Keg leasing: the good, the bad, and the should you
Kegs cost a lot, especially for a budding young brewery. In fact, kegs are one of the most expensive assets that a brewery has. Spending at least $100 on average per keg racks up a hefty bill for craft brewers looking to get their brewery up and running. What’s worse, kegs tend to be one of the most commonly lost assets at breweries. Besides their initial costs, having to replace lost kegs increases costs to a brewery.
“According to Brewers Association member brewery data, keg loss costs every brewer between $0.46 and $1.37 per-barrel of annual keg production. This varies depending on the size of the brewery, percent of beer produced that is sold in kegs and other factors. Assuming 2011 craft beer sales of 11.5 million barrels, that is a total direct capital charge to craft brewers of $5.3 million and $15.8 million annually.
The indirect costs of product outages at wholesale and at retail caused by a shortened keg float are likely far higher.” -KegReturn.com
An alternative to buying is keg leasing. Offering a cheaper initial cost, keg leasing may be a solution to breweries that are trying to get set up on a budget. But is it the best solution?
There are a number of benefits to keg leasing. First and foremost, leasing initially costs significantly less than buying and is especially useful during the early days of a brewery when production demand is still unclear. Whether you’re thinking of renting for the time being or leasing to own, keg-sharing can help you save money up front so that you can invest it in other aspects of your brewery.
Second, renting or leasing kegs also takes the worry out of keeping track of them. While you may still be responsible for the filling, cleaning, and distribution of the keg while it is in your possession, you are usually not responsible for tracking or retrieving kegs or for replacing kegs that get damaged or go missing. Of course, policies vary among the different keg suppliers so it’s important to read the fine print and understand what is expected of you and your brewery when leasing kegs.
Lastly, keg leasing is scalable for big and small breweries. Most keg leasing services have enough kegs in stock to supply your brewery’s demand, giving you the capacity you need when you need it. Participating in a keg pool model or leasing kegs can also decrease the environmental impact of your brewery. Decreasing the amount of kegs produced and the unnecessary distance that those kegs need to travel is a sustainable and eco-friendly solution to your brewery’s keg needs. It also means the storage space required for kegs in your possession can be managed better.
While keg leasing may be a great solution to your brewery’s keg needs initially, it is probably not a best permanent solution. There will come a point in your growth in which it simply no longer makes financial sense to rent or lease. Once your brewery has reached a certain capacity, renting or leasing may end up costing you more money than just making the investment and buying kegs of your own. If you’re leasing to own, it’s important to keep in mind that the long term contract commitment (usually several years initially) may or may not match up to your growth rate. This means you could be spending money when you don’t need to be or you could be tied into a contract that no longer suits your needs.
Additionally, while you may not be on the hook financially for damaged or lost kegs, it’s still a pain if you need to reorder and wait for shipping if damage or keg loss does occur.
Finally, renting or leasing kegs means that you are reliant on a third party to provide you with the kegs you need when you need them. If there are ever any issues with the kegs you receive, if you don’t receive your kegs on time, or if the company you use has unexpected issues, your beer production may come to a screeching halt. Not having the assets you need on hand can be risky.
Should your craft brewery lease kegs?
The answer to this question varies from brewery to brewery. It really will depend on your brewery’s initial production capacity, your budget, and whether or not you want to make the investment into kegs up front.
Leasing kegs may be a great alternative to outright buying them for your craft brewery. Leasing can give you a certain amount of freedom and flexibility when it comes to your brewery’s initial budget, production capacity, and storage space. It can also provide you with a low-maintenance, lower risk solution that ensures you have a few years of runway to establish your brewery and grow your brand.
On the other hand, if you have the capital and you’re ready to make the (large) investment into owning kegs, buying them outright may save you money in the long term. However, you will be fully accountable and responsible for managing, maintaining, and tracking those kegs which will require additional space, equipment, and resources.
Perhaps a combination of the two works best for your brewery, leasing kegs initially to grow before committing to the investment. Regardless, it’s important to do the math early on to figure out which option makes the most sense. It’s equally important to redo the math at regular intervals to see if that option is still the best one. Shop around, whether renting, leasing to own, or outright purchasing kegs. Look at different keg suppliers or service solutions, consider new and used options when buying, and decide on keg sizes, as well as steel versus plastic options. Take into account the pros and cons of each option and go with the more financially and practically sound choice, especially if it’s still early days and you’re just establishing your craft beer brand.
Ultimately, your decision should not be only influenced by cost. It’s critical that you understand the role that kegs will play in your brewery. The associated costs, responsibilities, resources required, and any other relevant factors should all be taken into consideration before making your decision. And, of course, what should matter most of all is that your craft beer’s quality isn’t compromised, no matter what keg solution you decide to go with.
