Kinnek e-Marketplace: An Enduring Value Proposition for Small Craft Brewers?

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Case #: HEIM-2017-003
Version: 4/12/2017
This case was written by Dr. Gregory R. Heim of the Mays Business School at Texas A&M University. The case was written as a
basis for classroom discussion and not to illustrate either effective or ineffective managerial practices.
© Gregory R. Heim 2017. All rights reserved. For permission to reprint copies, please contact: 979-599-3669;
gheim@mays.tamu.edu
Kinnek e-Marketplace: An Enduring Value
Proposition for Small Craft Brewers?
Introduction
Kevin Hilliard, co-founder and sales manager of Minneapolis-based Insight Brewing, had just
posted to Facebook in response to an article in the local newspaper regarding ABInBev’s
acquisition of Northern Brewer, a major Minnesota-based homebrew1 supplier to homebrewers
across the USA. The post read:
“Now all the homebrewers get to support AB InBev. Lame”
For many homebrewers – Minnesota to Texas, California to Maine – Northern Brewer had been
an online go-to e-retailer of sorts, where one could always find necessary homebrewing
ingredients and equipment. Now it was an open question as to whether Northern Brewer would
still have the same level of service, and still offer the same variety of brewing inputs needed to
make tasty beers at home. For many homebrewers, this acquisition opened up questions of
whether to buy from Big Beer (i.e., ABInBev) or to find a different supplier (e.g., Austin
Homebrew Supply) that continued to support Craft Beer2 and the homebrewer movement.
While Kevin was willing to take a political stand on Facebook regarding the acquisition of B2C
e-retailer Northern Brewer, he and his co-founders recognized that Insight Brewing’s
procurement, brewing, and sales issues were fundamentally different than those of homebrewers.
Founded in 2014 as a brewery and public taproom, Insight Brewing opened its doors to the
public on November 21, 2014. In 2015, Insight Brewing produced 2500 barrels of beer, making
it the 422nd largest microbrewery in the USA (the microbrewery category excludes mid-sized
regional-scale breweries). By 2016, Insight Brewing’s staff brewed a variety of high-end craft
beers – Sunken City (a Saison made with Sauvignon Blanc grapes), Dankbot (a citrus India Pale
Ale), Banshee Cutter (a coffee-enhanced golden ale), Troll Way (a West Coast IPA), Hell
1 “Homebrew” is beer (or mead, or other similar fermented beverages) that an individual consumer brews and
bottles (or kegs) in his/her own home for personal consumption. “Homebrewing” is the colloquial name for the
process of making such beer in one’s own home. A homebrew recipe typically produces 5 to 10 gallons of beer. 2 “Craft Beer” pertains to industrial brewing of beer, mead, and other related fermented beverages within smallbatch
breweries. Craft brewers brew beer to sell directly to public consumers via taprooms and to liquor distributors.
for distribution to bars, restaurants, and retail liquor stores.
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
2
Chicken (a Pale Ale brewed with Japanese Yuzu fruit), Devil’s Companion (a London-style
Porter), Doe Eyes (a cherry-infused Saison), and several other seasonal or specialty beers.
Insight Brewing had ended up on the Best of 2015 Twin Cities list, and had won four gold medals
in the Best of Craft Beer Awards 2016. Kevin had helped to expand sales from the Insight
Brewing taproom, to many local bars across Minnesota, and on to larger taps at major corporate
restaurants in Minnesota like Famous Dave’s Legendary Pit Bar-B-Que. Insight Brewing also
was listed by Beerploma as among the Top 5 brewers in Minnesota in the 2016 Top 25
Minnesota Brewery Ranking.
3
In addition to Kevin, Insight Brewing was founded by Eric Schmidt (focusing on finance and
supply chain), Brian Berge (focusing on branding, marketing, and business management), and
Ilan Klages-Mundt (the main brewer, who had previously worked for several major breweries in
England, Japan, and Denmark).4 Each of the team had originally been homebrewers.
Recently, they and many of their colleagues in the industry had run across monthly
advertisements in The New Brewer, a craft brewing industry journal produced by the Brewers
Association (BrewersAssociation.org), from a new materials procurement e-marketplace called
Kinnek. Month after month, Kinnek had placed an expensive advertisement insert in The New
Brewer that claimed:
Kinnek | Purchasing Made Painless
You Could Save 23%
Brewhouses, Bottle Fillers, Growlers, Hops, Kegs, Glycol Chillers, and more …
Get The Best Prices From Top Suppliers On The Kinnek Brewery Marketplace
Get Started For Free At
kinnek.com/newbrewer
As long-time homebrewers, they knew they could always run over to the Northern Brewer shop a
few miles away to pick up some last-minute supplies for a tester batch of beer. Yet as a growing
Craft Brewer, they were buying materials and equipment for increasingly large production
volumes. Clearly, the potential for up to 23% savings was of interest. And, compared to paging
through The New Brewer to identify and qualify suppliers for brewery supplies, maybe this
service might be interesting and useful? But were there any risks of procuring materials via an emarketplace?
Minnesota Craft Brewing
Minnesota in the 1990s had enough craft brewers to count on one’s fingers (maybe on one hand).
During the 1990s, many college-aged folks, including Kevin, were introduced to homebrewing
3 Wentling, E., 2017. Eric’s 2016 Top 25 Minnesota Brewery Awards. Beerploma.com, January 3.
[http://beerploma.com/2017/01/03/erics-2016-top-25-minnesota-brewery-ranking/] 4 Burkhardt, E. 2016. Brewer profile: Insight Brewing’s Ilan Klages-Mundt. The Growler, January 25.
[http://growlermag.com/brewer-profile-insight-brewings-ilan-klages-mundt/2/].
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
3
by friends and local homebrew supply shops. While the dream of every homebrewer was to open
a brewery, mainly truly talented homebrewers eventually went on to do so. By 2016, the
Minnesota Craft Brewers Guild listed over 100 craft brewers in Minnesota.5 The times had
changed, and the craft brewing competition seemingly increased by the day.
In 2016, Insight Brewing (2500 barrels produced in 2015) had many craft brewery competitors in
the Upper Midwest region. Among the best-known Minnesota craft brewers were Indeed
Brewing (11,603 barrels in 2015), Lift Bridge Brewing (14,500 barrels in 2015), Fulton Brewing
(20,530 barrels in 2015), Surly Brewing (62,432 barrels in 2015), Summit Brewing (128,770
barrels in 2015), and Schell’s Brewing (136,200 barrels in 2015).
6
Craft Brewing Industry Growth
This growth pattern observed in Minnesota was mirrored by the growth in craft brewers across
the USA. Across contract brewers, regional craft brewers, microbreweries, and brewpubs, total
industry volume increased from 7.1 million barrels in 2006 ($5.6 billion in revenues) to 24.5
million barrels in 2015 ($22.3 billion in revenue).7 The number of craft brewers grew from 1,409
in 2006 to 4,225 in 2016, and to 5,234 by the start of 2017. Indeed, in 2015 alone, the U.S. craft
brewing industry segment added 620 brewery openings. In 2016, 826 brewery openings took
place, and 2,023 breweries were listed as still in planning stages. Of the 5,301 breweries
operating in 2017, 3,132 were microbreweries 1,916 were brewpubs, 186 were regional craft
breweries, while there were 67 large non-craft breweries.8 For most of the past decade, the
industry had grown by more than 12 percent annually.
Compared to the historical developments within the overall U.S. brewing industry, the recent
growth of craft brewing startups was astounding. The previous height of brewing activity in the
USA saw 4,131 breweries operating in 1873. 9 Due to easier transportation modes (e.g.,
railroads), changing taste preferences, industry consolidation, the development of pasteurization,
and other factors, the number of local brewers had decreased to 1,179 by the start of Prohibition,
which brought the number down to 0 active breweries.10 After Prohibition, 703 breweries
resumed operations, but the general decline in brewing facilities continued through the late
1970s, when only 89 breweries remained. However, with the Carter Administration’s
5 Minnesota Craft Brewers Guild, “Brewery Members” [http://www.mncraftbrew.org/membership/brewerymembers]
6 Top 50 Domestic Craft Brewing Companies (p. 99), Regional Brewing Company Rankings (p. 105-107),
Microbreweries Rankings/Microbreweries List Positions (p. 147-193), The New Brewer, May/June 2016. 7 Schuhmacher, H., 2016. Let the games begin. The New Brewer, May/June, Vol. 33, No. 3, 88-96. 8 Brewers Association press release, 2017. Steady Growth for Small and Independent Brewers. March 28.
https://www.brewersassociation.org/press-releases/2016-growth-small-independent-brewers/ 9 Brewers Association press release, 2015. The Year in Beer: U.S. Brewery Count Reaches All-Time High of 4,144.
https://www.brewersassociation.org/press-releases/the-year-in-beer-u-s-brewery-count-reaches-all-time-high-of4144/
10 Gonzalez, R. 2013. The total number of breweries in the U.S., from 1887 to present. http://io9.gizmodo.com/thetotal-number-of-breweries-in-the-u-s-from-1887-to-512405715
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
4
legalization of home brewing,11 the downward trajectory of the industry changed course, and
brewers started opening up new breweries, anecdotally due to a growth of homebrewers who
subsequently opened craft breweries.
Brewing Materials and Equipment Suppliers
At their most basic, all alcoholic beverages started out as a sugary liquid that gets fermented by
yeast to generate alcohol. In the case of brewing beer, the four basic ingredients required are
water, malted barley, yeast, and hops. In many cases, modern brewers use many more
specialized ingredients to help the yeast grow, to clarify the beer, or to impart certain flavors
(e.g., Insight Brewing adds grape juice, Japanese Yuzu fruit, and cherries).
The general brewing process involves (i) extracting sugary water (called “wort”) by steeping
malted barley in 115o
F to 165o
F water, similar to making a tea, for about an hour, (ii) then
boiling a mixture of this wort and hops for an hour or more, (iii) quickly cooling the finished
wort to 70o
F or below, (iv) adding yeast to the cooled wort, (v) letting the yeast eat up
(“ferment”) the sugar and produce alcohol as a by-product, which can take a week to many
months, (vi) transferring the finished beer to a carbonation vessel, (vii) carbonating the beer, and
(viii) bottling or kegging the beer. Thus, beyond the four basic beer ingredients, brewing also
requires lots of capital equipment as well as bottles and other vessels for shipping the finished
product.
Homebrewers typically buy simple equipment and homebrew recipe kits (see Exhibit 1). They
obtain such materials through local suppliers and e-retailers such as Northern Brewer and Austin
Homebrew Supply. These shops often order large volumes of brewing supplies from major
suppliers, and re-package them into recipe-sized containers that homebrewers can use to make a
5-gallon recipe. As such, the unit costs of such materials are higher than if one bought directly
from a supplier. Yet, overall, the total cost of a 5-gallon batch can range anywhere from $20 and
up.
For Craft Brewers, who must obtain state brewers licenses and follow state and federal
regulations for the production and sale of alcoholic beverages, the production process ends up
more sophisticated and complex (see Exhibit 2).
12 The brewer will need to source economical
volumes of hops (e.g., from 47Hops, BSG Hops, or another hops supplier), yeast (e.g., from
Pillsbury’s yeast lab), malted barley (e.g., from Briess Malt and Ingredients Co.), and other
necessary ingredients. To set up a brewing facility, the brewer will need to procure industrialsize
materials storage vessels, cooking equipment, fermentation equipment, refrigeration
equipment, carbonation processes, bottling or kegging lines, and chemicals to clean all of this
stuff. If the brewer plans to sell beer directly to the public via a taproom or brewpub, managers
11 Houseknecht, C. How Jimmy Carter sparked the Craft Beer revolution. https://www.kegworks.com/blog/howjimmy-carter-sparked-the-craft-beer-revolution/
12 Gribbins, K. 2014. Brewhouse advice from top craft brewers and equipment manufacturers. Craft Brewing
Business. December 11. https://www.craftbrewingbusiness.com/equipment-systems/how-to-buy-and-maintain-acraft-brewhouse/
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
5
will need to procure bar equipment for storing and cooling kegs and bottles, serving the
beverages (e.g., glasses, growlers), and seating customers.
Being essentially a complex chemistry experiment, exceptional quality management is the key
through all stages of brewing. When homebrewers make a mistake, perhaps due to a lack of
cleanliness in the process, their beer can taste “off” or even quite bad. Still, they probably drink
the beer. When craft breweries make a brewing mistake, they might end up with a fermentation
vessel containing 20 to 50 barrels (31 U.S. gallons/barrel) of bad beer that they must drain down
the sewer. If they package and serve the beer, they could kill their brand image. Clearly, such
mistakes can be costly. Thus, having access to reliable suppliers and high quality supplies was an
important aspect of craft brewing.
Craft Brewing Industry Challenges and Uncertainty
By 2016, some industry analysts were questioning whether the craft brewing industry had
overgrown itself and could continue to grow forever at such a strong rate. Even the Chief
Economist of the Brewers Association had presented several challenges he saw looking forward
into 2016 and 201713:
• Changing palates will likely impact older flagship brands.
• Beer will see greater sophistication and complexity.
• Capacity decisions gone wrong could be crippling for individual companies and add pricing and
profitability pressures for many other craft brewers.
• Greater integration of technology in retail could make it tougher on startups and the smallest
brewers, as costs to comply become a larger barrier to entry.
• Quality will be a given, and those brewers who don’t have it will not be given the benefit of the
doubt or a second try from savvy beer drinkers.
• There will be a place for small, local brewers with a business model that may not show or rely on
huge growth.
• Competition will continue to grow fiercer in all planes of craft brewing and in the beer industry.
• Money will matter. Some will want out.
Overall, such comments suggested an increasingly challenging business environment for small
microbreweries and medium-sized craft brewers, with consumer expectations of high quality and
variety, yet fierce competition and potential for operational challenges and interruptions.
What the Brewers Association economist did not cover was ongoing uncertainty in hops
production during 2016, partially due to poor hops growing conditions in Europe and the USA in
2015.
14 Many news articles had covered the uncertainty in supply for niche hops having delicate
13 Watson, B., Gatza, P., 2016. Craft grows in a competitive environment. The New Brewer, May/June, Vol. 33, No.
3, 50-58. 14 2016 Hop Harvest Report, USA Hops – Hop Growers of America [https://www.usahops.org/news/2016-hopharvest-report].
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
6
flavor notes (i.e., those that craft brewers liked to use) and higher hops prices for many craft
brewers. While ABInbev and other major Big Beer brewers often owned their own hop farms
and controlled supplies of other brewing materials, Craft Beer brewers often brewed based on
spot market hops availability.
Kinnek e-Marketplace
The Kinnek e-marketplace was founded in 2012 by Karthik Sridharan and Rui Ma (see Exhibit
3), business school and engineering students from UPenn Wharton Business School and
Cornell.
15 Kinnek provided a B2B e-marketplace through which suppliers connected with
potential client businesses. Potential buyers submitted a procurement request, and the Kinnek
system in real-time identified and notified appropriate suppliers of such materials and equipment.
Kinnek purchasing services focused on clients in the bakery, beverage, brewery, cidery, dairy,
distillery, farming, food processing, lodging/hospitality, restaurant, self-storage, vitamin and
supplement, and winery sectors.
16
Kinnek’s target customer consisted of small to medium-sized businesses. The Kinnek IT systems
enabled clients to identify and buy from suppliers, manage purchases, and maintain key supplier
relationships.17 For example, the Kinnek system provided an Instant Price Estimator tool for
buyers.18 The Kinnek system categorized suppliers into 103 different beer brewing resource
groups (see Exhibit 4). Customers also were able to rate suppliers on their responsiveness (see
Exhibit 5). Kinnek also had enabled a payment feature called Kinnek Pay, which allowed buyers
to easily pay suppliers within Kinnek (see Exhibit 6).
Kinnek originated out of a venture capital incubator. After an infusion of $3 million in venture
capital seed funding, Kinnek was able to obtain a $10 million Series A financing round in
September 2014, followed by a $20 million Series B financing round in September 2015. Thus,
in total, by 2016 they had obtained $33 million of venture capital. By late 2015, Kinnek was
reportedly processing more than $1 billion of client quotes in a year, with 2000 suppliers
participating, and 20,000 client businesses using the system.19 The number of clients grew from
10,000 in 2014 to the 20,000 in 2015. As of late 2015, Kinnek employed 30 persons.20
15 Taylor, C. 2012. AngelPad debuts 12 new startups at its Fall 2012 Demon Day. TechCrunch, November 29.
[https://techcrunch.com/2012/11/29/angelpad-debuts-12-new-startups-at-its-fall-2012-demo-day/]. 16 http://www.kinnek.com/ 17 https://en.wikipedia.org/wiki/Kinnek 18 Crowell, C., 2015. Watch: Instant price estimation on any brewery purchase from Kinnek.
CraftBrewingBusiness.com, May 7. [https://www.craftbrewingbusiness.com/equipment-systems/instant-priceestimation-brewery-purchase-kinnek/].
19 Brodsky, M., 2015. Wharton entrepreneur riding $2.2 trillion pipeline. Wharton Magazine, December 15.
[http://whartonmagazine.com/blogs/wharton-entrepreneur-riding-2-2-trillion-pipeline/]. 20 Loizos, C., 2015. Kinnek, a small biz marketplace, raises $20 million led by Thrive Capital, TechCrunch, October
15. [https://techcrunch.com/2015/10/15/kinnek-a-small-biz-marketplace-raises-20-million-led-by-thrive-capital/].
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
7
Kinnek’s revenue model was built on subscription fees and commissions.21 Kinnek charged
sellers a subscription fee and a commission on sales. Kinnek charged no fees or commissions to
buyers that wanted to procure materials via the Kinnek system. As the Craft Brewing industry
expanded and moved, Kinnek’s revenue opportunities changed. For example, Kinnek could
observe states where many new breweries were being set up, since those states generated many
procurement requests for capital equipment.
22 Kinnek could also observe states where breweries
were more mature, since those states generated more procurement requests for bottles and kegs.
Kinnek had limited direct competitors in the segments it was positioned in. While a few B2B emarketplaces
focused on small businesses’ procurement needs (e.g., BuyersBestFriend, Supply
Bid, SupplyHog), these other e-marketplaces often focused on selling services to very different
vertical industry segments. To the best of many industry analysts’ knowledge, Kinnek was the
only e-marketplace that focused on wine/beer/cider/distilled spirits industries.
History of e-Marketplace Sector
The first wave of B2B e-marketplaces was founded in the early 2000s. Many e-marketplaces at
that time had problems attracting both a sufficient set of clients as well as a sufficient set of
suppliers. Overall, there was a very high rate of e-marketplace failures.
One academic study that tracked 942 early B2B e-marketplace’s failure/survival documented a
45% failure rate among these early market intermediaries.23 They found that e-marketplaces in
mature product sectors and in customer-oriented sectors, where goods were well known and
information about goods was easy to understand, were more likely to fail. E-Marketplaces in
product sectors with complex, tacit, and uncertain information were more likely to survive. Also,
age of the e-marketplace strongly decreased the likelihood of failure.
Another academic study of e-marketplaces observed that an e-marketplace’s ownership structure,
funding levels, speed, continuity, and scope of service offering were associated with financial
performance of e-marketplaces.24
Every Craft Brewer’s Decision
Compared to the task performed by Eric Schmidt and Insight Brewing’s procurement staff,
which involved paging through The New Brewer journal to identify and qualify suppliers for
21 Brodsky, M., 2015. Wharton entrepreneur riding $2.2 trillion pipeline. Wharton Magazine, December 15.
[http://whartonmagazine.com/blogs/wharton-entrepreneur-riding-2-2-trillion-pipeline/]. 22 Crowell, C., 2014. Regional brewing equipment purchasing trends: Brewhouses, fermenters, kegs.
CraftBrewingBusiness.com, December 15. [https://www.craftbrewingbusiness.com/equipment-systems/craftbrewing-equipment-purchasing-trends/].
23 Rosenzweig, E.D., Laseter, T.M., Roth, A.V., 2011. Through the service operations looking glass: Influence of
industry sector, ownership, and service offerings on B2B e-marketplace failures. Journal of Operations
Management, 29(1-2), 33-48. 24 Laseter, T.M., Bodily, S.E., 2010. Strategic indicators of B2B e-marketplace performance. Electronic Markets,
14(4), 322-332.
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
8
brewery supplies, was the Kinnek service useful? A substitute for phone and catalogs – that was
the basic value proposition that Kinnek’s executives had used to build the company. Was this
value proposition obvious to many brewers? Did Kinnek offer enough supplier variety? Further,
many small craft brewers wanted to grow their total brewing volume each year. Could Kinnek be
trusted to scale with a brewer’s operations?
On the flip side, were there any risks of connecting one’s craft brewery operations to Kinnek?
Were there risks of relying on Kinnek’s list of suppliers for growth? Insight Brewing had already
qualified a number of suppliers for its existing beers (e.g., for bulk malted barley by the pallet),
and those suppliers delivered regularly – should they be retained or replaced? If Insight Brewing
started to use Kinnek, could they become overly reliant on Kinnek? Would Kinnek have
necessary ingredients, from reliable suppliers, to satisfy the need for the unique ingredients that
could ensure the high-quality, distinctive beer flavors that were being made at Insight Brewing
and other craft brewers?
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
9
Exhibit 1: Homebrew Equipment and Brewing Process
Basic Homebrew Kit ($179) Dissolve Malted Barley Extract Syrup in
3 Gallons Water and Boil for 60 Minutes
Add Hops to the Boil After Fermenting Beer in Glass Carboy,
Must Bottle Beer
Source: Northern Brewer, www.northernbrewer.com
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
10
Exhibit 2: Craft Brewery Equipment
Source: https://www.craftbrewingbusiness.com/equipment-systems/how-to-buy-and-maintain-acraft-brewhouse/
Exhibit 3: Kinnek Founder Information
Source: http://www.kinnek.com/about/
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
11
Exhibit 4: Kinnek Brewing Resource Supplier Categories
Source: http://www.kinnek.com/
Exhibit 5: Kinnek Supplier Ratings
Source: http://www.kinnek.com/
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
12
Exhibit 6: Kinnek Pay
Source: http://www.kinnek.com/

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Kinnek e-Marketplace: An Enduring Value Proposition for Small Craft Brewers?

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Case #: HEIM-2017-003
Version: 4/12/2017
This case was written by Dr. Gregory R. Heim of the Mays Business School at Texas A&M University. The case was written as a
basis for classroom discussion and not to illustrate either effective or ineffective managerial practices.
© Gregory R. Heim 2017. All rights reserved. For permission to reprint copies, please contact: 979-599-3669;
gheim@mays.tamu.edu
Kinnek e-Marketplace: An Enduring Value
Proposition for Small Craft Brewers?
Introduction
Kevin Hilliard, co-founder and sales manager of Minneapolis-based Insight Brewing, had just
posted to Facebook in response to an article in the local newspaper regarding ABInBev’s
acquisition of Northern Brewer, a major Minnesota-based homebrew1 supplier to homebrewers
across the USA. The post read:
“Now all the homebrewers get to support AB InBev. Lame”
For many homebrewers – Minnesota to Texas, California to Maine – Northern Brewer had been
an online go-to e-retailer of sorts, where one could always find necessary homebrewing
ingredients and equipment. Now it was an open question as to whether Northern Brewer would
still have the same level of service, and still offer the same variety of brewing inputs needed to
make tasty beers at home. For many homebrewers, this acquisition opened up questions of
whether to buy from Big Beer (i.e., ABInBev) or to find a different supplier (e.g., Austin
Homebrew Supply) that continued to support Craft Beer2 and the homebrewer movement.
While Kevin was willing to take a political stand on Facebook regarding the acquisition of B2C
e-retailer Northern Brewer, he and his co-founders recognized that Insight Brewing’s
procurement, brewing, and sales issues were fundamentally different than those of homebrewers.
Founded in 2014 as a brewery and public taproom, Insight Brewing opened its doors to the
public on November 21, 2014. In 2015, Insight Brewing produced 2500 barrels of beer, making
it the 422nd largest microbrewery in the USA (the microbrewery category excludes mid-sized
regional-scale breweries). By 2016, Insight Brewing’s staff brewed a variety of high-end craft
beers – Sunken City (a Saison made with Sauvignon Blanc grapes), Dankbot (a citrus India Pale
Ale), Banshee Cutter (a coffee-enhanced golden ale), Troll Way (a West Coast IPA), Hell
1 “Homebrew” is beer (or mead, or other similar fermented beverages) that an individual consumer brews and
bottles (or kegs) in his/her own home for personal consumption. “Homebrewing” is the colloquial name for the
process of making such beer in one’s own home. A homebrew recipe typically produces 5 to 10 gallons of beer. 2 “Craft Beer” pertains to industrial brewing of beer, mead, and other related fermented beverages within smallbatch
breweries. Craft brewers brew beer to sell directly to public consumers via taprooms and to liquor distributors.
for distribution to bars, restaurants, and retail liquor stores.
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
2
Chicken (a Pale Ale brewed with Japanese Yuzu fruit), Devil’s Companion (a London-style
Porter), Doe Eyes (a cherry-infused Saison), and several other seasonal or specialty beers.
Insight Brewing had ended up on the Best of 2015 Twin Cities list, and had won four gold medals
in the Best of Craft Beer Awards 2016. Kevin had helped to expand sales from the Insight
Brewing taproom, to many local bars across Minnesota, and on to larger taps at major corporate
restaurants in Minnesota like Famous Dave’s Legendary Pit Bar-B-Que. Insight Brewing also
was listed by Beerploma as among the Top 5 brewers in Minnesota in the 2016 Top 25
Minnesota Brewery Ranking.
3
In addition to Kevin, Insight Brewing was founded by Eric Schmidt (focusing on finance and
supply chain), Brian Berge (focusing on branding, marketing, and business management), and
Ilan Klages-Mundt (the main brewer, who had previously worked for several major breweries in
England, Japan, and Denmark).4 Each of the team had originally been homebrewers.
Recently, they and many of their colleagues in the industry had run across monthly
advertisements in The New Brewer, a craft brewing industry journal produced by the Brewers
Association (BrewersAssociation.org), from a new materials procurement e-marketplace called
Kinnek. Month after month, Kinnek had placed an expensive advertisement insert in The New
Brewer that claimed:
Kinnek | Purchasing Made Painless
You Could Save 23%
Brewhouses, Bottle Fillers, Growlers, Hops, Kegs, Glycol Chillers, and more …
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As long-time homebrewers, they knew they could always run over to the Northern Brewer shop a
few miles away to pick up some last-minute supplies for a tester batch of beer. Yet as a growing
Craft Brewer, they were buying materials and equipment for increasingly large production
volumes. Clearly, the potential for up to 23% savings was of interest. And, compared to paging
through The New Brewer to identify and qualify suppliers for brewery supplies, maybe this
service might be interesting and useful? But were there any risks of procuring materials via an emarketplace?
Minnesota Craft Brewing
Minnesota in the 1990s had enough craft brewers to count on one’s fingers (maybe on one hand).
During the 1990s, many college-aged folks, including Kevin, were introduced to homebrewing
3 Wentling, E., 2017. Eric’s 2016 Top 25 Minnesota Brewery Awards. Beerploma.com, January 3.
[http://beerploma.com/2017/01/03/erics-2016-top-25-minnesota-brewery-ranking/] 4 Burkhardt, E. 2016. Brewer profile: Insight Brewing’s Ilan Klages-Mundt. The Growler, January 25.
[http://growlermag.com/brewer-profile-insight-brewings-ilan-klages-mundt/2/].
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
3
by friends and local homebrew supply shops. While the dream of every homebrewer was to open
a brewery, mainly truly talented homebrewers eventually went on to do so. By 2016, the
Minnesota Craft Brewers Guild listed over 100 craft brewers in Minnesota.5 The times had
changed, and the craft brewing competition seemingly increased by the day.
In 2016, Insight Brewing (2500 barrels produced in 2015) had many craft brewery competitors in
the Upper Midwest region. Among the best-known Minnesota craft brewers were Indeed
Brewing (11,603 barrels in 2015), Lift Bridge Brewing (14,500 barrels in 2015), Fulton Brewing
(20,530 barrels in 2015), Surly Brewing (62,432 barrels in 2015), Summit Brewing (128,770
barrels in 2015), and Schell’s Brewing (136,200 barrels in 2015).
6
Craft Brewing Industry Growth
This growth pattern observed in Minnesota was mirrored by the growth in craft brewers across
the USA. Across contract brewers, regional craft brewers, microbreweries, and brewpubs, total
industry volume increased from 7.1 million barrels in 2006 ($5.6 billion in revenues) to 24.5
million barrels in 2015 ($22.3 billion in revenue).7 The number of craft brewers grew from 1,409
in 2006 to 4,225 in 2016, and to 5,234 by the start of 2017. Indeed, in 2015 alone, the U.S. craft
brewing industry segment added 620 brewery openings. In 2016, 826 brewery openings took
place, and 2,023 breweries were listed as still in planning stages. Of the 5,301 breweries
operating in 2017, 3,132 were microbreweries 1,916 were brewpubs, 186 were regional craft
breweries, while there were 67 large non-craft breweries.8 For most of the past decade, the
industry had grown by more than 12 percent annually.
Compared to the historical developments within the overall U.S. brewing industry, the recent
growth of craft brewing startups was astounding. The previous height of brewing activity in the
USA saw 4,131 breweries operating in 1873. 9 Due to easier transportation modes (e.g.,
railroads), changing taste preferences, industry consolidation, the development of pasteurization,
and other factors, the number of local brewers had decreased to 1,179 by the start of Prohibition,
which brought the number down to 0 active breweries.10 After Prohibition, 703 breweries
resumed operations, but the general decline in brewing facilities continued through the late
1970s, when only 89 breweries remained. However, with the Carter Administration’s
5 Minnesota Craft Brewers Guild, “Brewery Members” [http://www.mncraftbrew.org/membership/brewerymembers]
6 Top 50 Domestic Craft Brewing Companies (p. 99), Regional Brewing Company Rankings (p. 105-107),
Microbreweries Rankings/Microbreweries List Positions (p. 147-193), The New Brewer, May/June 2016. 7 Schuhmacher, H., 2016. Let the games begin. The New Brewer, May/June, Vol. 33, No. 3, 88-96. 8 Brewers Association press release, 2017. Steady Growth for Small and Independent Brewers. March 28.
https://www.brewersassociation.org/press-releases/2016-growth-small-independent-brewers/ 9 Brewers Association press release, 2015. The Year in Beer: U.S. Brewery Count Reaches All-Time High of 4,144.
https://www.brewersassociation.org/press-releases/the-year-in-beer-u-s-brewery-count-reaches-all-time-high-of4144/
10 Gonzalez, R. 2013. The total number of breweries in the U.S., from 1887 to present. http://io9.gizmodo.com/thetotal-number-of-breweries-in-the-u-s-from-1887-to-512405715
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
4
legalization of home brewing,11 the downward trajectory of the industry changed course, and
brewers started opening up new breweries, anecdotally due to a growth of homebrewers who
subsequently opened craft breweries.
Brewing Materials and Equipment Suppliers
At their most basic, all alcoholic beverages started out as a sugary liquid that gets fermented by
yeast to generate alcohol. In the case of brewing beer, the four basic ingredients required are
water, malted barley, yeast, and hops. In many cases, modern brewers use many more
specialized ingredients to help the yeast grow, to clarify the beer, or to impart certain flavors
(e.g., Insight Brewing adds grape juice, Japanese Yuzu fruit, and cherries).
The general brewing process involves (i) extracting sugary water (called “wort”) by steeping
malted barley in 115o
F to 165o
F water, similar to making a tea, for about an hour, (ii) then
boiling a mixture of this wort and hops for an hour or more, (iii) quickly cooling the finished
wort to 70o
F or below, (iv) adding yeast to the cooled wort, (v) letting the yeast eat up
(“ferment”) the sugar and produce alcohol as a by-product, which can take a week to many
months, (vi) transferring the finished beer to a carbonation vessel, (vii) carbonating the beer, and
(viii) bottling or kegging the beer. Thus, beyond the four basic beer ingredients, brewing also
requires lots of capital equipment as well as bottles and other vessels for shipping the finished
product.
Homebrewers typically buy simple equipment and homebrew recipe kits (see Exhibit 1). They
obtain such materials through local suppliers and e-retailers such as Northern Brewer and Austin
Homebrew Supply. These shops often order large volumes of brewing supplies from major
suppliers, and re-package them into recipe-sized containers that homebrewers can use to make a
5-gallon recipe. As such, the unit costs of such materials are higher than if one bought directly
from a supplier. Yet, overall, the total cost of a 5-gallon batch can range anywhere from $20 and
up.
For Craft Brewers, who must obtain state brewers licenses and follow state and federal
regulations for the production and sale of alcoholic beverages, the production process ends up
more sophisticated and complex (see Exhibit 2).
12 The brewer will need to source economical
volumes of hops (e.g., from 47Hops, BSG Hops, or another hops supplier), yeast (e.g., from
Pillsbury’s yeast lab), malted barley (e.g., from Briess Malt and Ingredients Co.), and other
necessary ingredients. To set up a brewing facility, the brewer will need to procure industrialsize
materials storage vessels, cooking equipment, fermentation equipment, refrigeration
equipment, carbonation processes, bottling or kegging lines, and chemicals to clean all of this
stuff. If the brewer plans to sell beer directly to the public via a taproom or brewpub, managers
11 Houseknecht, C. How Jimmy Carter sparked the Craft Beer revolution. https://www.kegworks.com/blog/howjimmy-carter-sparked-the-craft-beer-revolution/
12 Gribbins, K. 2014. Brewhouse advice from top craft brewers and equipment manufacturers. Craft Brewing
Business. December 11. https://www.craftbrewingbusiness.com/equipment-systems/how-to-buy-and-maintain-acraft-brewhouse/
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
5
will need to procure bar equipment for storing and cooling kegs and bottles, serving the
beverages (e.g., glasses, growlers), and seating customers.
Being essentially a complex chemistry experiment, exceptional quality management is the key
through all stages of brewing. When homebrewers make a mistake, perhaps due to a lack of
cleanliness in the process, their beer can taste “off” or even quite bad. Still, they probably drink
the beer. When craft breweries make a brewing mistake, they might end up with a fermentation
vessel containing 20 to 50 barrels (31 U.S. gallons/barrel) of bad beer that they must drain down
the sewer. If they package and serve the beer, they could kill their brand image. Clearly, such
mistakes can be costly. Thus, having access to reliable suppliers and high quality supplies was an
important aspect of craft brewing.
Craft Brewing Industry Challenges and Uncertainty
By 2016, some industry analysts were questioning whether the craft brewing industry had
overgrown itself and could continue to grow forever at such a strong rate. Even the Chief
Economist of the Brewers Association had presented several challenges he saw looking forward
into 2016 and 201713:
• Changing palates will likely impact older flagship brands.
• Beer will see greater sophistication and complexity.
• Capacity decisions gone wrong could be crippling for individual companies and add pricing and
profitability pressures for many other craft brewers.
• Greater integration of technology in retail could make it tougher on startups and the smallest
brewers, as costs to comply become a larger barrier to entry.
• Quality will be a given, and those brewers who don’t have it will not be given the benefit of the
doubt or a second try from savvy beer drinkers.
• There will be a place for small, local brewers with a business model that may not show or rely on
huge growth.
• Competition will continue to grow fiercer in all planes of craft brewing and in the beer industry.
• Money will matter. Some will want out.
Overall, such comments suggested an increasingly challenging business environment for small
microbreweries and medium-sized craft brewers, with consumer expectations of high quality and
variety, yet fierce competition and potential for operational challenges and interruptions.
What the Brewers Association economist did not cover was ongoing uncertainty in hops
production during 2016, partially due to poor hops growing conditions in Europe and the USA in
2015.
14 Many news articles had covered the uncertainty in supply for niche hops having delicate
13 Watson, B., Gatza, P., 2016. Craft grows in a competitive environment. The New Brewer, May/June, Vol. 33, No.
3, 50-58. 14 2016 Hop Harvest Report, USA Hops – Hop Growers of America [https://www.usahops.org/news/2016-hopharvest-report].
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
6
flavor notes (i.e., those that craft brewers liked to use) and higher hops prices for many craft
brewers. While ABInbev and other major Big Beer brewers often owned their own hop farms
and controlled supplies of other brewing materials, Craft Beer brewers often brewed based on
spot market hops availability.
Kinnek e-Marketplace
The Kinnek e-marketplace was founded in 2012 by Karthik Sridharan and Rui Ma (see Exhibit
3), business school and engineering students from UPenn Wharton Business School and
Cornell.
15 Kinnek provided a B2B e-marketplace through which suppliers connected with
potential client businesses. Potential buyers submitted a procurement request, and the Kinnek
system in real-time identified and notified appropriate suppliers of such materials and equipment.
Kinnek purchasing services focused on clients in the bakery, beverage, brewery, cidery, dairy,
distillery, farming, food processing, lodging/hospitality, restaurant, self-storage, vitamin and
supplement, and winery sectors.
16
Kinnek’s target customer consisted of small to medium-sized businesses. The Kinnek IT systems
enabled clients to identify and buy from suppliers, manage purchases, and maintain key supplier
relationships.17 For example, the Kinnek system provided an Instant Price Estimator tool for
buyers.18 The Kinnek system categorized suppliers into 103 different beer brewing resource
groups (see Exhibit 4). Customers also were able to rate suppliers on their responsiveness (see
Exhibit 5). Kinnek also had enabled a payment feature called Kinnek Pay, which allowed buyers
to easily pay suppliers within Kinnek (see Exhibit 6).
Kinnek originated out of a venture capital incubator. After an infusion of $3 million in venture
capital seed funding, Kinnek was able to obtain a $10 million Series A financing round in
September 2014, followed by a $20 million Series B financing round in September 2015. Thus,
in total, by 2016 they had obtained $33 million of venture capital. By late 2015, Kinnek was
reportedly processing more than $1 billion of client quotes in a year, with 2000 suppliers
participating, and 20,000 client businesses using the system.19 The number of clients grew from
10,000 in 2014 to the 20,000 in 2015. As of late 2015, Kinnek employed 30 persons.20
15 Taylor, C. 2012. AngelPad debuts 12 new startups at its Fall 2012 Demon Day. TechCrunch, November 29.
[https://techcrunch.com/2012/11/29/angelpad-debuts-12-new-startups-at-its-fall-2012-demo-day/]. 16 http://www.kinnek.com/ 17 https://en.wikipedia.org/wiki/Kinnek 18 Crowell, C., 2015. Watch: Instant price estimation on any brewery purchase from Kinnek.
CraftBrewingBusiness.com, May 7. [https://www.craftbrewingbusiness.com/equipment-systems/instant-priceestimation-brewery-purchase-kinnek/].
19 Brodsky, M., 2015. Wharton entrepreneur riding $2.2 trillion pipeline. Wharton Magazine, December 15.
[http://whartonmagazine.com/blogs/wharton-entrepreneur-riding-2-2-trillion-pipeline/]. 20 Loizos, C., 2015. Kinnek, a small biz marketplace, raises $20 million led by Thrive Capital, TechCrunch, October
15. [https://techcrunch.com/2015/10/15/kinnek-a-small-biz-marketplace-raises-20-million-led-by-thrive-capital/].
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
7
Kinnek’s revenue model was built on subscription fees and commissions.21 Kinnek charged
sellers a subscription fee and a commission on sales. Kinnek charged no fees or commissions to
buyers that wanted to procure materials via the Kinnek system. As the Craft Brewing industry
expanded and moved, Kinnek’s revenue opportunities changed. For example, Kinnek could
observe states where many new breweries were being set up, since those states generated many
procurement requests for capital equipment.
22 Kinnek could also observe states where breweries
were more mature, since those states generated more procurement requests for bottles and kegs.
Kinnek had limited direct competitors in the segments it was positioned in. While a few B2B emarketplaces
focused on small businesses’ procurement needs (e.g., BuyersBestFriend, Supply
Bid, SupplyHog), these other e-marketplaces often focused on selling services to very different
vertical industry segments. To the best of many industry analysts’ knowledge, Kinnek was the
only e-marketplace that focused on wine/beer/cider/distilled spirits industries.
History of e-Marketplace Sector
The first wave of B2B e-marketplaces was founded in the early 2000s. Many e-marketplaces at
that time had problems attracting both a sufficient set of clients as well as a sufficient set of
suppliers. Overall, there was a very high rate of e-marketplace failures.
One academic study that tracked 942 early B2B e-marketplace’s failure/survival documented a
45% failure rate among these early market intermediaries.23 They found that e-marketplaces in
mature product sectors and in customer-oriented sectors, where goods were well known and
information about goods was easy to understand, were more likely to fail. E-Marketplaces in
product sectors with complex, tacit, and uncertain information were more likely to survive. Also,
age of the e-marketplace strongly decreased the likelihood of failure.
Another academic study of e-marketplaces observed that an e-marketplace’s ownership structure,
funding levels, speed, continuity, and scope of service offering were associated with financial
performance of e-marketplaces.24
Every Craft Brewer’s Decision
Compared to the task performed by Eric Schmidt and Insight Brewing’s procurement staff,
which involved paging through The New Brewer journal to identify and qualify suppliers for
21 Brodsky, M., 2015. Wharton entrepreneur riding $2.2 trillion pipeline. Wharton Magazine, December 15.
[http://whartonmagazine.com/blogs/wharton-entrepreneur-riding-2-2-trillion-pipeline/]. 22 Crowell, C., 2014. Regional brewing equipment purchasing trends: Brewhouses, fermenters, kegs.
CraftBrewingBusiness.com, December 15. [https://www.craftbrewingbusiness.com/equipment-systems/craftbrewing-equipment-purchasing-trends/].
23 Rosenzweig, E.D., Laseter, T.M., Roth, A.V., 2011. Through the service operations looking glass: Influence of
industry sector, ownership, and service offerings on B2B e-marketplace failures. Journal of Operations
Management, 29(1-2), 33-48. 24 Laseter, T.M., Bodily, S.E., 2010. Strategic indicators of B2B e-marketplace performance. Electronic Markets,
14(4), 322-332.
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
8
brewery supplies, was the Kinnek service useful? A substitute for phone and catalogs – that was
the basic value proposition that Kinnek’s executives had used to build the company. Was this
value proposition obvious to many brewers? Did Kinnek offer enough supplier variety? Further,
many small craft brewers wanted to grow their total brewing volume each year. Could Kinnek be
trusted to scale with a brewer’s operations?
On the flip side, were there any risks of connecting one’s craft brewery operations to Kinnek?
Were there risks of relying on Kinnek’s list of suppliers for growth? Insight Brewing had already
qualified a number of suppliers for its existing beers (e.g., for bulk malted barley by the pallet),
and those suppliers delivered regularly – should they be retained or replaced? If Insight Brewing
started to use Kinnek, could they become overly reliant on Kinnek? Would Kinnek have
necessary ingredients, from reliable suppliers, to satisfy the need for the unique ingredients that
could ensure the high-quality, distinctive beer flavors that were being made at Insight Brewing
and other craft brewers?
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
9
Exhibit 1: Homebrew Equipment and Brewing Process
Basic Homebrew Kit ($179) Dissolve Malted Barley Extract Syrup in
3 Gallons Water and Boil for 60 Minutes
Add Hops to the Boil After Fermenting Beer in Glass Carboy,
Must Bottle Beer
Source: Northern Brewer, www.northernbrewer.com
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
10
Exhibit 2: Craft Brewery Equipment
Source: https://www.craftbrewingbusiness.com/equipment-systems/how-to-buy-and-maintain-acraft-brewhouse/
Exhibit 3: Kinnek Founder Information
Source: http://www.kinnek.com/about/
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
11
Exhibit 4: Kinnek Brewing Resource Supplier Categories
Source: http://www.kinnek.com/
Exhibit 5: Kinnek Supplier Ratings
Source: http://www.kinnek.com/
Kinnek e-Marketplace Case #: HEIM-2017-003
Mays Business School at Texas A&M University Department of Information & Operations Management
Information Technology for Supply Chain Management (SCMT 465)
12
Exhibit 6: Kinnek Pay
Source: http://www.kinnek.com/

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