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Overview

The humble beer keg. A single keg is a staple for small events, such as fraternity parties, football tailgating and backyard barbeques, for decades. Bars and restaurants keep numerous kegs on hand to cater for their customers and in turn beer distributors manage significant inventories of kegs to service their customers. However, this simple beer storage container has suddenly become a huge problem for the brewing industry. Today, beer kegs have suddenly become hot properties – literally.

Kegs are the property of the brewer, and they are lent through the remainder of the supply chain on a deposit basis, right down to the customer level. If kegs are lost – or, increasingly, stolen – the brewer charges its local distributor for the loss, meaning that the losses are felt throughout the beer industry’s supply chain. According to industry sources, almost 400,000 kegs are “lost” yearly in the United States, out of a total keg count of just under 11 million. This translates into an estimated loss in excess of million for the beer industry.

According to Jeff Becker, who is President of the Beer Institute, a Washington, DC-based trade group for the U.S. brewing industry, the beer industry is taking the keg problem very seriously. He recently commented: “It really got people’s attention as it’s a significant flow of kegs we’ll never see again. We know some of it is very innocent, but some is not.” Indeed, kegs often show-up in the funniest places. Increasingly however, kegs are being intentionally not-returned by customers and targeted for theft by criminals. Keg theft is often a crime of opportunity, as the thieves will look for an unsecured stack behind a bar, in a restaurant’s unlocked storage room or behind a fenced-off area. However, there have been reported cases where entire semi-trucks, laden with empty kegs, have been stolen for their increasingly valuable sheet metal scrap. Such keg loss is not just an American problem as the British Beer and Pub Association reports that hundreds of thousand of kegs go missing in the United Kingdom each year.

The Economics of Keg Losses

Why do so many kegs go missing? The answer is simple economics. While economists have pointed to many reasons behind the across the board spike in commodities prices, Chuck Carr of the Institute of Scrap Recycling Industries remarked that metal prices are being driven up by increased demand from developing nations’ construction and manufacturing sectors, along with rising income levels and the attendant rise in consumer and industrial demand. Rising energy prices also contribute to rising prices in metal commodities, as energy is necessary in the manufacturing, processing, and transporting of metals.

Rising commodity prices have led to increased theft levels for all sorts of metal items. Across America, copper wiring, aluminum gutters and air conditioner coils have been ripped from homes. Cemeteries have been looted for brass grave urns. Metal bleachers have been stolen from schoolyards and baseball fields, and guard rails have been removed from highways. Beer kegs are made of a heavy grade of stainless steel, making them a valuable commodity in today’s marketplace.

For a keg that has a manufacturing cost of approximately 0 and a scrap-value of between -60 – based on the value of the sheet-metal it contains – customers have typically been charged deposits of as little as . The customer deposit is refunded so long as the keg – and the tapper mechanism utilized to serve beer out of the keg itself – is returned intact. This low deposit has been in many cases dictated simply by tradition, while in some states, the keg deposit is actually set by alcoholic beverage regulators and/or by statute. Today however, many customers are realizing that they can get double, triple, or quadruple the cost of their deposit by selling the empty keg to local scrap dealers. And, word of mouth on this subject is only magnifying the problem.

For years, metals dealers have routinely accepted kegs, not knowing they were not legitimately being sold for scrap. Breweries themselves often sold unusable kegs for scrap, but slowly, more and more individuals were showing up with kegs to sell, either in singles or, increasingly, in multiples. The Beer Institute’s Jeff Becker expressed his frustration about scrap dealers still taking-in the valuable keg inventories of his members. He commented that kegs are easily recognizable due to their distinctive shape and size, and all kegs are clearly marked with the name of the brewer stamped on the metal. Keg thefts are only profitable if the thief can find a buyer, and as Marty Forman, the President of Forman Metal in Milwaukee, Wisconsin, commented: “It would take a moron to ‘accidentally’ buy a beer keg for scrap because everybody knows what a beer keg is.”

“Float” in the Brewing Business

In the beer industry, the brewer’s “float” refers to its total keg inventory. As a rule of thumb, for each tap using a specific beer product, even though only one keg can be physically supplying that pour location at any one time, eight kegs are needed in the float to keep that tap supplied. This is because in addition to the keg currently “tapped,” there will need to be empty kegs to be refilled, full kegs awaiting shipment in cold storage at the brewery and the distributor, along with kegs in transit, and finally, kegs in storage at the service site. And with brewers today typically marketing multiple brands and their variations – light beers, flavored beers, etc. – the size of the float necessary to support a beer company’s non-store sales is far larger than in the past. Consider that while many locations, such as sports stadiums and small restaurants, may offer only a few draft beer choices, many bars and clubs today are competing based on the variety of beers they offer on tap – sometimes numbering into the hundreds.

For small breweries, the sales of their “microbrew” products at pour sites comprises a far greater percentage of their sales mix than for large beer companies – as much as 40% in some cases. Thus, the losses of kegs from the float cycle has even more of an impact on small breweries, especially when one considers the loss of a container made for decades-long use after perhaps only a few uses. Paul Gatza, who directs the Brewers Association, a Boulder, Colorado-based trade group representing 1400 small, craft breweries, said that keg thefts represent “a significant hit” for small brewers (those making less than 500 barrels a year), as “a hundred dollars here or there can put them on the brink between making and losing money.” For large breweries, their keg losses can easily top several million dollars annually. Al Timothy, Vice President for Government Affairs for Denver, Colorado-based Molson Coors Brewing, put his company’s keg inventory at in excess of 800,000 units. So, in short, for his company and other major brewers, when it comes to keg theft, “The bottom line is it’s a big problem.”

Despite industry consolidation, as with InBev’s recent acquisition of Anheuser-Busch, and the past Molson-Coors combination, there has been a dramatic increase in the total number of brewers in the United States in the past two decades, as can be seen in the diagram on the left page. This is largely due to the rapid growth of so-called microbreweries, small brewers that often grow to serve not just regional markets, but find distribution nationwide and even internationally. Last year alone, these “craft breweries” produced 8 million barrels and the microbrew portion of the beer industry, comprising approximately 90% of all breweries, is consistently experiencing double-digit growth rates, as opposed to a growth rate of just over 1% for the overall American beer industry.

Thus, so-called “microbrews” represent the fastest growing segment of the market, with some growing quite large. Today, there is only one keg manufacturing facility remaining in the United States, and with its capacity of approximately 300,000 kegs a year, it will not even keep up with the need to replace stolen kegs from breweries floats, let alone replace unworkable kegs or meet new demand from increased production and new entrants. Thus, the keg loss problem may not just cost beer companies in today’s dollars, but inhibit their growth potential and prospects for the future.

The Fight Against Keg Theft

There are both legal and educational efforts underway to attempt to stem the tide of keg losses from brewers’ floats. Today, thirty of the fifty U.S. states already have what are known as keg registration laws (also referred to as keg tagging laws) in place, a practice that is up fifty percent since the start of the decade. The reason for the rapid growth of these keg registration laws has largely been due to concerns about underage drinking and drunk driving. Keg registration generally entails two steps: individually identifying kegs with a unique number – using a label, sticker, or engraving – and recording information on the retail purchaser of the keg – typically including the name, age, address, driver’s license number. Some states also require beer retailers to keep records on where the keg is to be consumed and to provide educational literature on alcohol service.

States are now beginning to directly attack the keg theft issue through legislation that goes beyond keg registration. Both Indiana and Illinois have now made it illegal for scrap processors to purchase kegs inscribed with the name of a brewer (as almost all are), and several states are considering similar legislation. State Senator Victor Crist, the sponsor of the keg sale ban law currently being considered in Florida, simply stated that: “The window of criminal opportunity must close.” A dozen states now also require scrap dealers to routinely collect personal information on all sellers of scrap metals. So, from a legal perspective, states may indeed be making progress on the legal front. However, while most legitimate scrap yards will no longer accept kegs unless they are being sold directly from brewers or distributors, there is still a black market for scrap kegs.

There is also discussion today about both fighting keg theft and encouraging recycling. The time has come to raise the historically low keg deposits in the United States. Beer industry officials believe that higher keg deposits would make more likely both for individual customers to follow through and return, rather than scrap, their empty kegs and for bar and restaurants to make greater efforts to secure their keg inventory. There is evidence from abroad to show this to be the case. After Finland raised the nationwide keg deposit to 40 Euros, keg losses plummeted to 0.5 percent. In the United States, the State of Michigan recently hiked its mandatory keg deposit from to . Brewers themselves are increasingly hiking the keg deposits they charge to distributors unilaterally to try and thwart the problem, and some small brewers are charging far larger keg deposits to consumers, some as high as 0. The concern is, of course, that hiking keg deposits charged directly to consumers may curb sales and beer consumption.

The scrap metal industry itself is also beginning to take action on the problem of stolen kegs. The Institute of Scrap Recycling Industries has recently partnered with representatives of the beer industry to publish ads and posters educating scrap dealers on the nature and size of the stolen keg problem and urging them not to deal in kegs from non-beer company sources. The scrap industry group also