Brewers

Value creation is on the mind of every brewer.

How do we optimize our current malting allocation? How do we get optimal stability & attractiveness on the long-term malt price? Are we the best ‘parent’ to run our own malting plants most efficiently? Can we be a low cost quality malt producer?

Let First Key help you answer these questions. We review, plan and implement competitive malt strategies that create real value for our clients. Our services include:

Review of Existing Situation

Malt from our own malting plants: A technical audit of existing malting sites, costs and conditions, KPI’s. Benchmarking with other malt plants in the same market and with industrial maltsters. Identification of constrains. If local barley purchase — quality of local barley. If need to import — where from? Review of agreements with traders and specific agreements with farmers, cooperatives, merchants. In-house and external storage, financing (cash management). Availability of (quality) local barley. Does it add to the brewer’s image (good value for beer marketing)? Is there a need for a specific internal structure devoted to malting activity? Any gain in synergies: sharing utilities, use of steam, people (maintenance), etc?

Malt from local/regional suppliers: Existing contracts. Conditions to renegotiate. How expensive compared to present market price conditions. What additional values do the industrial suppliers bring just in time deliveries, but security of supply? Quality (how much can it be justified in the whole chain)? Better cash management (no financing of stocks)? Guarantee of price volatility? Hedging tools? Lower TCO (total cost of ownership) as a whole? Able to bring new barley varieties, a better malting process, a better fit to brewers requirements (higher DP, if more adjuncts, higher level of FAN, and their consequences in terms of brewers benefits: higher extract, better filtration, improved fermentability, etc.)?

What is the supply & demand situation: Evaluation of brewers total requirements for malt (how many kg malt per hl of beer for competitors?) — In the country, in the region (neighboring countries, if getting malt from these countries make sense from a logistic/delivery point of view (total cost delivered). Historical data of barley production in the different countries. Existence of (barley) seed breeders, seeds multiplicators at farmers level. Capacity of local farmers to address quality requirements and meet them.
Who are the largest players locally? What is their respective strategy? Who would be able to challenge them (any other small/middle size maltster)? Do they have strong links with competitors?

Development of a Procurement Strategy

Building own malting plants: Can you be a quality malt low cost producer? Do you have the production costs to become a low cost producer? Recommendations on what should be done/invested to achieve these costs objectives. Economic and financial consequences if recommendations are implemented. If achievable, do you want to invest in a non-core activity?

What are/would be the benefits of stopping malting activity: Focus on core business. No cash in agriculture (barley pre-contracting, storage, etc.). Lower TCO?How to identify/measure (brewing yield? Cost of raw material per hl of beer?). Reducing head counts?

What are the risks of stopping malt activity: Security of supply should be guaranteed. What if the only producing plant of the supplier fails (for whatever reason)? Volatility of prices: how to fix it. What is the Malt supplier’s policy in this area? Long term agreements with fixed price, based on local barley contracted price – but what about crop failure? Has the malt supplier a really dedicated team to agriculture? How do they advise in advance of any potential mishaps?

Establishing your requirements: No limit in requirements is the base for discussion! But secure the Supply Chain. How are you with regard to decreasing malt usage? And if less malt, then what should this malt be (higher FAN, higher diastatic power, other)? Identify future quantities required based on you long range plan. Can the quantity be flexible (will it depend on malt price)? In case of abundant crop, where is the lowest level? What is the interest for adjuncts and enzymes? What is the vendor’s malt storage policy at brewery’s gate? Transport specs (food safety). Request for competitive information on barley and crop prospects. Competition clause? Other clauses?

Evaluate supply and procurement trends: What are the leverages that you can negotiate to bind a malt supplier who is retained for short term (transactional relationship) purchases to a long term commitment? How do you estimate the future local/regional supply & demand situation? Evaluation of (all) brewers total requirements for malt. How many kg malt per hl of beer for competitors in the long run — in the countryand in the region (neighboring countries)? Risk analysis: how secured is the malting barley cultivation locally? What are the competitive crops? How sustainable is the existence of the present maltsters in the region, mainly those with financial problems, or stand-alone structure (no backing), small-size family or individual business? What is the capacity of local farmers to address quality requirements and meet them?

Who are the largest players locally: What is their respective strategy? Who would be able to challenge them (any other small/middle size maltster)? Do they have strong links with competitors (global players, local brewing companies)?

Implementation

Review alternative procurement strategy models and prepare discussions with suppliers and make recommendations.

  • Transactional: Annual contracts; depend on market conditions – volatility risk; quality of product is no compromise
  • Collaborative: Closer relationships with supplier(s); tailor made product – consideration of crop fluctuation; hedging tools to be negotiated; security of supply – long term agreement to be considered; value added partnership to demonstrate; benefit of new technology developed by supplier(s)
  • Strategic Partnership: Total outsourcing of non-core business; supplier to take care of your maltings; Buys the assets / rents the assets; Can decide to close; “Buy” the capacity against secured sale of same (or bigger or lower) quantity of malt; supplier to originate malt from best located production plant; commitment by supplier to deliver the highest value, i.e. the lowest Total Cost Delivered.