start-up micro

brewer. However, there are other methods that provide much more bang for your buck, including clever social

media marketing, and some more original branding and marketing strategies that beer companies are

employing. Do not underestimate the importance of branding and marketing when you are developing your

business plan.

Examples of beer marketing strategies

Some brands are investing in their ‘look and feel’ perception through the brewer / breweries back story,

choice of ingredients, the type or packaging and labelling, and the price point.

Clever digital advertising can get people to interact with a brand through smartphones and other electronic

devices. For example, a Budweiser campaign allowed people to buy friends in another part of the world a

beer via Facebook, tripling sales, and earning the brand 23 million media impressions.

Releasing limited or commemorative editions to target niche customers and seasonal preferences.

Collaborations can also be a good way to introduce your brand to the customers of another brewery and

thereby open up new demographic or geographic markets.

With all the different advertising and promotions methods available it is encouraging to know that word of

mouth is still a powerful method of promotion. Many consumers don’t trust traditional TV, radio, newspaper

advertising as much as non-traditional advertising such as personal recommendations, online opinions by

bloggers/influencers and editorial content. To benefit from this, your beer distribution is an important part of

the equation, and quality of your beer at the point of use is vital. Word of mouth can work both ways!

https://www.youtube.com/watch?v=Ji8MOQMwnwM

The Future of Beer Marketing: Exploring Digital and Influencer Strategies

Build your Online Profile

Following is a series of videos from ‘Social Media Elite’ on how to build a winning online presence via Social

Media.

Managing a successful brewery is much more than making tasty beer. Failure usually stems from lack

of understanding of the operational aspects of the business, including;

Working Capital and cash flow management

Smart marketing and branding strategies

Planning for distribution

Managing expansion

Inventory and costs tracking.

In order to make a profit you must know how much money goes into your beer and how much you

need to get out. Careful cost tracking is a must. You must understand the key financial ratios, such as

break-even point, matching production runs with projected sales, and the costs and margins of

different products, and inventory control.

You must also understand, and proactively manage, all aspects of the supply and value chain.

Supply chain and Value chain - supply chain is the process of all parties involved in fulfilling a

customer request, while a value chain is a set of interrelated activities a company uses to create a

competitive advantage.

Supply Chain

The supply chain comprises the flow of all information, products, materials and funds between the

different stages of creating and selling a product. The supply chain includes all functions involved in

receiving and filling a customer request. These functions include:

1 Product development

2 Marketing

3 Operations

4 Distribution

5 Finance

6 Customer service

Value Chain

Maximizing the activities in any one of the five steps of the value chain allows a company to have a

competitive advantage in its industry. The five steps or activities are:

1 Inbound logistics: receiving, warehousing and inventory control

2 Operations: value-creating activities that transform inputs into products.

3 Outbound logistics: activities required to get a finished product to a customer

4 Marketing and sales: activities associated with getting a buyer to purchase a product

5 Service: activities that maintain and enhance a product's value, such as customer support

A profitable value chain requires connections between what consumers demand and what a

company produces. A well-managed value chain will focus on things such as product testing,

innovation, research and development, and marketing.

Operations management – This is the administration of business practices to create the highest level

of efficiency possible. Operations management involves utilising resources from staff, materials,

equipment and technology.

Operations management handles various strategic issues including determining the size of brewing

plant, project management methods and the structure of information technology networks. Other

operational issues including work-in-process levels and raw materials acquisition; quality control;

materials handling; and maintenance policies.

Inventory Management

Operations management includes the management of inventory, understanding the use of raw

materials to determine when, and how much materials, to order to ensure excessive materials are

not in stock tying up valuable working capital (and floor space), but also ensuring that levels will not

run low and therefore slow down production. To achieve this the manager must find vendors that

supply the appropriate goods at reasonable prices and have the ability to deliver the product when

needed.

Delivery Management

Another large facet of operations management involves the delivery of goods to customers. This

includes ensuring products are delivered within the agreed time commitment. Operations

management also typically follows up with customers to ensure the products meet quality and

functionality needs, takes the feedback received and distributes the relevant information to each

department to use in process improvement.

GOOD MANUFACTURING PRACTICES FOR CRAFT BREWERS

Good Manufacturing Practices for Craft Brewers (GMPCBs) are a set of standards and industry

recommendations for the Brewing Industry which include;

Establishing strong quality management systems

Obtaining appropriate quality raw materials

Establishing standard operating procedures

Detecting and investigating product quality deviations

Maintaining reliable laboratory tests

Meeting sanitary and processing requirements

Packaging and labelling according to approved standards.

These standards can help management to put in place processes and procedures for good

operational practice. A set of checklists for audits or inspections are organized under these topics:

Plants and Grounds

Equipment and Utensils

Sanitary Facilities and Controls

Sanitary Operations

Processes and Controls

Personnel

Equipment and Utensils

Personnel

Plant and Grounds

Process and Controls

Sanitary Facilities and Controls

Sanitary Operations

These standards, or others like ISO 9001 and HACCP can be very useful tools when developing

manufacturing and operational systems.

ISO 9001 - https://www.iso.org/iso-9001-quality-management.html

HACCP - http://haccp-international.com/

GMPCBs https://www.brewersassociation.org/educational-publications/good-manufacturing-

practices-for-craft-brewers/

GMPCBs, or similar, are a critical aspect of any brewery environment for the following reasons:

They establish clear guidelines for the hygiene and cleanliness of the workers and their

workplace

They are the foundation of any quality or food safety program in any manufacturing setting

They dramatically decrease the food safety risk for the brewery’s customers

They are easy to execute and maintain

SUSTAINABLE BREWING BUSINESS

With all the thermal and electrical energy that’s consumed in the brewing processes, energy

efficiency at breweries is a growing concern for those looking for long-term cost savings. The key in

reducing the overall energy expenditure is to achieve this goal by employing simple steps in both

maintenance and plant practices, without compromise on the ability to deliver the best product

possible to their customers.

VIDEO: Sustainable Craft Brewing

https://www.youtube.com/watch?v=J4Mq52O9UVU

VIDEO: Integrated Water and Energy Management at a Sustainable Craft Brewery

https://www.youtube.com/watch?v=HEQf3D0NQ5c

https://www.energystar.gov/ia/business/industry/LBNL-50934.pdf

Energy Conservation

All businesses are dependent upon fossil fuels in order to create and transport their products. While

employing technology to source renewable energy resources is part of the solution, the first goal

must be to reduce the need.

An energy audit is a great place to start and will help determine how much energy is being used,

how much is being wasted and what kind of measures can be implemented at the brewery to

increase overall operating efficiency.

Through investing in efficient processes, and equipment, harvesting waste energy through heat

exchangers & energy storage tanks, harvesting CO2, and designing with conservation in mind, a lot

can be achieved to the benefit of the environment, and the business, without too much financial

outlay.

Review Boiler and Steam Requirements

Boiling the wort accounts for about 25-35 percent of the total energy usage for most breweries.

Even though a portion of fuel is used to generate the heat for boiling wort, it is important to make

sure that as little as possible is being wasted.

As with most equipment involving heat, proper insulation can reduce unwanted heat loss and lower

the total usage of fuel, saving you money.

Inspect your equipment for leaks and seal them if any are found. As with leakages, higher than

necessary pressure can also cause a loss in steam. In order to prevent this, adjust pressures for

optimal performance while still meeting the requirements of the boiling process.

Refrigeration and Cooling Temperatures

Refrigeration consumes a large portion of the total electrical energy used by most breweries,

averaging about 35 percent of the total electricity expenditures. As with boiling, insulation applied to

piping can reduce waste. Inadequate insulation, leaving doors ajar and allowing warm air to invade

cold storage areas can all contribute to waste. Compressors not operating at their full efficiency

cause further energy loss in the refrigeration process.

Monitor Your Compressed Air System

Compressed air systems typically consume around 10 percent of the total electricity used by most

breweries. Ensure that your compressed air system does not exceed required pressures, and that it’s

running at optimal efficiency.

Even a small leak could prove costly over time so identifying, repairing and conducting routine

maintenance inspections for leaks provides a great benefit.

Identify Any Energy Waste in Packaging and Bottling

Energy is expended during the packaging process on the bottling line. Everything involved in the

process, from filling the bottles to placing the products on shipping pallets, consumes energy.

Identifying waste and employing methods to make the process more efficient can help save you

money and reduce your overall energy consumption.

Determine if Brewing Can Be More Efficient

Determine which methods can help increase the efficiency of your brewing process without

sacrificing the quality of your product. Since the preparation of the equipment consumes energy,

brewing batches without much downtime in between can result in a more efficient operation.

https://www.diva-portal.org/smash/get/diva2:829201/FULLTEXT01.pdf

QUALITY

Definitions of quality usually fall into two general categories: those definitions that refer to

‘excellence or fineness’ and those that refer to ‘‘consistency meeting specifications’.

Many brewers can get drawn towards the ‘excellence and fineness’ definition. They can then decide

that one beer has ‘quality’ and another does not based on personal taste. If you don’t like a beer or

don’t approve of it for some reason that does not mean it has poor quality.

The ‘consistency meeting specifications’ definition is based on scientific fact. You might argue that

‘terrible beer’ can be ‘consistent and within specification’ and therefore be a ‘quality’ product. Quite

right. So, another definition of quality might be ‘giving the customer a consistent beer at a price

that they are happy to pay’.

The ‘consistency’ definition contains two points that need to be addressed:

1. What are and how do brewers establish specification and how do they find out if

specifications have been met?

2. How do brewers set up the process to achieve consistency?

The idea of consistency immediately requires a system of people, plant, and process who are able to

repeat exactly what they do time and again. This is the essence of Quality Control

What is 'Quality Control' (QC)

Quality control is a process through which a business seeks to ensure that product quality is

maintained or improved with either reduced or zero defects.

A major aspect of quality control is the establishment of well-defined controls. These controls help

standardize both production and reactions to quality issues.

Quality control involves testing of units and determining if they are within the specifications for the

final product.

Quality testing involves each step of the process, from raw materials to final product. Testing at the

various stages helps identify where a production problem is occurring and the steps required to

prevent it in the future.

What is ‘Quality Assurance’ (QA)

Quality Assurance (QA) is the maintenance of the desired level of quality, especially by means of

attention to every stage of the process of production, distribution and serving. Thus QA has to do

with the general status of the plant, process, and people as well as the product

(QC deals with specific issues of specification and analysis focusing on the product only)

For example, a program of plant sanitation with the objective of assuring low counts of foreign

organisms in the beer is a QA program. The analysis that measures, monitors and ensured if the low

counts have been achieved is a QC program.

QA programs are essential to success in a brewery enterprise. The three pillars of brewery QA are

1. Specified raw materials

2. Consistent processing

3. Rigorous sanitation.

The Main Brewery Quality Control Measures

Specifications

Specifications are nothing more or less than a list of beer properties that define the product.

Brewers decide on the basic properties of colour, flavour, original gravity, alcohol content,

carbonation levels, package size etc. and from this develop a formulation of raw materials and a

process to achieve the desired final product.

Beer specifications and the analyses that go with them are of two general kinds:

Those that require instrumental analysis (Instrumental analysis)

Those that can be perceived by the human senses (Sensory analysis)

Instrumental Analysis:

The following characteristics are high on this list of ‘invisible’ specifications measured in wort and

beer:

Measurement of Specific Gravity (OG and FG) and the degree of ferment-ability (hence

alcohol content) of beers

Microbiological status

CO2 Content (carbonation)

Oxygen content

Temperature

PH

2. Good sensory program

A good sensory program does not necessarily rely on specific equipment, but it is very important to

evaluate your beer in order to identify any quality issues prior to releasing.

Characteristics that can be analysed through a sensory programme include:

Beer flavour (undoubtedly beer’s most important attribute)

Beer clarity

Colour

Foam and Head Retention

Diacetyl, if important to the product. Checked by heating the beer to develop and volatilise

the diacetyl aroma

Brewers who do not regularly and critically taste and visually examine their beers in a formal setting

deny themselves much critical information.

3. Proper methods

With anything that is done in the brewery, you can have the best equipment and technology, but

never achieve good results without proper methods. Standard methods are the backbone of quality

control. The most widely used industry standards and methods come from the American Society of

Brewing Chemists (ASBC) and the European Brewing Convention (EBC). These are both great

resources to help you achieve excellence in instrument usage and standard methods.

Further reading:

WEBSITE RESOURCE: American Society of Brewing Chemists (ASBC) http://methods.asbcnet.org/

WEBSITE RESOURCE: European Brewing Convention (EBC) https://www.analytica-

ebc.com/index.php?mod=contents

Consistency

Generally, brewers are well aware of the need for specification and consistency in brewhouse

operations. Brewers generally behave in consistent ways when making beer, e.g. they repeat the

weights of malts and hops used, and the times and temperatures at which they are brewed

That might be said with less confidence in cellar management, in wort aeration or control of the

yeast pitching rate.

Keeping records is the foundation of a quality control program. There is very little point in making

quality-control measures on wort’s and beers unless the values obtained are actually used in some

sensible way to control quality. This involves recording the results in a usable way, such as on a

graph, so that trends can be detected readily. Upper and lower limits of acceptability should be

established, with procedures for recording non-conformance and implemented corrective action.

QUALITY CONTROL PROGRAM

Even without the latest equipment, a Microbrewery can still focus on the proactive side of quality

assurance and do the work correctly in the first place.

At a basic level, the two measures of quality for beer should be that it is:

Free from contamination

Consistent in acceptable flavour

This can be achieved with investments in time, effort, and a small outlay of money that may not be

much more than the ingredient cost of one batch of beer.

To start, cleaning and sanitation will help ensure that the beer is free from contamination. Some

basic lab equipment that every brewer should have can be used to help ensure beer quality from a

consistency angle.

Example of a brewery quality assurance program

Hourly

Seam checks on all can line runs

Package headspace readings and crown crimp checks

Inspection of crowns, labels, fill levels, glue pattern on boxes, date stamps on bottles, cans

and boxes.

All batches

PH and gravity readings on all batches

Yeast counts and viability on every pitch

IBU and SRM readings

Full microbiological testing on every batch about 24 hours after the pitch and 1 week after

the pitch.

Sensory analysis on all package runs.

Two times a week

Forced wort testing checks the hot side CIP and heat exchanger integrity

ATP testing on can/bottling lines

Weekly

Full microbiological testing on bright tanks

Full microbiological testing on all packaging runs and switches from brand to brand

Bi-weekly

Sensory panels tasting cold aged product at month intervals

BREWERY CLEANING

A cleaning routine does not need to be complicated, as long as it is well thought out and becomes

part of the daily activities of the brewery.

Reasons to Clean

Adherence to high cleanliness standards pays dividends in the perceived and actual beer

quality

Avoiding contamination, off-flavours and un-sellable beer

A clean brewery is a marketing tool, especially for brewpubs and Micro/Craft brewery’s

where the brewery is usually on constant display.

Clean equipment exposes small problems sooner, allowing running repairs and avoiding

downtime

It is much easier to work in a clean and organised environment

Almost all professional brewers use clean-in-place (CIP) techniques to cut down the work load and

make regular cleaning efficient and effective. CIP involves circulating detergent or sanitiser through

a spray ball in the top of the kettle (or mash tun, whirlpool, fermenter, bright beer tank, or any other

enclosed equipment), pumping it out the bottom drain, and then pumping it back up to the top

spray ball.

Critical components to a solid sanitation program.

Cleaning, sanitation and sterilisation are three of the most important aspects of brewing.

Definitions:

Clean: visibly free of dirt, debris or unwanted matter

Sanitised: reduction of microorganisms on a clean surface to a safe level, generally by

99.99%, by the use of chemicals or heat

Sterile: completely free of living organisms, including spores

The most critical components to a solid sanitation program at any facility are time and temperature

of cleaning agents, and selecting the proper chemicals at the appropriate stages of cleaning.

Clean

Begin by pre-rinsing your surfaces for 10-20minutes with cold water to remove as much organic soil

as possible. A powdered brewery detergent can also be used to aid in debris removal. (hot rinses

are not recommended because the heat can bake on debris that otherwise would come off very

easily).

Visually inspect the tanks to ensure there are no dead zones where the spray ball or cleaning did not

reach.

Sanitise

Once vessels or surfaces are physically clean, a multi-step approach should be used to sanitise those

surfaces, either by use of the spray ball or a physical soak in chemical solution. Typically you start

with an alkaline solution such as caustic soda (sodium hydroxide) in order to hydrolyse any organic

materials that are not visible. (15–30 minutes at a temperature that varies depending on the

cleanser (generally between 60 and 82 °C).

The second step is to rinse with an acid based solution with water generally no hotter than 54 °C.

The most effective ones are a phosphoric acid or a blend of phosphoric and nitric acids.

This should be immediately followed by a second water rinse and immersion with a food-grade, no-

rinse sanitiser.

Sterilise

To achieve the highest level of cleanliness, you need sterilization, which in the brewery means you

will require steam. In this case, steam means clean steam so if you are sourcing heat from a boiler,

there needs to be a point-of-use filter on the output at 0.5micron in order to prevent unwanted

organisms from entering the system.

The steam also needs to follow specific temperature and time practices: 76°C for 15 minutes OR

93°C for 5 minutes. With fermenters and bright tanks, going as far as sanitization is a good practice

but for yeast propagation vessels or yeast brinks, sterilization is critical to keeping yeast

contaminant-free.

WEBSITE: http://www.beer-

brewing.com/beer_brewing/brewery_cleaning_sanitation/cleaning_sanitation_manual.htm

https://www.researchgate.net/figure/Michael-Porters-value-chain-6_fig1_316889653

Environmental Considerations

Be aware of the effect your brewing can have on your community. Brewing chemicals are corrosive,

sometimes toxic, and if untreated they can adjust water pH to unacceptable levels. Their corrosive

aspect is easy to understand; caustics and acids both eat away at things like sewage pipes.

Probably the biggest environmental concern with brewing chemicals is in the use of toxic chemicals

such as chlorine. Not only is chlorine toxic by itself, but it can combine with organic materials to

form more complex toxins such as trihalomethane (THM). These toxins can eventually find their way

into our streams and rivers, where they can harm not only fish and wildlife, but humans as well.