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.
Thad Fisco, Owner, Portland Kettle Works