Channel Conflict at a Craft Brewery
Harbour Craft Brewery sells 70% of its volume through distributors to 45 bars and 30% direct online. Its monthly capacity is 8,000 litres, and it currently produces 6,500 litres. The distributor price is €1.60 per 330 ml bottle, and variable cost is €0.90. Bars retail the beer at €4.50. The brewery's direct-to-consumer online price is €3.00 per bottle, with delivery at €1.00 and packaging at €0.20 per bottle. Direct contribution is therefore €0.90 per bottle versus €0.70 wholesale. The owner wants to push online sales with free delivery and a 10% discount, arguing that direct customers are more profitable. The bars have told the brewery that they will delist it if online prices undercut their €4.50 retail price. The brewery has no spare cash for a price war and depends on bars for brand visibility.
1. Calculate the monthly contribution from the on-premise bar channel and the maximum additional DTC contribution available from spare capacity. Use 330 ml bottles and assume 1 litre = 3.03 bottles.
Read the worked answer
On-premise volume = 45 bars × 120 litres = 5,400 litres/month. At 330 ml per bottle, that is 5,400 ÷ 0.33 = 16,364 bottles (rounded). Wholesale contribution = €1.60 − €0.90 = €0.70/bottle. Monthly contribution = 16,364 × €0.70 = €11,455.
Spare capacity = 8,000 − 6,500 = 1,500 litres = 1,500 ÷ 0.33 = 4,545 bottles. DTC contribution at current online price = €3.00 − €0.90 − €1.00 − €0.20 = €0.90/bottle. Maximum extra DTC contribution from spare capacity = 4,545 × €0.90 = €4,091/month.
So even if all spare capacity went to DTC, it would replace only about 36% of on-premise contribution (€4,091 ÷ €11,455). With the proposed 10% discount, DTC price becomes €2.70 and contribution falls to €0.60, so maximum extra contribution is €2,727. DTC cannot substitute for the bar channel at current capacity.
2. The owner wants to launch a 10% online discount with free delivery. Assess the channel conflict risk and recommend a channel strategy that grows DTC without triggering delisting.
Read the worked answer
Risk is high because bars are 70% of volume and 5,400 litres/month; losing them would remove €11,455 monthly contribution-far more than spare-capacity DTC can replace. The 10% discount plus free delivery also cuts DTC contribution from €0.90 to €0.60, so the growth is less profitable than it looks. A bar that sees its retail price undercut online has a credible reason to delist and to push a competitor.
Recommend a segmented channel strategy: keep online prices at or above bar retail for comparable packs; use DTC for differentiated offers-limited releases, mixed cases, subscriptions, brewery taproom collection, and bundled glassware-not for discounting the core beer. Give bars exclusivity on draught and on-premise promotions, and offer them margin support or staff training. Ring-fence DTC volumes to spare capacity and track bar satisfaction and delisting threats monthly. If a bar complains, respond with a channel-specific offer rather than a price cut. Grow DTC through added value, not through undercutting.