During the gold rush, it’s a good time to be in the pick and shovel business.Mark Twain
Or so the conventional wisdom goes. But several very troubling no warning closures over the last 12 months of the ‘pick and shovel’ vendors of the craft beer gold rush, the brewery equipment manufacturers, has seemingly tossed that classic refrain out with the bath water.
A little over two years two leading Canadian brewery equipment makers were rolled up into one by a capital investment group. The merger of Diversified Metal Engineering (DME) and Newlands Systems Inc (NSI), created a new entity designed to play off each of their strengths. However according to Brewbound and several sources, the combined company has fallen into receivership after defaulting on loan payments to the Royal Bank of Canada (RBC).
DME Group’s financial troubles have left hundreds of North American craft brewery owners in financial purgatory. Quite a few of these breweries had already given DME Group millions of dollars in up-front equipment deposits to secure orders.
As of November 22, according to documents filed, DME owes more than $13.5 million ($USD) to the RBC and other creditors, including brewery clients and about 250 employees. This does not seem to even include the cost of delivering the actual equipment owed.
DME reportedly would have required a $3.7 million cash infusion just to continue operations, but the company could not secure additional funding from its bank or from it’s venture capital firm Clearspring Capital, which acquired a majority stake in the business in 2015.
If you want to become really sad go ahead and read DME’s list of unsecured brewery creditors which features a host of well-known producers, including Lord Hobo Brewing, Main Beer Company, 10 Barrel Brewing, Anchorage Brewing, Diageo, Figueroa Mountain Brewing, Labatt, Maine Beer Company, Monday Night Brewing, Moosehead Breweries, New Belgium Brewing, Night Shift Brewing, Notch Brewing, Tired Hands Brewing, and Wicked Weed, among many, many others.
Sadly DME’s financial woes are not isolated and follow similar issues for several other brewing equipment manufacturers, including the closure of Metal Craft in 2017 and SysTech Stainless Works earlier this year.
So what can a beer marketer learn from the painful demise of a major supplier?
First is to assume that businesses can and will fail. And assume that some of them might be your suppliers. Whenever possible try to have fall back suppliers in case of a short term or long term problem. (Although not very practical when that supplier is literally supplying your brewhouse!) In order to ensure that your brand and company can continue not if, but when a major supplier flames out spectacularly, you must think strategically and long term. Plan for success by assuming failure. Learn from these failures and treat them like they were you own.
Always Have a Plan B: Build multiple vendors into everything you do.
Most smart companies develop strong partnerships with a few well chosen vendors/partners, but that doesn’t mean you shouldn’t have a plan B. Always have a plan b. And ideally a plan C. Whether it’s a second malt supplier, an alternative label printer or even an alternative equipment supplier, always be planning to succeed by assuming that failure will dog your every step.
And if you want some really sound legal advice on how to proactively avoid the worst effects of a situation like this read this excellent article by the Libation Law Blog.
With the Newlands/DME receivership fresh on the minds of every brewer, here are a few tips – contractual and otherwise – regarding provisions and other actions that might keep you from losing the money you advance in a similar situation: Read the article.