Buying Brewing Equipment Isn’t Supposed to be Like a Bad Trip to Vegas, Where You Lose Money and Wake Up with a Very Bad Hangover…
Why then are brewery buyers gambling with their brewery equipment purchases? Brewery equipment buyers need to sober up and begin asking for guarantees, statements of fitness, letters of credit, and question why an initial 50% (or greater) deposit is required for equipment that will not be received for 6 to 12 months.
In the last three years Metalcraft, Systech, Global Manufacturing, Accent Stainless Steel, DME, and NSI (Newlands) have gone out of business, and JVNW was taken over by ICC to ensure that its doors remained open. For the last 24-months, Portland Kettle Works has been advising brewery clients to avoid unnecessary risk when buying a brewhouse or other brewery equipment. It’s unfortunate that 120 DME and NSI clients didn’t get that message.
PKW’s first response upon the announcement of DME and NSI entering receivership.
As a buyer, it is time to research your vendors’ credit positions and supply chain.
Take the following steps to protect yourself; before signing a contract or depositing funds towards the purchase of any brewing equipment, demand the following:
Banking Reference – The best way to do this is to ask your bank to verify the quality of your perspective vendors’ relationship with their primary bank
Landlord Reference – Ask if the landlord can provide a positive credit reference for your vendor
Primary and Secondary Stainless Steel References – Ask for two primary stainless suppliers’ credit contacts and verify that payments are made on time according to payment terms
Heat Exchanger Supplier Reference– Ask for the heat exchanger suppliers credit contact and verify that payments are made on time according to payment terms
References from Other Suppliers – Ask if materials are paid on time according to payment terms
Certificate of Origin– Verify the country of origin with a legally binding certificate provided by the vendor
Tour of the Manufacturing Facility – Get a feel for the quality of the business and relationship you are about to enter.
If you do not like the answers, either find
another vendor you can partner with in a long term, trusting relationship, or
demand a letter of credit drawn on a U.S. bank. This is your insurance
that you receive your brewery or you get your money back: No trip
to Vegas, no lost money, no hangover.
Why you need to be extra diligent…
A contract with a financially unstable company could cause your own demise. Since 2017, in response to only 0.5% of Portland Kettle Works clients requesting credit references, we began providing dated letters of reference from our vendors and banks, as well as statements of fitness for our company with every quote. You, the buyer, must proactively verify the credit worthiness of perspective vendors.
DME and NSI, two prestigious
Canadian manufacturers, will now lay waste to tens of millions of investors’,
brewers’, and vendors’ money. In many cases, the unraveling of these
firms feels like quasi-Ponzi schemes as manufacturers use today’s deposits to
fund backorders. How many times must
this happen before the industry addresses these risks?
How did this come about?
Between 2014 and 2017, nearly 4000 new breweries opened in the US, the world’s largest craft beer marketplace. During this boom, many manufacturers took on massive debt loads in order to ramp up capacity in an effort to meet growing demand. Today’s slowing sales and increased competition are making servicing that debt impossible, leading to predictable results. Unfortunately, the risk is not diminished by the DME and NSI incident. It highlights an ongoing problem that is both global in nature and potentially accelerating.
Both domestic and international vendors are at risk.
Overcapacity, rapidly increasing shipping costs, government shutdowns, tariffs, and the slowdown in US craft brewery growth will lead to more DME/NSI-style failures of domestic and Chinese manufacturers. Consider that a typical Chinese brewery system navigates a cloaked and hidden factory, international shipper, international freight forwarder, land-based international transport, US broker, land-based domestic transport, and, potentially, an overseas broker in China! A break in any one of these links presents an opportunity for catastrophic failure and a complete loss of unsecured deposits. The wise buyer will protect their investment from inherent risks associated with international transactions by demanding a letter of credit, drawn on a US bank.
Unfortunately, the risk is not diminished by the DME/NSI incident. It highlights an ongoing problem that is both global in nature, and potentially accelerating.
Chinese vendors are likely in a more perilous position than many North American manufacturers. Many suppliers conceal their association with Chinese manufacturers behind German or American sounding names and marketing slogans. It is critical to find out where your equipment is manufactured. Again, if you are working with overseas supply chains, mitigate your risk: demand a letter of credit drawn on a US bank.
Best of luck, and please feel free to contact me personally for any reason.
Tromso, Norway– Steeped in beer brewing tradition, Norwegian breweries have become a bright light in the north for craft beer lovers. Not surprisingly, Norway has a rich and wild history of brewing and drinking beer. Too far north for grapes, the ancient Norse would not be vanquished in their desire for heady drink. Likely on a raid of their fairer neighbors, the Vikings discovered beer which they imported to their homeland as far back as 1000 AD. Eventually Norsemen began to develop strong traditions and customs tied to its consumption. So serious were the Vikings about their adopted drink that it was considered a crime not to participate in the public drinking rituals or in brewing beer.
In times gone by, traditional porters were brewed for Norwegian weddings, christenings, and funerals by farms throughout the country. By law, every farm was required to brew beer, and at Christmas the quantity of grain that went into the grist had to be equal to the combined weight of the farmer and his wife. To fail in this responsibility was to risk having your farm and possessions confiscated and divided between the state and the church. In extreme cases, “lawbreakers” could find themselves deported to Iceland (ouch!). Out of these strong traditions surrounding beer and community, Norwegian breweries have become the craft beer destination in Northern Europe. Today, Norway boasts over 80 craft breweries with many brewing traditional recipes while incorporating American Pacific Northwest, British, and European brewing styles.
“…we have developed our business around the amazing beer scene in Portland, so a brewery supplied by a Portland company fit perfectly for us.”
Portland Kettle Works (PKW), manufacturers of American brewing equipment in Portland Oregon, has been expanding within the European market. One example of this global expansion is the installation of a 7-barrel (8.2 hl) brewery system (pictured above) in Tromso Norway located 200 miles (350 km) above the Arctic Circle. Thad Fisco, owner of Portland Kettle Works, traveled to Tromso to complete the installation of the PKW brewing system at Graff Brygghus (Norwegian for “brewhouse”) in late August 2015.
Together, Graff and PKW built on Norwegian beer heritage with the same strong sense of brotherhood found both in Norway as well as the Portland beer scene. Martin Amundsen and Marius Graff setup their brewery and taproom in a fully renovated character building that has been in the Amundsen family for 3 generations. After three months of renovations, the first brew through their new PKW brewery system was the well-received Portland Pale Ale. “So much of what we are doing is about the connection with Portland” says Amundsen. Graff concurs: “My dream is to have an article written about our brewery by The Oregonian… I would frame it and put it on the wall.”
In order to find the perfect brewery system, Graff spent a month in Portland Oregon brewing on systems supplied by several manufacturers before giving Portland Kettle Works the nod. During his research, Graff brewed with several local favorites including Buoy Beer Company in Astoria, Coalition, BTU Brasserie, and Kells. In Graff’s own words: “we wanted a brew system from the United States because the most innovation in the market is American, and we have developed our business around the amazing beer scene in Portland, so a brewery supplied by a Portland company fit perfectly for us.”
Since then, Graff Brygghus, as with many Norwegian breweries, has become a popular local destination. Aiding the popularity, Tromso is home to a university and Norway has a drinking age of 18 years. Additionally, with 3 months of midnight sun and 3 months of northern lights, Tromso is a popular destination for thirsty tourists. “Graff Brygghus is perfectly positioned to rock the craft beer scene in Tromso and Northern Norway” says Fisco; “their PKW brewing equipment is going to allow these guys to make a clean, perfect product with creative recipes that were not previously available to Norwegian breweries.”
Update: Graff Brygghus continues to grow and has just reserved their second order of brewery tanks from PKW. Congratulations Marius and Martin! Skål!
Marius Graff (L), Head Brewer & Martin Amundsen (R), CEO, Graff Brygghus