Growing breweries often view sourcing hops in black and white terms: Hop contracts are for larger breweries and the spot market is for smaller players. It’s understandable. On the one hand, for many breweries, the ability to contract hops is a clear sign of growth. And on the other hand, it can be hard to fathom that wildly successful breweries source hops in the same way as a startup.
The fact of the matter is that the spot market is a powerful resource for breweries of all sizes. From supplementing contract hops and fueling innovation to enabling agility and preserving budget flexibility, spot hops can be an invaluable tool that benefits your beer and your business. However, breweries often encounter challenges navigating the spot market – whether it’s sourcing high-quality hops, finding the varieties that you need, sorting out misconceptions, or not knowing how to approach the marketplace in the most advantageous way. This guide will walk you through the benefits of and best practices for buying spot hops.
The combination of a rapidly changing consumer market and an increased emphasis on innovation has repositioned the spot market, making it more important than ever before.
As today’s beer enthusiasts abruptly move from one trend to the next, breweries have had to be nimble to satisfy demand and stay competitive. That has meant moving away from a predictable portfolio of flagship beers and seasonal releases to constantly developing and releasing new beers. At the same time, the ongoing introduction of experimental varieties has provided brewers with the means to continually create new recipes.
The need to continuously expand their portfolio through ongoing innovation and iteration makes it hard for brewers to forecast their hop needs too far out. While that may lessen the appeal of a multi-year hop contract, it plays to the strength of spot hops, which can provide significant benefits to brewers in a fast-paced, continuously changing market.
Before we dive into how you should be thinking of spot hops and the ways in which they can benefit your business, let’s clarify a few widely believed misconceptions.
The biggest benefit of sourcing hops through the spot market can be summed up in one word: flexibility. That flexibility is largely the product of your ability to buy small amounts of hops as needed. It’s a small investment with no further commitment. However, the flexibility afforded by spot purchases manifests itself in distinct and important ways, such as:
Budget: For a young or growing brewery still getting the hang of the business side of brewing, maintaining budget flexibility can be critical. Spot hops allow you to buy what you need without a significant long-term investment while freeing up valuable capital.
Innovation and development: The ability to buy small amounts of hops as needed – or wanted – makes it easy to continually experiment with varieties. With the flexibility to innovate, you can continually evolve your portfolio to meet changing trends and appeal to consumers who are constantly looking for something new.
Storage: Space is a valuable commodity in any brewery. With spot hops, you have the ability to only order hops in volumes that you can safely store. There’s no worrying about finding space for a year’s worth of hops or paying a supplier to store them for you.
Forecasting: For many breweries, one of the more challenging aspects of the business is forecasting their needs. Hop contracts require you to predict the varieties and volumes of hops you’ll use a year out (if not more). Spot hops don’t require forecasting – you just buy as you go – so a mistake won’t saddle you with unneeded inventory or misallocated budget. You can also use spot hops to closely track your orders, usage, and needs in preparation for contracting.
Although it’s not necessarily true that small breweries can’t, or shouldn’t, contract hops – most breweries producing 300-plus barrels annually can benefit from contracts – they are the ones that typically rely on the spot market for most of their hop needs.
While some small breweries aren’t able to hit contract minimums or find it challenging to accurately forecast their needs, others enjoy the flexibility and freedom spot hops provide. Whatever the reasons, these four tips will help small breweries leverage the spot market to advance their brewing and business.
You never outgrow the spot market. Even when breweries reach a point in their growth where contracting is advisable, the spot market should remain a valuable tool. Successful breweries balance contract and spot hops as means to continue evolving their beers and meet ever-changing business needs.
Some reasons to tap into the spot market even when a contract is in place include:
Finding a reliable supplier to support your spot hops needs can be a huge advantage for any brewery. The right partner isn’t just a trusty connection to the hops you need – they can also help you effectively navigate the market, saving you time and resources. Here’s what to look for when choosing a spot supplier.
Quality: Buying on the spot market should never mean accepting lower quality hops. Only work with suppliers that ensure you get the same access to high-quality hops as a contract customer. Ensure they have quality standards for each step of the supply chain and provide full transparency – such as where the hops were grown, processed, and stored – and offer Certificates of Analysis.
Responsiveness and communication: Work with a supplier that not only gets back to you promptly with answers to questions but also proactively communicates information about the availability of the hops you need. In the event that the hops you want aren’t available, your supplier should be able to recommend viable alternatives and solutions.
A long-term partner: Just because you can buy as you go on the spot market doesn’t mean you should have a transactional relationship with your supplier. Look for a supplier that views spot purchases as an opportunity to build a long-term relationship that advances your brewing and business needs.
Ease of ordering: A supplier that offers a platform that enables you to quickly and easily order hops and track shipments from anywhere at any time of day can save you time and frustration.
Order turnaround: When you’re trying to plan your production schedule, there’s a big difference between a supplier that gets hops to you within three days versus one that takes up to 10 days.
Values: Your vendors are an extension of you. Work with those that share your values or can help you achieve your vision. If community is important to you, work with suppliers that are active within their local community and the beer community. If you want to be a sustainable brewery, partnering with sustainable suppliers is a simple but meaningful step in that direction.
Many breweries struggle with when to contract hops and when to use the spot market and what percentage of their sourcing each should represent. Unfortunately, there is no one ratio that every brewery can use. Ultimately, when and how you use spot purchases depends on your brewing model.
Consider two 500-barrel breweries. One features a fairly balanced and predictable portfolio of IPAs and lagers, with a new release every month or so. The other leans heavily into IPAs, with new releases introduced weekly. The first brewery may primarily rely on contracts to secure their hops and only use the spot market to supplement its inventory and develop new recipes. The latter may source most of their hops from via the spot market and only contract one variety consistently used in multiple recipes.
When and how you use spot hops is not a function of size or success, it’s what makes sense for your brewery. Once you get a feel for your needs and how to best leverage spot hops, they can be incredibly beneficial to your beer and your business.