{"id":2726,"date":"2015-12-07T23:23:20","date_gmt":"2015-12-08T04:23:20","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/microstar-untapping-growth-in-craft-beer\/"},"modified":"2015-12-07T23:29:31","modified_gmt":"2015-12-08T04:29:31","slug":"microstar-untapping-growth-in-craft-beer","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/microstar-untapping-growth-in-craft-beer\/","title":{"rendered":"Microstar: Untapping Growth in Craft Beer"},"content":{"rendered":"

US craft beer has exploded in recent years, with production doubling from 10.1M barrels in 2010 to 20.2M barrels in 2014 and craft\u2019s share of the total US beer market increasing from 5% to 11% over the same time period.1<\/sup> Unlike the overall beer market where 75% of all beer is purchased at retail and 25% is purchased on-premise at bars and restaurants, 55% of craft volume is purchased on-premise, primarily on draught.2 <\/sup>Steel kegs are the best way to store, ship, and preserve daught beer, but keg logistics are a major pain point for brewers. Kegs are expensive to procure and difficult to retrieve after they\u2019ve been used. Given the heavy intermediation of the beer supply chain and constituents’ reluctance to shipping less-than-truck load quantities of empty keg shells, it takes a while for kegs leave the brewery full and return back to the brewery empty. Best-in-class craft brewers achieve only 3-4 keg \u201cturns\u201d per year, with smaller breweries achieving significantly fewer, which means lots of keg idle time!3<\/sup> Microstar, a keg logistics company that owns over 2.5M kegs, uses a pooled logistics model to increase the efficiency of the keg lifecycle and create value for breweries and across the supply chain.4<\/sup><\/p>\n

Creating and Capturing Value<\/strong><\/p>\n

Microstar lets breweries order flexible keg quantities on a monthly basis, and charges a per keg fee to for a one-time rental that includes empty keg retrieval and cleaning.5<\/sup> Breweries fill the keg and coordinate pick-up with their distributor, but leave the rest to Microstar. Microstar supports a large network of breweries and its kegs are unbranded, so they can be shipped nationally and returned locally to the closest Microstar customer. This model improves keg utilization, turn speed, and the geographic potential of even small brewers to reach a wider consumer base.6<\/sup> As well, Microstar\u2019s pooled logistics model facilitates shorter travel distances, which significantly reduces the carbon footprint associated with empty-keg retrieval.7<\/sup><\/p>\n

\"\"<\/a><\/p>\n

Microstar also provides brewers with financial flexibility by freeing them of the large capex investment required to purchase their own keg cooperage. With Microstar, keg costs become a variable operating expense, allowing brewers to deploy their capital to create new beers, increase production, and expand geographically rather than invest in steel.8<\/sup> As well, Microstar absolves breweries of the risk of keg loss (which runs ~5-6% per year industry-wide) and the costs of tracking, retrieving, and repairing kegs.9<\/sup> Indirectly, Microstar has also created value for bars and restaurants by increasing the availability and affordability of a diversity of kegged beers, which cost 40-45% less than their bottled beer alternatives, and for consumers who have easier access to the country\u2019s best brews.10<\/sup><\/p>\n

\"\"<\/a><\/p>\n

A Virtuous Cycle<\/strong><\/p>\n

Microstar\u2019s business\u00a0model is intimately linked to its operating\u00a0model. Furthermore, the operating model is self-reinforcing such that that the more Microstar’s network grows, the stronger its customer value proposition and competitive advantage become. As customers join the Microstar program, the company\u00a0grows its geographic coverage, builds new distributor relationships, and shortens the average travel distance for empty kegs, which yields faster turns, happier customers, and a tougher company to compete with.11<\/sup><\/p>\n

Additionally, Microstar\u2019s massive keg float provides a significant barrier to entry for potential competitors. New kegs cost more than $100 a pop, so a new entrant would need to over $250M of investable capital to match Microstar\u2019s scale. Microstar has built their keg float by purchasing kegs at retail (typically at low cost given its scaled purchasing power), and through buying the owned cooperage of new customers, which eases the initial financial burden of joining the Microstar program.12<\/sup> 13<\/sup> As well, the company has leveraged its size, deep brewery relationships, and access to capital to expand its offerings across a variety of keg needs, including tailored logistics programs for large and small brewers, repair and maintenance, new and used sales, and leasing.14<\/sup> Going forward, the company is looking to further scale its operations by continuing to grow the US craft business, as well as explore opportunities internationally and in the relatively nascent wine on tap market.15<\/sup><\/p>\n

\"\"<\/a><\/p>\n

Sources:<\/p>\n

1) https:\/\/www.brewersassociation.org\/industry-updates\/2014-craft-beer-data-infographic\/<\/a><\/p>\n

2) http:\/\/nrn.com\/consumer-trends\/study-craft-beer-consumption-bars-restaurants-rises<\/a><\/p>\n

3) http:\/\/www.trackx.com\/downloads\/Case_Study_NBB_Keg_Tracking.pdf<\/a><\/p>\n

4) https:\/\/www.linkedin.com\/company\/microstar-keg-management<\/a><\/p>\n

5, 11, 15) http:\/\/companyweek.com\/company-profile\/microstar-logistics<\/a><\/p>\n

6, 7, 8, 12, 14) http:\/\/microstarkegs.com\/template.asp?page=kegmanagement<\/a><\/p>\n

9) http:\/\/www.craftbeer.com\/craft-beer-muses\/the-draught-beer-circle-of-life<\/a><\/p>\n

10) http:\/\/craftbeerrestaurant.com\/Craft_Beer_Restaurant\/Pricing_craft_beer.html<\/a><\/p>\n

13) http:\/\/www.craftbrewingbusiness.com\/packaging-distribution\/microstar-offers-solution-cure-keg-management-headaches\/<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Microstar leans on interconnected business and operating models to help craft breweries achieve their potential.<\/p>\n","protected":false},"author":1308,"featured_media":2727,"comment_status":"open","ping_status":"closed","template":"","categories":[454,516,515,17,517],"class_list":["post-2726","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-craft-beer","category-kegs","category-pooled-logistics","category-supply-chain","category-variable-cost"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\nMicrostar: Untapping Growth in Craft Beer - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/microstar-untapping-growth-in-craft-beer\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Microstar: Untapping Growth in Craft Beer - 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