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In the life of a hop contract, not everything always goes as planned. Sometimes somebody needs more hops. Sometimes somebody bought too many hops or maybe they contracted for varieties they no longer need. Sometimes somebody doesn’t pay on a contract and you cancel it. Stuff happens. We recently had a customer, let’s call him Roger, who had an unpaid balance for some of his hops he had not yet taken. Roger had some other hops he had paid for, but was not going to use, over at another hop merchant’s warehouse. He asked if he could sell those hops to us to pay for the balance of his debt to us, basically a trade. Roger set the price and the terms. They were reasonable so we agreed.
We picked up the hops after both parties had agreed to the terms. A couple days passed. Apparently, seller’s remorse (if there is such a thing) hit Roger, or maybe he was having a beer with a buddy and bragging about his great deal when he realized he might have been able to sell those hops for more somewhere else. He looked online … source of all things true and accurate. Lo and behold he found higher prices for those very hop varieties … to home brewers no less. What a noble cause to come to the aid of a disenfranchised home brewer. For a couple days, he wrote what were certainly beer-inspired emails late in the evening. They made for interesting reading as there was no shortage of “logic” explaining how if 47Hops happened to sell those hops at a profit that he deserved the difference. He stated that he could have made more if he had sold those hops elsewhere and said he felt cheated.
Have you ever watched the show Pawn Stars? I like that show. I know … shame. It’s great though. Somebody always brings something really cool into the shop that they think is worth a mint. They want to sell it to Rick, the owner of the shop. He doesn’t always know the exact value so sometimes he calls in a buddy. That guy (who I would not be surprised to learn in a future scandalous revelation by the History channel is getting a cut of the profits from the items they judge) says what he believes the retail value to be in his professional opinion. Then, the bargaining begins. I love that part! The customer often thinks he should get the retail price mentioned by the buddy … or something very close to it. All this despite the fact he is standing in a pawnshop trying to sell his cool thing to somebody who must then resell it at a profit. Rick usually shoots them a counteroffer that is about one half to two thirds of the retail price. It’s predictable after you watch a few episodes, but it’s still fun to watch. When the customer protests, Rick often reminds the customer that he has a store and employees he needs to pay and a lot of overhead involved with his business. Plus, he continues, he isn’t sure how long it might sit on the shelf in the store. These are all valid points, but nevertheless I suspect that Rick is going to call that same buddy up and move the goods quickly. Who knows? Nine times out of ten, the customer relents, sometimes reluctantly, and take’s Rick’s price because at the end of the day he doesn’t want to take his stuffed moose head home with them after hauling it all the way into the shop. I find myself rooting for Rick more often than not. This is the part where I’m inclined to actually talk to my TV even though I know the people can’t hear me, and say, “What the heck did you think was going to happen … you’re selling something at a pawn shop for cryin’ out loud?” I try to refrain myself. It’s the 21st century. Everybody has a phone in their pocket from which they can access a few billion other people on the planet via the Internet. How are pawn shops even still around? They serve a need … I guess that’s why pawnshops still exist. Regardless, the show is addictive …
That may seem like a tangent, but it’ll all come together in a paragraph or two so hang in there … There are several points I’d like to make to Roger. I thought I’d do it through the blog because there are probably a lot of Rogers out there and they should all read this. Being a hop merchant is not yet so simple as selling something on Ebay. There are expensive barriers to entry like warehouses that cost about $1-2 million each. I’m particularly familiar with those lately since we’re building some. There’s also a warehouse crew, a sales staff, plenty of other people in the office doing things to keep the ship a float. There’s a pellet mill, which easily costs $2 million. To add some joy to the pile, the local government wants permits, and, of course, the insurance people want their cut. On top of all that, the banker wants to see numbers that show that you actually have a plan and know what you’re doing when half the time it’s chaos. For Matt and Andrew, our bankers … I’m talking about the other merchants’ chaos. 😉 Anyway, you get the point. The costs add up.
None of this is any news to anybody in business, particularly in the alcohol industry. Everybody with a business shares the joy of dealing with bureaucracies. Nevertheless, it seems some people underestimate what it takes to be a hop merchant. It’s kind of like Rick and his pawnshop on Pawn Stars. Rick provides a service in that he takes in things that people want to sell. He is a hub where people know they can find things. The shop may not have exactly what somebody is looking for, but they will have something interesting there to take home. There’s a little bit of chance involved. Rick needs to buy things he thinks people will want. His experience enables him to do that pretty well, but preferences could change mid stream and he could be wrong. There’s also a lot of relationship building involved. I’m sure Rick has a list of regular customers who ask him to give him a call when certain things come into the shop. Maybe he knows a guy who collects old watches … or a guy who likes Superman Comic books. All of that brings value to Rick’s shop. He is a hub.
In addition to being a hub, Rick is the tip of the spear … please forgive all the metaphors. There’s eBay and garage sales, but those serve a different market. It’s Rick’s job to figure out what prices he can charge his customers without turning them away and how much he can afford to buy things for on the other end while still leaving himself a profit. That’s a risky place to be and sometimes Rick screws up. I remember an episode where Rick bought a beautiful old self-winding Swiss clock. It looked cool. I probably would have bought it too. Unfortunately, it cost him a fortune to fix it and the market just wasn’t there to recoup his investment. I remember buying a batch of hops that turned out that way once or twice too. If Rick wants to have more stuff in his store to offer his customers, he needs to add on to the building … or move the inventory more quickly through the shop, which probably means cheaper prices and slimmer margins. Sometimes we get a glimpse of Rick’s warehouse and you see that there’s a lot more than the shiny display cases out front that goes into the business. Imagine the money tied up there! There are SO many parallels between Pawn Stars and the hop industry. Why there isn’t a reality TV-show about the hop industry, I don’t know. There are definitely plenty of characters worth watching.
In the hop industry, merchants are building pellet plants, warehouses are going up and companies are hiring a LOT more people. It’s happening quickly and in the back of every merchant’s mind is, “how long is this going to last?” Some of the larger slower-moving merchants are preoccupied by those thoughts it has crippled their business. They think they’re being conservative by not acting hastily to the rapidly increasing demand for aroma hops and craft beer. Some of them still don’t believe that craft beer is here to stay. Really! Crazy isn’t it? They think their size will save them and they’ll “make it up on volume” with the big guys. Let’s not forget, the dinosaurs and wooly mammoths all went extinct. A lack of action is an action in and of itself. I know a lot of hop merchants around the world read this blog (hi guys) and are probably shaking their heads in affirmation right now because they know how many challenges and how much risk the average day of being a hop merchant brings. NO, I’m not complaining … I know nobody will shed a tear for the poor hop merchant. I just thought I’d bring a different side of the industry into the spotlight.
I often remember the phone book under a glass case on the 2nd floor of the German hop museum in Wolnzach, Germany. It’s from the 19th or early 20th century … honestly I don’t remember when it’s from, but I know it’s old because it has those yellowed old pages that look like they belong in something Gutenberg would have printed himself … It’s turned to the page that is littered with names of hop merchants nobody alive today has even dreamt of. Why, because they’re all gone, that’s why! It’s amazing to see how many there were! Coming from the very hourglass shaped industry we occupy in which the middle is the choke point, it’s a stark revelation that things have been and will likely again be very different. Everything is temporary and the only constant is change. There are lots of clichés. I like to think of it as a reminder that no matter how smart you are in business you usually take the stairs up and the elevator down so if you’re going to play the game you need to know the risks.