Hey everyone. COGS is a particularly important topic in recent months, so we wanted to touch on it, provide some advice, and just give people a general overview to think about.
When margins are tight, COGS is one of the few levers you control. It's not the most exciting topic—but it's one of the most impactful. Here's a structured approach.
Cost of Goods Sold is one of the largest levers for margin improvement. When volume is soft and pricing power is limited, reducing COGS—through better sourcing, higher yield, less waste, or more efficient production—directly improves profitability. Below is a practical framework. When volume is soft and pricing power limited, reducing COGS—whether through better sourcing, higher yields, less waste, or more efficient production—has a direct impact on profitability. This post outlines practical strategies that craft breweries can implement without sacrificing quality.
Benchmark First
Before optimizing, you need a baseline. The Brewers Association publishes financial benchmarking data for craft breweries by size and business model. Compare your COGS as a percentage of revenue to industry averages. If you are above benchmark, identify the drivers: raw materials, packaging, labor, or overhead. If you lack per-SKU or per-batch cost visibility, that is the first step—you cannot optimize what you do not measure.
Raw Material Strategies
Procurement: Negotiate contracts for grain, hops, and yeast. Multi-year contracts can lock in favorable pricing, though they limit flexibility. Group purchasing organizations (GPOs) can aggregate volume for better terms. Spot purchasing may be cheaper when market conditions favor it, but it introduces volatility.
Recipe rationalization: High-hop IPAs, specialty malts, and adjunct-heavy styles drive raw material cost. Evaluate whether every SKU justifies its ingredient intensity. A flagship lager or pilsner may have significantly lower COGS per barrel than a double dry-hopped IPA. Portfolio decisions that shift mix toward lower-cost styles can reduce aggregate COGS.
Yield improvement: Brewhouse efficiency directly affects malt cost per barrel. A 1% improvement in lauter efficiency reduces malt usage and cost. Track brewhouse yield by batch; investigate underperforming runs. Packaging yield matters too—reducing low fills and line waste lowers the cost per packaged unit.
Packaging Strategies
Format and size: Can formats, pack sizes, and label choices affect packaging COGS. Standard formats (12 oz, 16 oz) often have better pricing than non-standard. Bulk purchasing of cans, lids, and boxes can reduce per-unit cost.
Vendor consolidation: Working with fewer packaging suppliers can improve volume leverage and simplify procurement. The tradeoff is reduced flexibility if a supplier has issues.
Waste reduction: Packaging waste—low fills, seam failures, line purges—increases effective cost per saleable unit. Logging and tracking packaging variance surfaces improvement opportunities. Reducing waste by even a few percentage points can materially improve COGS.
Operational Efficiency
Batch size: Larger batches typically have better efficiency—less changeover, better utilization of fixed equipment. If you have excess capacity, consolidating small batches into larger ones can reduce cost per barrel.
Scheduling: Minimizing changeovers between styles reduces downtime and cleaning cost. Block scheduling—brewing similar styles back-to-back—can improve throughput and reduce labor per barrel.
Energy and utilities: Brewhouse and cellar operations consume energy. Insulation, heat recovery, and efficient refrigeration can reduce utility cost. The payback varies by facility and energy rates, but the Brewers Association and state efficiency programs offer resources for breweries.
The Data Imperative
COGS optimization is iterative. You identify a lever, implement a change, measure the result, and refine. That requires consistent data: batch costs, yield by batch, packaging variance, and supplier pricing. Without that data, optimization is guesswork. The breweries that succeed with COGS reduction treat it as an ongoing discipline, not a one-time project.
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How BrewLedger Supports COGS Optimization
BrewLedger tracks batches, inventory, and consumption. You can see what materials went into each batch, what was packaged, and where variance occurred. That visibility supports yield tracking, waste investigation, and cost allocation. See how it works when you are ready.