Archives For Kegs

Kegs: Lease Vs. Own

NathanCowan —  August 16, 2012 — Leave a comment

During the last few months, even years, here at Eventide we have been planning our launch as well as forecasting our trajectory for the following five or so years.

There are a few companies which specialize in the sole business of leasing kegs to breweries, with MicroStar being one of the larger. The way it works is that the brewery pays a unit price for kegs to show up when they need them at their door, the brewery then fills and packages the kegs for shipment, and, then (here is the good part), does nothing except for fill more kegs that show up at their door when they need them. This is a great concept for a brewery but only if it is cost effective. New Belgium and Fluensee did a great break down on keg logistics discussed in this white paper. So what are the costs?

Keg Leasing:

  • Cost per fill

Keg Owning:

  • Initial purchase: Kegs cost about $95 for a 1/6 and 119 for a 1/2BBL. Figure that you get about 3.5 turns per keg per year and assume that a small craft brewery is running 20,000 BBL/year production and that brings you to about 11,500 kegs (assuming all 1/2 BBL). That quantity of kegs would be a capital expense of over 1.3 million dollars.
  • Housing: You have to have those kegs on hand and that takes real estate. Cheaper industrial leasing costs around $6 SF/year and that extra space only costs you money while offering no real return.
  • Maintenance and Loss: The industry keg loss rate is between 4-6% per turn. From the analogy above that is a loss of 1,610 to 2,415 kegs per year ($191,590 to $287,385 respectively).
  • Finance: Most small businesses, especially capitally intensive ones, have to start in the hole. SBA Loan rates are around 9% which is really a good number; however, 9% of a million dollars is $90,000 per year.

The analysis shakes out to about a 10% premium to lease kegs over owning “paid for” kegs. My guess is that is probably somewhere around where the profit margin is for leasing operations and close to the additional cost a brewery would accrue by hiring someone to track their kegs.  Is short Eventide is a capitally intensive start-up and you will probably be seeing a blue star painted on the side of our kegs.

Just a thought,

Nathan C.