Latest / No Dirt No Flowers Podcast / Building A Better Supply Chain / Ft. Isaiah Smith

Transcript

Building A Better Supply Chain / Ft. Isaiah Smith · No Dirt No Flowers Podcast

0:00
Hello everyone and welcome back to No Dirt No
0:02
Flowers and the final installment of our Harvest
0:04
Special Edition recordings. Today we welcome
0:07
Isaiah Smith of Creature Comforts and Our Culture
0:09
Brewing. He sits down with Mike and Drew to discuss
0:11
the current supply chain between brewers and
0:14
hop suppliers, where we're at as an industry,
0:16
and how we can improve moving forward. It's a
0:19
fascinating episode and I hope you enjoy. Alright,
0:29
open it up. You're good. Welcome to No Dirt,
0:32
No Flowers. We got Isaiah Smith here today from
0:36
Creature Comforts and from Our Culture Brewing.
0:40
Isaiah, welcome to the show. Hey, it is my absolute
0:44
pleasure to be here. This is my first time out
0:46
to Washington and I've been looking forward to
0:49
hopping on this podcast all week. And we've been
0:52
looking forward to have you on for... Months.
0:54
Months. Yeah, thanks for stopping by for sure.
1:00
Absolutely. Yeah. Got a whole crew with you today.
1:03
Yeah. Yeah. Brought some of the team from creature
1:06
comforts. We're out here for hop selection and
1:08
it just so happened again, you know, we were
1:12
making our way out here. I was like, yeah, absolutely.
1:15
I would love to do this like in person. So I
1:18
was just appreciative that you guys can make
1:20
this time work. Cause again, it's like hop selection,
1:23
full swing last week. Big push, a lot going on.
1:28
We were out here to try to get our hop contracts
1:31
together and pick some of the great hops. Everything
1:35
was smelling great on the table. It's a good
1:37
year. Everything was smelling great on the table.
1:40
Got the team here, and now we're going to talk
1:43
about hops some more. Nice. Love it. Before we
1:47
dive into hops too deep, tell us a little bit
1:51
about yourself and how you got in the industry.
1:55
What you do now? Absolutely. So I've actually
1:57
been in the industry for, it'll be three years
2:00
in April. And I came in as the director of supply
2:04
chain for Creature Comforts. I've been in the
2:07
supply chain industry for about 15 years. I spent
2:10
a lot of time at a couple of Fortune 500 companies,
2:13
Home Depot, Mohawk, you know, bounced around
2:15
at a couple of other ones. And over time, just
2:18
really kind of built a specialty. uh in the career
2:22
field for supply chain you know with all the
2:25
way down from the tactical execution up to the
2:28
strategy because i started in the supply chain
2:31
unbeknownst to me loading trailers you know in
2:34
college and even then i was connected to supply
2:36
chain and didn't know it you know working in
2:39
that space the opportunity came for me to join
2:42
creature comforts to really just help invest
2:45
more into the supply chain aspect of the business.
2:48
You know, it's the 31st largest brewery in the
2:50
country right now. And with that, you know, you
2:53
got to make sure that every aspect of the business
2:57
is top, top notch, top tier. So that was my focus,
3:03
my goal. I wanted to build with Creature the
3:05
best supply chain and craft beer. And I do believe
3:08
we're well in our way. And yeah, I wanted to
3:11
be here today just to show. my perspective about
3:14
what i've seen in the last three years and some
3:16
of the tips and techniques that we've used to
3:18
get success i think is accessible to everybody
3:21
but you know you just gotta you gotta know a
3:24
couple things and you gotta really be ready to
3:29
work together with people like in a very meaningful
3:32
way yeah and that's kind of what i want to showcase
3:34
today cool were you uh into craft beer before
3:38
you came to Oh, yeah. Yeah, I was, man, I was
3:42
drinking craft beer. First craft beer that I
3:45
can remember I had was actually, I was in New
3:46
York. I was like 21, visiting some friends in
3:50
Poughkeepsie, New York. And I had a Yingling
3:53
for the first time. And I was like, what is,
3:56
what is this? You know, I've been drinking 211
4:00
and, you know, all the other macro, super cheap
4:03
30 -pack beers. And I encountered something with
4:06
a little bit of flavor. You know, and that was
4:08
my first kind of like, OK, beer can have a little
4:12
depth to it, have a little something. And that
4:14
really just opened up a whole world of, oh, well,
4:17
what's next? Oh, you guys make this and you're
4:19
right down the street. OK, what do you have?
4:21
And so that really sparked the love to start
4:24
to try new things and visit local breweries.
4:26
And after a while, it was just chasing the different
4:30
flavors and creativity and expressions. And then
4:33
that kind of turned into. well, hey, you know,
4:36
let's try our hand at just, you know, making
4:39
some in the garage, hanging around, you know,
4:41
just really started as a way to pass the time,
4:43
you know, amongst my brother and my best friend
4:45
and my wife. And COVID hit and we had some beer
4:50
that we had made and had given it away to some
4:53
friends and was just, you know, brewing beer,
4:55
giving beer away, just messing around in the
4:57
garage, extract brewing, just kind of getting
4:59
into all grain. And one day I was going to pour
5:03
a keg. keg came up empty and i'm thinking somebody
5:06
you know messed up my kegerator or i got a line
5:09
coming apart or something it was empty we'd given
5:12
away five gallons of beer before i had a chance
5:15
to really tuck in you know and that was kind
5:18
of the first thought of like okay something something
5:21
is here you know and it was at that time where
5:25
we were like okay how do we get a part of this
5:28
how do we get into the industry and you know
5:30
we tried different ways previously and it just
5:33
didn't work. You know, we were at different spots
5:35
in our career. It wasn't feasible for me to go
5:37
work in a tap room and, you know, just kind of
5:40
like start over from ground zero. So it was difficult
5:42
to kind of break into the industry until the
5:44
opportunity with Creature came along. And because
5:48
my expertise and the need for the organization
5:50
at that time, that allowed me to get in at a
5:53
spot where I had a lot of visibility and access
5:57
and, you know, opportunities to connect with
6:00
folks. And it's transformed what we're able to
6:04
do for our culture, but also, you know, what
6:07
Creature has continued to grow into. Yeah, tell
6:09
us a little bit about our culture. Yeah, so it's
6:12
myself, my twin brother, my best friend, and
6:15
my wife. Oh, you have a twin brother. I have
6:17
a twin brother, fraternal. And, you know, shout
6:19
out to them, the whole Our Culture team. We're
6:21
working really hard to deliver our solo branded
6:24
product as soon as possible. We just found a
6:27
distributor. and going through the process to
6:30
get that stood up. But we've been in brewery
6:32
and planted since 2019. Oh, wow. You know, it's
6:34
been very difficult to find access to capital,
6:37
very difficult to find, you know, really a spot
6:42
that we wanted to purchase that was in our price
6:44
range. And there were a couple false starts.
6:48
You know, there were some alternating proprietorship
6:50
opportunities. There were some other contract
6:52
brewing opportunities and things like that. It
6:55
just never could sync up. What we had learned,
6:58
because we had done like 15, 20 collabs in the
7:03
state of Georgia, you know, Pennsylvania, like
7:06
kind of all over the southeast. And working with
7:09
all these different breweries on these beers,
7:11
one of the things we noticed was like, man, it'd
7:14
be really great while we're brewing this beer,
7:16
we're talking about everything. And it almost
7:19
became like the beer in the kettle, that process.
7:22
It wasn't a distraction, but it was like, I would
7:24
just really love to spend five hours talking
7:26
to you about marketing. And I'd really love to
7:28
spend five hours talking to you. How about how
7:31
do you price your line structure with the distributor?
7:33
You know, these types of questions. Right. And
7:36
so the idea came up between myself and Blake
7:40
Tyers from Creature Comforts, Adam Buchan from
7:42
Creature Comforts. We really got to talking about
7:44
like what opportunities. Can we create? And so
7:48
we started a residency program where for a little
7:51
over a year, our culture and creature comforts
7:54
engaged in the transformation of knowledge in
7:58
the business of beer. And we released three collab
8:01
beers that ended up in the market. Our sweet
8:04
potato beer that we did. Oh, I forgot about that
8:07
one. It's like number one on untapped right now
8:10
for brown ale. The phonio lager we just released
8:13
is a 97 out of 100 on craft beer and brewing.
8:16
The honey wheat ale that we did crushed as well.
8:20
So we brought a lot of innovation into the space,
8:24
partnered with Creatures Technical Execution,
8:27
and just really mastery of the craft, and then
8:31
spent time extending it beyond the brew house.
8:34
So we matched with subject matter experts from
8:37
inside the organization and just, okay, I'm going
8:40
to spend an hour with head of finance. I'm going
8:42
to spend an hour at marketing. I'm going to spend
8:43
an hour at quality. And then we're going to talk
8:46
about, What it's like to do this at scale so
8:49
we can build that into the foundation of our
8:51
business. And through that relationship, it just
8:54
really opened up so many opportunities and doors
8:56
that have benefited our culture, but also creature
8:59
comforts. That benefit was bidirectional. You
9:02
know, the decision to brew a Fonio to bring that
9:04
in. That was the first and largest distributed
9:07
beer for Fonio beer in the southeast when it
9:11
hit. You know, and so we're changing. The way
9:14
craft beer is innovating to a particular extent
9:18
by harvesting a different ingredient, you know,
9:20
that is awesome. And we could probably talk about
9:23
that a little bit later. But it's like that benefit
9:25
is bidirectional because we're bringing innovation
9:29
and creativity and they're bringing basically
9:33
everything else. And then we work together and
9:36
just continue to stack hands and grow and take
9:38
it, you know, a level above what we thought was
9:42
possible. You know, so it's been a great program.
9:45
We're transitioning out of it into our solo branded
9:49
product. And that's kind of the next move for
9:51
our culture. So stay tuned. You're going to see
9:53
our beer coming up soon. We're excited to continue
9:57
the trend of telling the story of our culture
10:01
through beer and just bringing creativity and
10:05
delicious innovation to the space and representation.
10:08
And we're not the only ones doing it. There's
10:10
a bunch of people that's on that wave right now.
10:13
And a lot of them are friends and excited to
10:16
see what craft beer is going to look like into
10:18
the future. Very cool. That's awesome. Yeah.
10:21
So I've been wanting to ask this question for
10:24
a while. So, you know, you had a history most
10:27
recently at Home Depot and had a lot of visibility
10:30
and management within their supply chain. So
10:33
when you came over into the. you know, the hop
10:35
industry, the hop supply chain, like what were
10:38
your immediate thoughts and, you know, and what
10:40
did you see? Yeah. Maybe that the industry was
10:43
doing right, doing wrong. Yeah. Well, you know,
10:46
the biggest thing that struck me. Were you like,
10:48
this is a junk show? Let's just say there was
10:51
a lot of opportunity. You know, it wasn't really
10:54
in a great place because I'm looking at it from
10:56
the perspective of what's going on with inventory,
10:59
what's going on with price, what's the pipeline
11:02
of innovation look like. You know, what's the
11:05
relationship with hop houses and brewers and
11:08
farms? And, you know, while there are great examples
11:12
of good execution as a whole, you know, we're
11:18
kind of in a pickle in terms of oversupply and,
11:22
you know, really just communication about how
11:26
we work together about rectifying these things.
11:28
And it's tough. And I think I'm excited about.
11:32
the potential for what it can become but yeah
11:35
man when i first saw it i was just like what
11:37
is this why is it like this well how did we get
11:40
here you know because i know there's a lot of
11:42
smart excited people you know working on uh trying
11:47
to make it better but despite all that you know
11:50
the reality of the situation is here we are so
11:53
my first thing was like well how do we fix it
11:55
and so i started with what i saw internally to
11:58
creature comforts first to try to change and
12:02
just establish and refine best practice there.
12:05
And over the last three years, I think we've
12:07
been able to do that. And so now I'm just really
12:10
like, okay, I don't have all the answers, but
12:12
I do have some. Sure. Right? So let's start what
12:17
we know and then work together to stack hands
12:20
to find a solution because if we're not collectively
12:24
trying to solve this problem, we're going to
12:26
fail. It's not anybody's one responsibility to
12:31
It's like, oh, well, you just got to stop growing
12:33
or you just got to buy more or you just got to
12:37
do more alpha or whatever. It's not one person's
12:40
job to figure this out. We have to rebalance
12:43
the relationship between supply and demand for
12:46
the entire chain at every interaction and touch
12:49
point for the business. And that's going to require
12:51
some sacrifice. Some are going to have to give.
12:54
Some are going to have to take. But if we don't
12:57
achieve some level of balance. The whole thing
13:01
tips off the table. So that's what's scary about
13:04
it to me. That's what I was looking at when I
13:06
saw it. So coming from Home Depot, Mohawk, in
13:11
your previous roles, did you see the level of
13:14
volatility that you see specifically in the hop
13:17
side? To a particular extent. The only thing
13:20
that's different is I had never really spent
13:24
a lot of time in industries that were dealing
13:26
with agriculture. You know, a lot of the agriculture
13:28
that I engaged with was really around like wood
13:32
or, you know, mud for tile and stuff like this.
13:35
So it wasn't as complicated of a supply chain
13:40
because, you know, there's not a bunch of farms
13:44
and only some folks can do this and everybody's
13:47
doing this variety and like, you know, supply
13:50
and demand get mismatched if nobody's talking
13:53
about capacity. For other industries, in my experience,
13:58
there was just a little bit more cohesion around
14:01
the supplier base because at a certain point,
14:04
you know, it's like a floor, for example. There's
14:07
a couple different things you could do, but for
14:08
the most part, like a floor is a floor. Do you
14:11
want tile? Do you want real wood? Do you want
14:13
LVT? Do you want, you know, how thick you want
14:16
the millimeters to be on the underboard, all
14:18
this type of stuff. So there's a little bit of
14:21
complexity, but it's so set that. it creates
14:25
a stability because year after year after year,
14:28
you know that board is more or less going to
14:31
be the same. You know, you're not worried about
14:33
the yield on, you know, the material to make
14:37
underlayment. You know, we got that kind of,
14:40
we got that supply chain steady. Like nobody's
14:42
checking for the water to make sure we can make
14:44
underlayment for floors. So I think those challenges
14:48
were a little bit unique to me, which is why
14:50
I'm so glad to be out on the farm. and really
14:53
talk to guys like yourself and educate myself
14:56
more on what those challenges are on a day -to
14:59
-day. But make no mistake, it's not unique in
15:03
the sense that other industries don't have similar
15:06
challenges. It may not be water. It may be something
15:09
else. So fill in the blank for that. And the
15:13
tire industry has solved what to do with rubber
15:16
or achieved at least some type of level of stability
15:20
for that. These problems aren't new. It's just
15:24
no one's seen it manifest in this industry in
15:29
this way to this level. And that's where I'm
15:32
trying to say, you know, consult and collaborate
15:35
outside the industry, bring folks in and collaborate
15:39
with those that are already here. And we've got
15:41
to figure it out. That's it. Work together to
15:43
figure it out. For sure. That's something I think
15:47
that you said that's really interesting and really
15:49
wise is. You said you spent kind of the first
15:52
several years at Creature focusing internally
15:56
and getting those systems figured out and then
16:01
diving into the external. I think it's something
16:04
that we as an industry have had challenges with
16:08
where if we bring outside knowledge in, it's
16:12
usually, hey, this individual knows about sales
16:17
or knows about supply chain or knows about whatever.
16:20
And they're kind of heading up that program,
16:23
but they have absolutely no idea how the hop
16:26
industry works. And it's a really steep curve.
16:30
So starting kind of internally and learning more
16:34
and kind of dipping your toe in and then moving
16:36
out, that seems like it's going to be a good
16:39
recipe, especially for interacting with farms
16:43
and anybody in the hop supply chain. You know
16:47
your shit. Well, I mean, I can only talk what
16:49
I know, you know, and that's why I'm willing
16:53
to say that I believe it's possible because I've
16:55
seen it in a smaller scale. So, you know, it's
16:59
not impossible to scale it. It's just are we
17:02
going to do the things required to make it so?
17:05
Are we going to allocate the resources, the energy,
17:07
the effort? You know, are we going to rebalance
17:10
to achieve homeostasis? I mean, it's a yes or
17:15
no question. You know, once you make up your
17:18
mind about it, you kind of have to figure out
17:20
what do you have to do to arrive at that result.
17:24
And so I really spent time at Creature just taking
17:27
these ideas from proof to concept to execution
17:31
and then looking at the results and going, OK,
17:33
this worked. I mean, like most brewers, right,
17:36
there are some brands that you think are going
17:38
to do one thing and they don't do what they think
17:40
you're going to do. And then, you know, you tried
17:42
to prep your supply chain by. getting contracts
17:46
for this, that, and a third. And then, you know,
17:48
demand changes, tastes shift. And when you're
17:51
building some contracts for multiple years, it's
17:54
not about whether you're right or wrong. It's
17:57
about how fast you can understand that there
18:00
needs to be an update and how well you can communicate,
18:03
how timely you can communicate to the rest of
18:06
the supply chain that an update needs to take
18:09
place. Yeah, for sure. I think we talked about
18:12
this on one of the previous podcasts where I
18:16
think there's been a decent amount of shame that's
18:20
been injected into the supply chain over, I don't
18:24
know, the last handful of years where it hasn't
18:27
even really opened up a space to even have that
18:30
discussion. Yeah. I would love to know how many
18:34
people don't talk to their suppliers because
18:37
they're scared to have the discussion when in
18:40
reality we should be like talking. on at the
18:45
very least a quarterly basis how are things going
18:48
because we can't force a beer down somebody's
18:53
throat if they don't like it taste change your
18:57
marketing was off okay somebody screwed up whatever
18:59
it doesn't matter at the end of the day the problem's
19:01
there but how often do people not have the discussion
19:05
because yeah they're afraid to you know when
19:10
you started looking across the landscape and
19:12
you have you know I think you just mentioned
19:14
it, you know, growers, you know, let's say all
19:17
growers can grow this variety. Some growers can
19:19
grow that variety, you know, and you start getting
19:21
into the complexities of public versus proprietary
19:24
and like the nuances of the supply chain, like,
19:27
you know, how you can get the product that you
19:28
want. Was there any, I don't know, thoughts about
19:31
that or I don't know. I mean, yeah, I mean, it
19:35
was it was a little hard to wrap my head around
19:38
at first just because, you know. In my mind,
19:41
how supply chain was taught to me is really all
19:45
about synergy. You know, it's about making sure
19:47
that synergy doesn't stay trapped in one part
19:51
of the supply chain or one business. Like your
19:55
upstream and downstream partners are as critical
19:58
as your internal partners, depending on what
20:02
you need them to do. And so by not essentially.
20:08
creating synergy outside of your organization
20:10
you're leaving opportunity on the table you don't
20:13
know that you're being a bad customer right because
20:16
nobody's telling you and you're not asking the
20:18
question am i a good customer you're just happy
20:21
with what you believe is status quo because your
20:24
bottom line looks good right and that you know
20:27
i get it right but then what you don't realize
20:29
is if their bottom line starts to look a little
20:33
rough and, you know, they go out of business
20:36
or have to raise prices, your balance sheet is
20:40
next. I think we've seen some of that. Yeah.
20:45
Yeah. So with that being said, the benefit of
20:49
creating that synergy, the reality of the situation
20:51
is, look, sometime margin needs to go where it's
20:55
needed the most. I may want it because I want.
20:59
a bigger number and more revenue, and I want
21:01
to do things within my own company. But, again,
21:03
if my suppliers are squeezed and they're losing
21:08
to the point where they're not able to grow or
21:10
sustain themselves, you have to figure that out.
21:14
And I'd much rather lose a couple basis points
21:17
than have to create an entire new supplier pool
21:20
and then go through how you vet that. you know,
21:25
set up new terms and quality and all this other
21:27
type of stuff. It's like, do you want two basis
21:30
points or do you want to keep your head on your
21:33
shoulders? Because, you know, you don't have
21:36
to go find 15 people to do a thing that, you
21:40
know, really only 25 really do. You know, it's
21:43
not like you can go to Amazon and go, I'd like
21:47
some hops, please. You know what I mean? I mean,
21:50
maybe you can, but it's like, you know, that's
21:53
important to know where. I mean, you can, but
21:55
it would take a lot of small pouches to fill
21:57
your needs. Oh, man. 31st biggest brewery. Hey,
22:00
I'll tell you what. We use samples for evaluation
22:05
at this point, you know, just to look at it and
22:07
smell. But the point of it is, again, it's just
22:10
like when I saw it. The challenge was there's
22:13
a lot of people to coordinate. That's the challenge
22:15
to me. It's just getting people on the same page.
22:19
And there's a lot of people with what would appear
22:21
on the surface different interests, right? But
22:26
we all have the same interest. People drink beer.
22:32
That's the only way this works is if people continue
22:35
to drink beer. And as a brewery, if I'm forced
22:39
to. you know, carry price to my distributor and
22:42
they're have to carrying price to the shelf.
22:44
And then people are buying less beer because
22:46
they don't like the price on the shelf. Everyone
22:49
else upstream for me is in trouble. Yeah. Yeah.
22:52
Again, where as an industry, where do we need
22:55
the relief the most? Where, where do we need
22:57
the support the most? And right now I think there's
23:00
no place more critical than the hop farm because
23:04
of all the additional challenges that you guys
23:06
are going through. Malts having a moment. They've
23:08
always had a moment. Tariffs and all this other
23:10
stuff. I mean, I'm not trying to discredit, right?
23:12
Everybody is experiencing pain right now, right?
23:15
But there's a difference between farms are closing
23:18
and I may have to raise my malt price and cans
23:22
get a little bit more expensive. There's a difference
23:24
between those things. I don't know. I just feel
23:26
like we have to kind of work together, the right
23:28
people in the room, and figure out how we do
23:31
it. And it starts with, again, Finding that synergy
23:34
internally into your own business. So what does
23:36
that look like for a brewery? How much beer do
23:39
you sell? What format do you put it in? Okay.
23:43
How many cans do you need of that format? How
23:46
many wraps? How many lids? You know, how much
23:49
grain per pound? How much hops per pound? You
23:52
know, all these things. You need to understand
23:54
that as a brewery. That is your responsibility.
23:58
If you're not doing that. Not only are you doing
24:00
your organization a disservice, right, because
24:03
if you don't understand, you can't manage something
24:04
if you don't have metrics or levers for control,
24:09
right? So first step is breweries have to have
24:13
that process internally to name these things.
24:18
And then when you understand what that is, you
24:20
go and you talk and you say, hey, man, I need
24:22
X amount of pounds of this thing. Can you give
24:25
it to me? Here's what I need. Would you like
24:28
that by month, by quarter? What is the best way
24:31
for me to give this to you so that we can both
24:34
understand each other? And then when we meet,
24:36
we're talking the same language. And it doesn't
24:39
have to be this whole big meltdown. It's like,
24:42
I know how much hops I need. By Q1, I should
24:46
have used 25 % of that. If I'm not, do I believe
24:49
I'm going to in the next 90 days? Okay. Time
24:53
to call Mike. Time to call Drew. You know what
24:57
I mean? Yeah. You don't wait another 90 days.
25:01
You know what I'm saying? Because, like, okay,
25:03
yeah, it may swing, and maybe nothing happens,
25:05
and it recovers and everything's fine. Yeah.
25:08
Who cares? You still should have called him.
25:10
Yeah. Because it just could have easily went
25:12
the other way, and now everything's different.
25:15
So good, bad, everything in between. Communicate.
25:20
Communicate to your suppliers to put them in
25:22
the best position to win. Because, again, you
25:24
can't call and say, oh, man, I need 3 ,000 pounds
25:28
that I didn't ask for, that I didn't communicate
25:32
at all, that you needed for Tangier. As an example.
25:39
Yeah, the answer to that is no. It's not because
25:43
I don't want to help you. It's because I don't
25:45
have it. There's so much spot buying going on
25:50
right now. I mean, more than I think we've seen
25:53
in a while. I mean, this has been going on for
25:55
a couple years. It's dangerous, though. Yeah.
25:59
You know, we talked about this. I think we might
26:00
have talked about this when we did our call a
26:03
couple weeks ago. Yeah. But the amount of waste
26:06
that exists in the system is, I think, so much
26:11
higher than anybody realizes. That's been, you
26:14
know, something that you've mentioned. We probably
26:17
talked about it a lot, but definitely one of
26:19
the things that's come up quite a bit since we've
26:22
been working together is the amount of waste
26:24
that's in the system. I'd have to run the numbers
26:27
again, but during this whole craft run -up, just
26:31
Roy Farms trying to chase the market, we've spent
26:35
like $15 million. I have no idea how much. Like
26:39
replanting and replanting, trying to align with
26:42
the market. And all that money is just gone.
26:45
And it's facing, it's like whiplash down the
26:48
road because if there's inefficiencies in contracting,
26:51
lack of communication, all that stuff. And what
26:54
is really standing out to me that you're talking
26:56
about is that, so Creature Comforts, as an example,
27:00
could be the most efficient brewery in the world.
27:06
It's not. I mean, that's reserved for, you know.
27:10
Massive multinationals. But it doesn't matter.
27:13
They might be. For their size, they could be
27:14
the most efficient brewery in the world, and
27:17
they're still carrying waste that came from the
27:23
supply chain. If we just use hops, the prices
27:27
that they're paying, they're still built in waste
27:31
from the farm having to cover their overhead,
27:36
which necessarily... includes excess hops that
27:39
never sold all the way through to you know merchants
27:43
that you know other breweries that over contracted
27:47
impact your efficiencies if you think about how
27:51
much of that actually exists and how much could
27:54
be solved by just this simple step not even going
27:58
into the deep like supply chain management you're
28:00
talking about but even just the point you have
28:02
about how communicating on whatever cadence really
28:08
transparently could solve so much. And obviously
28:14
I'm talking economic way, you know, like financially,
28:16
you could probably drop the cost of hops by 10%,
28:20
15 % if we just had better communication. Sure.
28:24
I mean, I would agree with that. And, you know,
28:26
I think it's important for us to maybe, you know,
28:29
strip that down a little bit just so people can
28:32
really understand, you know, it's like the problem,
28:36
Again, very simply, just like the macro, very
28:40
broad scale. If I have an item and there are
28:43
a million of these items and only 100 ,000 people
28:48
want it, I can't sell it for a high price. There's
28:53
too much supply. Everywhere you turn, somebody's
28:57
trying to sell you this item and one person is
29:00
up the street and the other person is down the
29:02
street. Excess supply creates cost pressure to
29:08
drive it down because why would I pay for something
29:12
that doesn't have any value? Because there's
29:14
no demand. Value is determined at a point of
29:17
a transaction. Yes. That's when value is determined.
29:20
I have a thing. You have a currency or a good
29:23
or another thing, and let's make a deal. If at
29:28
that point of transaction, I'm looking at it
29:30
going like, well, I can get paper anywhere. Why
29:33
would I give you? $20 for a notebook. They're
29:38
selling them at the dollar store for a dollar
29:40
because there's notebooks falling out of the
29:42
sky, right? Same thing with hops. You take it,
29:46
you put it the other way around. There's a million
29:51
people that want a thing. There's only 100 ,000
29:54
units available. You can charge whatever you
29:56
want. Now you got to think about the life cycle
30:00
of the product and some other. complicated you
30:02
know or maybe more nuanced factors but the same
30:05
concept applies scarcity creates value because
30:09
if people want it and there's not enough of it
30:12
i can get a higher premium we keep playing this
30:15
game yeah that's what i was going to say is we
30:18
keep over doing that over and over and over again
30:20
so then what is the I don't know, the more sustainable
30:24
way of doing that in the future. Ideally, you
30:27
want supply to match demand as much as possible
30:29
so that value can be real. Preach. Right. Because
30:34
here's the reality. All of the value that you
30:37
gained in that transaction selling a really scarce
30:40
item was eroded. Because you have 800 ,000 units
30:45
of some stuff that nobody wants to buy. It's
30:49
not funny, but it is so real. You know what I'm
30:52
saying? When you say it like that, it sounds
30:55
so easy. It was. Hey, man. I mean, again, I'm
31:02
not trying to be reductive, right? I'm not trying
31:05
to say that it's just like super simple. But
31:07
broad strokes, that's it. The idea is for us
31:12
to have a closer relationship between supply
31:14
and demand. And then quality and value and all
31:19
these things start to stabilize because now you
31:22
start to see, okay, does demand shift? You know,
31:26
if supply and demand are equal and price is stable
31:29
and demand increases and supply goes down, now
31:34
you're in a little bit of a scarcity situation.
31:36
Should you raise price? Well, that's a great
31:39
question. That's a really great question. Do
31:41
you take the dollar today or do you take a healthy
31:45
industry tomorrow? Because what do we know about
31:50
this particular product next year? What's going
31:53
to happen? That supply demand situation only
31:56
exists in this window. So why would you raise
32:00
price on a crop that you're going to come again
32:03
next year and try to do a better job of matching
32:05
supply and demand? You know, all you're doing
32:08
is creating cost pressure from your downstream
32:12
partner that now is losing margin that has to
32:16
pass that to the consumer, which ends up with
32:19
higher beer prices, which means less beer, lower
32:21
consumption. Right. So now I'm buying less hops
32:24
from you because you wanted to raise it by two
32:26
dollars for this year. Right. If we need margin
32:30
in the industry, let's talk about that. Let's
32:34
talk about how you structure your contract from
32:36
a portfolio perspective. Hey, this hop is a little
32:39
tight on inventory. It'd be great to, you know,
32:42
maybe take a look at a sliding scale as you give
32:46
us time to better match supply and demand. You
32:49
know, I need the money now to invest in creating
32:52
the capacity. But once the capacity is created,
32:56
I'm going to come back down. Yep. And we've had.
33:00
Contracts and models like that that have existed
33:02
for short periods of time, but then there's a
33:04
reversion back to, you know. Well, the problem
33:08
is not everybody's doing it. And so this has
33:12
been on my mind for the last, like, what keeps
33:15
me up at night. Every night? Every night. I've
33:18
been, it's hop harvest. So, I mean, like, this
33:20
is where my mind's at. Two things. One, that
33:23
creative models are awesome, but it almost damages.
33:28
the company that's on the purchasing end that
33:32
is trying to be creative because the market is
33:37
still going to do what it's going to do because
33:39
not everybody is thinking that way. And so a
33:42
shortage will come. You just let that rip. That's
33:44
part of the background. All right, my bad. I
33:46
was trying to be silent over here. I didn't want
33:47
to interrupt. Hey, we all get to have it. Like
33:51
thinking about how fragile this industry is right
33:56
now. You know, it's not like big multinational
34:01
brewers are maybe a penny or two a pint, if that.
34:06
It doesn't, hop cost doesn't move the needle.
34:09
$10, $12 hops, which would be a good scenario
34:15
if we go into a shortage, will move the needle
34:17
materially for a craft brewer. I mean, you're
34:21
talking about you sell a barrel of beer for,
34:23
depend on what, you know. 240 bucks, 260 bucks,
34:28
whatever that is. And if you're two pounds a
34:31
barrel, 10 % of your cost is tied up in that.
34:37
Well, now if that goes up to, because of a shortage,
34:40
it goes up to $20 a pound. We are going to totally
34:46
hamstring brewers. It goes the same way that
34:50
you were saying earlier, like where does the
34:52
margin go? Maybe now some needs to go to the
34:55
supplier, but on the other side of that, we got
34:59
to do everything we can to not let prices shoot
35:05
up to the brewer. We got to get the waste out
35:07
of the system, and the only way to get the waste
35:09
out of the system is communication. And that's
35:11
the important part is, and I think that's really
35:13
why I wanted to get on this show, is to really
35:15
have that dialogue about what do you need, right?
35:18
And I think that's part of the problem. And,
35:20
you know, again. Not a knock on the industry.
35:23
I love this industry. I've been here for three
35:24
years. Best job I've ever had. But the call up
35:28
is we got to do better. Right. Because there
35:31
are other industries that are not having these
35:33
problems that deal with agricultural goods all
35:35
the time. Now, again, I know every situation
35:38
is unique and there are complexities that make
35:40
it nuanced. So what? So what? I'm being straight
35:46
up. You're going to have to be a regular guest
35:48
on this thing. Hey, I don't mind. But I'm just
35:52
saying, I'm being frank, right? It doesn't change
35:55
the need for a solution because it's hard, right?
35:59
Because it's difficult. I understand that it's
36:01
difficult, right? So we make it easier through
36:05
collaboration. We make it easier through strategic
36:08
partnership. We make it easier through transparency.
36:12
and having a broad understanding of the relationship
36:16
that we are in. A supplier and a customer are
36:19
linked, especially in an industry where there's
36:23
not a lot of new customers entering into the
36:27
marketplace that have the economies of scale
36:29
to move the needle for a farm of this size. And
36:35
let's be honest, new customer acquisition is
36:37
expensive. Oh, yeah. Right? So it's much better
36:40
for everybody. to just figure out what we have
36:44
with who's in the room already and establish
36:47
best practices that we can lay on the table and
36:51
say, look, it doesn't really matter who you're
36:53
talking to. There are things as a brewer, as
36:56
a purchaser of goods, when you come into a professional
37:00
environment to transact, there are things that
37:02
you need to take with you. If you don't have
37:04
those things, you are doing yourself. and your
37:08
supplier a disservice. And it will translate
37:10
into higher costs for you in the form of first
37:15
costs for invoice, in the form of freight through,
37:19
you know, you're missing shipments and, you know,
37:21
you need stuff here tomorrow, in the form of,
37:25
you know, just scarcity, trying to acquire it
37:29
when you're late to the game because you didn't
37:31
communicate. Like these are all things that create
37:33
cost pressure for you because as an organization.
37:37
You did not come into the room with the required
37:39
materials. So now that we're at the table, I
37:42
got what I'm supposed to have. There are things
37:45
that you're supposed to bring as well, right?
37:47
If we're in a strategic partnership, it's a conversation.
37:52
What's this cost? Okay, cool, got it. Well, you
37:55
know, I'm looking at how this impacts my cogs,
37:59
and I really like this variety, and I want to
38:02
buy 10 ,000 more pounds. Let's talk about what
38:05
happens to price after that. If I'm buying more,
38:09
shouldn't things get cheaper? Yep. Yeah. Right?
38:14
Because that would indicate that there's more
38:16
capacity, more units in the chain that's available.
38:22
So it's not difficult, but it does take energy
38:27
and effort to have that information, to have
38:30
those conversations. And again, I look at...
38:33
the purchaser as the first line of defense. And
38:37
then I look at the person who is, you know, shipping
38:40
the stuff. If we got a long relationship and
38:43
we've been working together five years, we should
38:46
both know how many hops I'm going to buy. Neither
38:49
one of us should really be surprised. The only
38:52
way that either of us is surprised is if I'm
38:54
starting a new line or if, you know, great for
38:58
everybody, product takes off. Yeah. Right. Other
39:02
than that, we both know what's been going on
39:05
for the last five years, and we both need to
39:07
pay attention. And we both need to understand
39:10
if we want to grow, then there has to be investment
39:14
in growth. Where are we going to put the capital?
39:20
This year, we're going to put it in the brewery.
39:23
Next year, we're going to put it in the farm.
39:26
Next year, we're going to put it in the hop house.
39:28
Because without these things, Cost pressure crushes
39:32
everybody as businesses and inefficiency, you
39:36
know, creeps in, waste comes in, things get overloaded,
39:39
everybody gets crushed. In my mind, that's kind
39:42
of, that's how one of the ways that we save ourselves
39:45
by collectively running the supply chain by mastering
39:48
each of our pieces. Did you, or I guess in your
39:51
experience in other industries, did you ever
39:55
see models that kind of extended beyond the communication,
40:01
the contract? I mean, were there kind of like
40:04
more joint venture type arrangements? Did you
40:06
see those? Oh, yeah. Oh, yeah. In fact, there
40:09
are, I mean, there are many supply chain philosophies
40:12
that teach that. You know, one of the older ones
40:15
is in Japan, they have something called a kanban.
40:18
And it's basically... Not like a grain kanban.
40:20
No, no, no. Kanban, like I think K -A -N -B -A
40:23
-N or something like that. Apologies if I'm butchering
40:26
the pronunciation or the spelling, but... The
40:29
Cliff Notes version is essentially if I'm Toyota
40:33
or Mitsubishi and I'm buying all my parts from
40:37
you, then you know what? Here is my budget for
40:41
your volume for the next 10 years. Here's what
40:45
I'm going to need. I did the math. I'm trying
40:48
to grow my organization. Here's where we want
40:50
to invest. Are you in or are you out? Right?
40:55
Like, let's figure out how we can do this thing
40:58
together. Because with you having that information,
41:01
now you can behave accordingly. If I tell you
41:03
that my demand is going to increase by 10 % and
41:06
you're already at capacity, what do you do as
41:08
a business? You got to grow. But I just told
41:12
you I'm going to give you capital for the next
41:14
five years. So let's take that ride together.
41:28
effort it has to move around, the greater the
41:31
impact. I got it. I give it to you. You give
41:35
it to somebody else. It comes back to me through
41:37
the chain that I gave it up. And every time it
41:41
crosses, it multiplies because we're all adding
41:44
something. You see what I'm saying? I got more
41:47
efficient. Now you get more efficient. Now they
41:51
get more efficient. And now the customer, if
41:54
we're doing it right. Should have a lower cost.
41:56
Yes. So we can sell more and everybody makes
42:00
money. I wonder how much all of this is causing
42:03
a decline in craft beer because costs are getting,
42:06
I mean, the cost of a six -pack, I don't know
42:10
what it is in Georgia, but up here you go to
42:13
the grocery store and it's, what, $14 or something
42:16
like that for a six -pack? How much is that impacting
42:19
the consumer? I mean, tons. I mean, look, first
42:22
I want to say that beer is an agricultural product,
42:24
right? So we're all connected to the farm. Everybody
42:28
in the craft beer industry, you're working in
42:32
agriculture. Whether or not you know it, you
42:35
don't have to touch grass to have an impact on
42:38
what happens on the farm. So that's number one.
42:40
The second thing is beer is a luxury item. as
42:46
inflation goes up in other sectors of the economy,
42:48
people aren't skipping the Publix or, you know,
42:51
whatever the local grocery store here is to pick
42:55
up their six pack that they desperately need,
42:57
you know, over paying the light bill or whatever.
43:00
Right. So if I am putting my cost pressure on
43:05
top of inflation to the consumer, dramatically
43:09
sales, the decline accelerates. Right. And so
43:13
again, Whether or not you know it, you're in
43:18
retail. Like, you sell beer, right? Like, even
43:22
on the farm, you're selling beer, right? So the
43:24
fact that 12 packs are going up is a problem
43:28
for you as much as it is a problem for me. Oh,
43:31
yeah, 100%. Right? So how do we solve that, right?
43:36
If it's waste in one part of the chain that everybody
43:40
knows where it's coming from. How do we solve
43:42
that? How do we eliminate it? What needs to be
43:45
done? I could match supply and demand more accurately
43:48
if I had blank. Okay, cool. Let me go get that.
43:53
You know, like, let me go get that so you can
43:56
get what you need, and then we'll figure it out,
44:00
right? So that's what I mean by, like, the farm
44:05
has to continue to do what you guys are doing
44:07
in terms of trying to figure it out. But tell
44:10
us as much as you can what you need and how you
44:14
need it. And then whoever in the chain that is
44:17
best positioned to serve that need should fill
44:21
it or else we're all going to have to get different
44:25
jobs. You know, like, I mean, not tomorrow, right?
44:29
But what's the point of being the last man standing?
44:35
Yeah, it's interesting that goes into. A couple
44:38
things we've been talking about. One, you know,
44:42
you made the point about it shouldn't be a surprise
44:45
how many hops you use. And that's why Roy Farms
44:49
specifically has gone to this, you know, a volume
44:52
-based contracting model, not a variety -based,
44:54
because we want the hops that are grown to go
44:59
into a brew kettle within 16 months. One, we
45:03
don't want... We want to build the conversation
45:05
into the model as much as possible so that it's
45:09
happening. It's like a living, breathing thing.
45:12
It's not this delayed thing that becomes too
45:15
big for anybody to handle. If the hops aren't
45:17
going into a beer that consumers are drinking,
45:21
why would we grow them again for another year?
45:24
We're going to be taking them out. It's just
45:26
a question of are we taking them out after next
45:29
year or are we taking them out after... Three
45:33
years. Now, for a moment, let's sit on that to
45:37
understand the impact of what happens, right?
45:39
When a variety comes out of the ground and then
45:42
you have to replace it with a new variety, even
45:44
if that is expanded acreage for an existing variety,
45:48
right? It doesn't have to be net new. What's
45:50
the turn time until that plant is viable for
45:53
something that you have that's usable? With good
45:57
communication or bad communication? Let's go
46:00
the happy path with good communication. If we
46:02
know now, let's say we had 50 ,000 pounds of
46:08
Amarillo that went to Creature Comforts, and
46:11
you came back and said, today, you came back
46:14
and said, we're long by 10 this year, and we
46:18
think we're really going to need 20 next year
46:20
to get through, because we're taking off on this
46:26
other brand that needs a Zaka. there's a chance
46:30
that it would cost us absolutely nothing because
46:33
we're doing better on Azaka than we thought.
46:36
We're just taking out some Amarillo. Or conversely,
46:40
we could go dig roots this fall, put them in
46:45
the ground, and get, what, 80 % yield next year
46:50
by planting? And it would be a hell of a lot
46:56
cheaper. than this conversation happening next
46:59
year because now we grew a bunch of hops that
47:01
nobody needs. Maybe we can sell them. Who knows?
47:05
Probably at a reduced price. And we had to plant
47:08
something else because we got told in the spring,
47:11
so now we get 60 % of the volume instead of 80.
47:14
It is, like, unbelievable how much more efficient
47:19
we could be. And that's just on kind of the cost
47:21
and the pre -productive cost before that plant
47:24
is fully productive. In my mind, you know, again,
47:29
I'm not saying it's simple, right? But let's
47:32
for a moment say that the industry standard is
47:35
to have your next crop year forecast locked in
47:40
with your supplier October. If the suppliers
47:44
will let you out of your previous forecasts,
47:47
that's got to be an assumption in what you're
47:49
going to say. 100%, right? Because how is that
47:52
beneficial for you? If I'm like, hey, I know
47:56
I said I was going to give you, Make it up a
47:58
number. I said I was going to give you a million
47:59
dollars. Well, switch some things around. Now
48:03
that I got this information and I got a better
48:07
handle on my performance, it's really like $800
48:09
,000. Because I'm needing less of this, more
48:12
of that. And that's $200 ,000 hit that I'm telling
48:17
you it would be best for us to take in the next
48:20
crop year. The alternative to that is that you
48:23
don't. And then I don't buy. nearly as much that's
48:28
the thing it's either a two hundred thousand
48:30
dollar hit or it's about a six hundred thousand
48:32
dollar hit because we grew the damn things for
48:35
the contract that existed in the first place
48:37
that you never needed ding ding ding ding ding
48:39
and it's like as we look about at all this it's
48:42
like oh my gosh there's so many costs layered
48:45
in right so it's in everybody's best interest
48:48
to understand what your position needs to be
48:52
prior to planting of the next crop year yep right
48:57
and that that is the brewery's responsibility
49:01
to know that to know that and if you don't know
49:06
that figure it out figure it out because you
49:10
have to be able to communicate that and then
49:13
go in the room and have those conversations and
49:15
say yeah uh i'm not where i'm be short 200 grand
49:19
but you know what Year after that, we're going
49:22
to right size. I'm going to grow by 5%, I believe.
49:26
We'll add $50 ,000 back. Year after that, we're
49:30
planning that it's going to be a better growth
49:33
cycle. I'm going to add another $100 ,000. I
49:36
never get back to the $200 ,000 I took out. But
49:39
I saved you $400 ,000 because we had the conversation.
49:44
You didn't have to go through all the other stuff
49:46
that it takes to put in the ground. get a better,
49:50
a lower price to resell and waste all this labor
49:53
and storage fees and, you know, all this other
49:56
type of stuff, right? It's the cost has already
49:59
sunk. Do you want to spend more? Right? No, nobody
50:03
does. So let's figure it out, good or bad, by
50:07
October, have your contracts locked. And then
50:10
tell you what, come January, double check again.
50:13
Tap in before it goes into the ground if you
50:16
get new information. As soon as you know, even
50:18
if it's after the plant goes in, as soon as you
50:21
know, as the keeper of this information, that
50:24
things are going to be wildly different from
50:25
what you last communicated, it is in your best
50:28
interest to communicate that to your supply base
50:30
so that they can get ready because it's going
50:33
to happen one way or another. Oh, yeah. Well,
50:37
take it. Here's an extreme example. So you kind
50:38
of get like, let's put real world numbers to
50:41
it. Roy Farms in 2023 was 3 ,600 acres of hops.
50:47
at let's call it an average of 12 ,000 an acre.
50:50
In 2024, we were down to 2 ,000 acres. 1 ,600
50:57
acres times, it's like $19 million because of
51:03
four years of compounding inventory. You know
51:06
how many jobs were lost off of that? And that
51:10
happened all over the place. Would I rather take...
51:15
A $3 million hit or a $20 million hit that that
51:19
20 million we're building back in and chipping
51:22
away, trying to get back. But that's so fricking
51:24
expensive to. Yeah. Back to your statement about
51:26
the, you know, reacquisition costs. Yeah. Yeah.
51:30
It becomes less productive, right? Oh yeah. Like
51:33
the, the more energy and effort and resources
51:35
you have to put into it, your cost to serve increases.
51:38
Okay. You made a dollar, but you spent 99 cents.
51:42
I'd rather just make 20 cents. Yep. I'd rather
51:46
just make 20 cents. Oh, yeah. You know, and that's
51:50
the logic that I'm trying to say that as a small
51:54
business who you may not had the opportunity
51:57
to sit and think about these things. And, you
52:00
know, maybe for a medium sized brewery, there
52:03
are other competing priorities. There's nothing
52:05
more important than fixing your supply chain
52:09
and establishing and stabilizing your supply
52:11
chain. It can be a cost center. Or it can be
52:15
a cost savings, but it will cost. And you will
52:19
have to pay what it's worth. You know, it's like
52:23
freight's going up. Nobody wants to see that,
52:28
but it's happening. And so that impacts everybody.
52:32
How do we fix that? How do we rebalance that?
52:34
You know, at some point there has to be an investment
52:36
in infrastructure to deal with last mile delivery,
52:39
or you're going to pay the company. What they
52:43
told you they were going to run the lane for.
52:46
Or buy a truck and run it yourself. You know,
52:50
so it's like these are the type of conversations
52:52
that I think the industry is now mature enough
52:54
to be engaged in. The next step, it will not
52:58
come as easily as the first 15 years did. Yeah,
53:02
that's a good point. Well, you've talked a lot
53:04
about, you know, what. I guess a brewer's responsibility
53:08
is or, you know, what is the responsibility at
53:11
one end of the supply chain? But what is the
53:13
farmer's responsibility? What is the merchant
53:16
or in some cases, you know, farmer is the merchant
53:19
or vice versa? But yeah, I guess. Yes. So like,
53:24
what is our responsibility in that? Well, I mean,
53:26
to one, make time for those tough conversations
53:29
to seek them out if they're not being given to
53:34
you. to have a standard that you set for what
53:38
good business looks like for you. And I hate
53:40
to say it, but if your customer base doesn't
53:43
get it, it's better for you to educate them.
53:48
It's cheaper. It's cheaper for you to educate
53:50
them instead of just going like, I don't know
53:53
what's going on. It's like, okay, we have a standard
53:56
that worked really well for us, and so this is
54:00
how it works. This is what new customer onboarding
54:03
looks like. Here's what the contracts look like.
54:05
Here's how often we need to talk. It needs to
54:07
be a decision maker. You need to have this type
54:10
of information. We're going to build some historical
54:12
data on you. And then when we meet, you're going
54:15
to give us some numbers and we're going to give
54:16
you some numbers. And then before we walk out
54:19
of the room, we need to agree on a set of numbers.
54:22
Right. And if you can't do that, then check it
54:25
out. You get a couple of times to jack it up.
54:29
You know, everybody gets 10 % Mulligan. All right,
54:32
yeah, you messed up the contract. We'll get it
54:34
sorted. You got another shot here. We're going
54:36
golfing together. My score's going to go up.
54:40
I'm going to need a lot more than 10%. But, you
54:43
know, you set that standard. And if it happens
54:46
again, look, man, we can't do business, right?
54:50
Because the money that you're giving me is costing
54:52
me more to keep you. Yeah? Yeah. You know, it's
54:56
interesting about that. Something I've been thinking
54:58
about that, you know, is along the theme of everything
55:02
we're talking about, keeping suppliers, brewers
55:05
healthy, and thinking about what it is that best
55:09
suits them. If you just step back and think,
55:13
like, we need healthy brewers, and they're hurting
55:17
too, and there are levers that we can pull that
55:21
we don't want to create bad behavior with. But
55:24
let's say a brewer is 180 days behind on their
55:30
bill. They're in trouble. What is going to help
55:36
them more? Wiping off their balance and saying,
55:39
you know what? We want to help you and as a one
55:42
-time get -out -of -jail -free card, you know
55:43
what? You're on 30 -day terms. We're going to
55:45
move you to 90 days to help you get through this.
55:49
But we don't really think like that. But realistically,
55:52
we weren't going to collect the shit in the first
55:54
place if they go under. And maybe there's a transition,
55:58
or even payment terms in general. We just don't
56:03
think about we're shipping hops over an 18 -month
56:07
period. Does it really matter if we get paid
56:10
30 days later than what we said? But 30 days
56:16
on 10 % of your cogs could mean everything. to
56:21
that brewer. I think you bring up a fantastic
56:23
point. You know, the reality of the situation
56:25
is one size does not fit all. And that's why
56:27
I'm saying that it's a complex problem that requires
56:30
a dynamic solution. You know, I can't just come
56:34
in and say that the answer is create a forecast,
56:37
get everybody on net 90, and then we're all going
56:41
to be okay. You know, not everybody is going
56:44
to need that. And then realistically, I mean,
56:46
if you did that for 100 % of your customer base.
56:49
you're going to have a cash flow problem, right?
56:51
So it's like... We're farmers. We always have
56:53
a cash flow problem. Well, I mean, that's a problem,
56:56
right? Because, I mean, if it doesn't come from
56:58
you guys, where do we get it? The other option
57:01
is overseas. And you want to talk about expensive,
57:04
everything just went up. And Guitas has kept
57:08
looking at what's going on in the global economy
57:11
right now. Could be that may not be an option.
57:14
Who knows? Yep. So... Are we just going to sit
57:18
around and wait for the other shoe to drop? Or
57:20
are we going to start going like, hey, you guys
57:22
are working on some new varieties. Man, got any
57:26
noble hops? As a matter of fact, we do. Oh, look
57:30
at that. Oh, you're wearing a t -shirt. It is
57:33
interesting how much this discussion comes up
57:35
about people being like, I'm a little nervous
57:37
about sourcing from overseas right now. Hey,
57:40
it's something to consider, man. And a resilient
57:42
supply chain is a dynamic supply chain. And sometimes
57:46
you create solutions for problems that aren't
57:48
here yet. That's how you survive. You don't look
57:52
for a gas station when you're out of gas. I've
57:56
tried that a few times. It doesn't work. You
57:58
don't get far. I'm just saying, man, you know,
58:02
the time to try to solve the problem is not when
58:04
it's at your doorstep. Then you're in crisis
58:07
mode. And at that point. Any solution will do,
58:10
and you start doing things that aren't really
58:12
solutions, and it just increases waste and cost,
58:15
and it makes things more out of reach. You know,
58:19
when you're already down, your next move has
58:21
to be your best move. And if you miss on that
58:25
shot, now you don't have a leg to stand on. You
58:28
know, so I look at it as, again, this industry
58:32
is mature enough where we need to start having
58:34
conversations about what it looks like 30 years
58:37
in the future. And what are we doing today to
58:40
bring this to fruition? God, it's so refreshing.
58:42
Especially with an agricultural product that
58:44
takes two to ten years to make commercially viable.
58:50
That's the horizon, right? So it's like you don't
58:54
go, well, we need something for Galaxy, and then
58:58
Galaxy is gone. You start working on that today.
59:03
Now, it may not be. And this is the part where
59:05
I'm saying you need support because let's be
59:07
realistic. It's going to take you a while. It's
59:10
going to take you a minute. You might nail it
59:11
the first try. It might be the 15th try. But
59:14
you need to keep trying. And it's in my best
59:16
interest to subsidize that innovation through
59:20
my patronage because, you know, you're. Telling
59:25
me you got that handled. I chose you because
59:27
you make great hops, and you're thinking about
59:29
what great hops need to be in the future, and
59:31
I'm rewarding that behavior with dollars into
59:34
your bank account. You know, I don't want to
59:37
invest with the guy who's like, you know, hops
59:40
are hops. Hops are hops. You know, doesn't really
59:45
matter. Who cares? You're like, hmm. Yeah, that's,
59:49
well, I don't know if I really want to give you
59:52
money for this product. You know, you know, what's
59:55
funny is, is maybe it sounds funny. Funny, weird,
1:00:00
not funny. Maybe funny, weird. When I came back
1:00:03
in the industry, you know, we were dealing mostly
1:00:05
with large breweries. And at the time, you know,
1:00:09
after some of these big contract renegotiations
1:00:12
and things, I kind of got burnt out on on that
1:00:14
whole process. But I see this reversion back
1:00:17
to that. And I don't mean the bad parts of that.
1:00:21
The good parts of that were its relationship
1:00:23
and problem solving. You know, and maybe the
1:00:26
problem solving was just, it was too big at times
1:00:30
because there wasn't the proactive response time
1:00:34
in there, built in there. But I see it kind of
1:00:36
coming back to that for us, especially where
1:00:39
it's like, all right, there's no one solution
1:00:41
that fits every scenario, right? And it just
1:00:44
takes that communication. I always think that's
1:00:46
what we did well. and so and drew like you know
1:00:50
you've been the majority of your time in this
1:00:54
industry right has been in this very aggressive
1:00:58
growth stage with the introduction of more proprietary
1:01:01
varieties into the supply chain i mean from your
1:01:05
perspective and i'd like to hear your response
1:01:08
to this too if you have any thoughts as is like
1:01:11
you know there was a a lot of capital that came
1:01:14
into the industry during that time oh my gosh
1:01:17
and do you think that Do you think that capital
1:01:19
is used appropriately as we look 5, 10, 20, 30
1:01:24
years out? Short answer, no. And I don't know
1:01:29
where to place. I don't think it was placed recklessly.
1:01:34
I think the systems were not set up in the first
1:01:38
place to better allocate that capital. I mean,
1:01:43
there's $100 million of... Empty, new, or almost
1:01:51
empty new picking machines. And trellis. You
1:01:56
count trellis? That's probably just in picking
1:01:57
machines that aren't being used right now. Just
1:01:59
picking machines. Yeah. I won't name, of course,
1:02:03
but I know where they're at, and those were never
1:02:07
needed. It's not the grower's fault for putting
1:02:11
that in because the communication was, yeah,
1:02:13
here's this demand. But we knew how many hops,
1:02:19
generally speaking, were getting shipped out
1:02:21
to breweries, right? It goes back to what I was
1:02:25
saying the other day. Now, some of them were
1:02:27
shipping out, but they weren't shipping to breweries.
1:02:30
They were shipping to warehouses. Because they're
1:02:32
being forced into the supply chain. They're being
1:02:34
forced into the supply chain. And then they got
1:02:35
forced into holes in the supply chain. Where
1:02:38
can I put them? Where can I put them? Burdening
1:02:40
everybody's balance sheets, all that sort of
1:02:42
stuff. And that's like, it's a young industry.
1:02:44
As I keep saying, we've only been at this for
1:02:46
15 years and like it being a real, real craft
1:02:51
being as big as it is. But if we would have gone
1:02:56
back seven years and somebody and people said
1:02:59
it, but like nobody knew the answer, when will
1:03:02
the end happen? Well, the signals were there.
1:03:05
We just didn't collectively communicate enough.
1:03:09
To avoid him. Can you imagine if there is, I
1:03:13
think, either Alex Barth or somebody like last
1:03:16
year at Hop Convention, or I can't remember who
1:03:18
it was, said there was something like $800 million
1:03:21
in inventory, estimated excess inventory sitting
1:03:28
around in hops at current interest rates is like
1:03:31
what, like 7, 8 %? I don't know. That's like
1:03:34
$65 million a year in interest. Yeah. Now take
1:03:39
that and add it on top of the excess capacity.
1:03:44
So if we say it's $35 ,000 an acre for capacity,
1:03:47
including picking machines, and we have 15 ,000
1:03:51
extra acres, it's like $420 million. So add all
1:03:57
that up, somebody's paying for that. I mean,
1:04:01
we all are in a way, you know what I'm saying?
1:04:04
Absolutely. There's somebody who's... paying
1:04:07
that interest check, right, coming out of a bank
1:04:09
account. But as an industry, we are all paying
1:04:12
for that. Yeah, what's your average price for
1:04:15
hops? You know, for the domestic stuff, probably
1:04:19
somewhere between $9 and $11, you know, for the
1:04:25
European stuff, higher. And what I'll say with
1:04:30
that is as quickly as the industry boomed, that's
1:04:35
how quickly it can bust. Yeah. And with the amount
1:04:39
of pressure, you know, that is sitting in one
1:04:42
part of the supply chain, unless it gets distributed
1:04:46
again, it's just think about it like a seesaw.
1:04:49
You can't put 200 pounds on one end and 150 on
1:04:53
the other and expect to have a good time. Right.
1:04:57
Yeah. You got to you got to you got to slide
1:05:00
this stuff around. Right. And so when we attempt
1:05:03
to do that. It comes in the form of higher first
1:05:06
cost to us. You know, it comes in the form of
1:05:09
higher labor costs for you. Everything's getting
1:05:12
more expensive to borrow. Like it is impacting
1:05:15
everybody. And that's why I'm saying it's not
1:05:18
just your problem. The hop industry in where
1:05:21
it's at right now is just not the hop industry's
1:05:24
responsibility. If you sell cans to breweries,
1:05:28
you should be paying attention. You should be
1:05:30
paying attention because your cans. Could be
1:05:34
going down. Because breweries are going to close.
1:05:37
Because they can't afford hops. Or they can't
1:05:40
get cool hops to put in beer. To get customers
1:05:42
in the door. If you sell grain. You should be
1:05:46
paying attention. This is a industry wide issue.
1:05:49
For craft beer. And that's I think the focus.
1:05:53
That we need to put in it. And a lot of the forums
1:05:56
that I've participated in. You know again. We
1:05:59
like to get together. We talk a lot. We engage
1:06:02
a lot. But I feel like sometimes we talk about
1:06:05
a lot of the good stuff and then very quickly
1:06:09
in hushed tones talk about some of the challenges
1:06:12
and then maybe somebody's got one or two ideas.
1:06:16
That's not enough. That's not enough. I'm sorry,
1:06:20
it's not. Well, and it's the total amount of
1:06:23
time going into that problem solving is not enough.
1:06:27
Exactly. I mean, if you mention a couple different
1:06:28
ideas in passing in the hallway. Doesn't lead
1:06:32
to execution. No. And that's why I'm saying how
1:06:35
you do that internally is first clean your own
1:06:38
house. What is the waste that you know you are
1:06:40
creating inside your own practice right now?
1:06:43
What is the inefficiency that you see in your
1:06:46
own operation? Attempt to create a solution for
1:06:50
that. Once you have that solution, go back and
1:06:52
say, when I was trying to solve this problem
1:06:55
for me, what I really realized about it is. And,
1:06:58
again, you didn't know, but your pack size is
1:07:00
really creating a problem for me. I don't use
1:07:04
44 -pound bags. I use 11, right? And I know that's
1:07:08
more expensive for everybody, but maybe we can
1:07:11
meet in the middle on 22. And I can, you know,
1:07:14
get a, I don't know, a bag sealer or something.
1:07:16
You know, like, how do we figure that out? You
1:07:18
can't just go, well, 44 pounds it is because
1:07:21
that's the only pack type that's sold, and I
1:07:23
guess that's for everybody. It's not. Creating
1:07:29
solutions for your own problems and identifying
1:07:31
those things that are bogging you down. You find
1:07:33
areas of opportunity to collaborate with others.
1:07:36
Take those and go talk. And ask the question.
1:07:39
Sometimes it's no. But you know what? There's
1:07:42
only one way to find out. And then if somebody
1:07:45
tells you no, politely ask why. Because it's
1:07:49
in that dialogue that there's space for perspective
1:07:53
change. Why? I don't know. Let me think about
1:07:57
that. Well, I think they're more expensive. Oh,
1:08:00
they're the same price? Oh, all right. Well,
1:08:03
22 pounds it is. Cost manifests itself in different
1:08:07
ways. True story. Well, look, I've thoroughly
1:08:11
enjoyed myself. We're obviously going to have
1:08:12
to figure out a way for me to come back and continue
1:08:16
the conversation. I think we're going to head
1:08:17
down there this fall. Okay. Yeah, we got some
1:08:20
breweries to visit. You can be our guinea pig
1:08:23
on the road recording. Oh, yeah. I'd love to,
1:08:27
man. I'm really enjoying, again, just the willingness
1:08:30
to provide a forum to talk about these conversations
1:08:32
because I think it's important. And, again, I
1:08:35
talked a lot about what I think breweries need
1:08:37
to do, and I'm not putting it all on us. I'm
1:08:40
just speaking from what I know. I don't work
1:08:42
at a hop farm. I don't work at a hop house. I
1:08:44
work at a brewery. I believe I've got some understanding
1:08:48
about where I'm at in the chain. Figure that
1:08:51
out for you, and the next time we meet, let's
1:08:54
talk about those points of intersection. Let's
1:08:56
figure out how if you had a forecast and you
1:08:59
got everything in October and you had a chance
1:09:03
to plan your business, what else do you need?
1:09:05
And then let's figure out how to make standards
1:09:07
for those because that's what's going to correct
1:09:10
over time. It's not going to be next year. It's
1:09:13
not going to be the year after that. But if we
1:09:15
put these practices in place, eventually over
1:09:18
time we will correct. Yeah, I think that'll be
1:09:21
fun. Maybe next time you can interview us. I've
1:09:23
always seen podcasts. I've seen a podcast that
1:09:25
do that before where the guest. That's a good
1:09:27
idea. I'll be down. Yeah. Oh, yeah. Grill the
1:09:31
hop grower. Oh, yeah. Well, Isaiah Smith, thank
1:09:35
you so much for coming on today. Thanks for taking
1:09:37
the time. Thanks to Creature Comfort's team for
1:09:40
humoring us with a little bit of time to sit
1:09:42
here and chat, have a few beers. We'll chat real
1:09:45
soon. Yeah. All right. Thanks, Isaiah. See you
1:09:48
all. Appreciate it.