Former software analytics entrepreneur and craft brewery owner Steve Hershberger knows a lot about two things: data and beer. When he combined these two disparate areas of expertise, he came up with an idea that could transform the way the beloved adult beverage is bought and sold.
Hershberger is the CEO and co-founder of three-year-old Carmel, Indiana-based startup SteadyServ, which has developed a system that collects massive amounts of data on draft beer inventory and sales at bars and restaurants. The iKeg hardware and software enable bar owners to maintain precise records of what they have in stock and how fast their beers are selling. They also allow distributors to easily track which of their customers need additional supply and keep brewers on top of sales trends and quality control.
Draft beer is by far the largest contributor to a bar's margins, but many bar owners manage inventory by shaking a few kegs and estimating as well as they can. "It's like being a car dealer and knowing that you make twice as much on Corvettes as you do everything else, but you guess how many Corvettes you need on a monthly basis," Hershberger says.
The extent of the problem first hit home for Hershberger in the most basic way imaginable: He couldn't find his own beer. One night in 2011, he went out to a bar with a friend to show off the latest beers from his brewery, Flat12 Bierwerks, only to find it was fresh out of stock. Attempts at four other bars in the area yielded the same result.
Hershberger wanted to find out what causes retailers to run out of certain beers. After commissioning research, he became convinced that untangling the beer supply chain could be a lucrative business opportunity, so he sold Flat12 and co-founded SteadyServ with former ChaCha executive Steve Kremer. The immediate reaction among people in the industry was skepticism. "Everybody told us it was impossible," Hershberger says. "It hasn't been done to date, therefore, it can't be done."
Over the course of the next two and a half years, the SteadyServ team went through four distinct prototypes of the iKeg system. Distributors equip each keg they sell with a radio-frequency identification tag that has information on the keg's contents, including the type of beer, the volume, and its age. When the keg reaches a bar or restaurant, the owners place it on a sensor that reads the tag and measures the keg's weight. As the beer gets depleted, it automatically sends data to the cloud on how much is left--down to the pint--and when it will run out at the current rate of sale.
That information is immediately accessible on an app to the bar owner, the distributor, and the brewer. Customers actually receive a version of the data as well--iKeg sends out tweets so they know they need to get down to the bar soon before the keg is dry.
Crunching the Data
Besides enticing thirsty bar patrons, iKeg promises to boost sales by analyzing the data it collects in all manner of ways. It can tell you which combinations of beers will sell best next to one another. It can tell you the optimal week to start serving Leinenkugel's Summer Shandy--in Ohio. It can even tell you how your beers are selling compared with similar ones at other bars in the area. All the competitor data is anonymized, but retailers can benchmark according to a range of characteristics as specific as the beer's alcohol content and the types of hops used to brew it.
With only two dozen clients now beta testing the system, however, the volume of sales data in most areas is still very limited. Customers pay $30 a month and up per location for access, plus about $4 a keg for the hardware. One of the selling points SteadyServ touts is that iKeg potentially can pay for itself. Carl Bruggemeier, the CEO of Pendleton, Indiana-based CZH Hospitality Group, says that in the two restaurants where he's been testing it, the bartenders no longer remove still partially filled kegs before busy periods because they're aware of just how much is left. That has reduced the amount of beer that's wasted from more than 15 percent to virtually zero.
"I consider it paying nothing," says Bruggemeier, who estimates that he sells $2,000 a month worth of beer that would otherwise be discarded. "It's costing me $70 to garner $1,600 of profits [each month]. It's a no-brainer."
Today, SteadyServ has a team of 25 people, including engineers in India and a manufacturing team in China. After initially bootstrapping the company, last year Hershberger and Kremer raised $1.5 million, followed by a $5 million Series A round from Elevate Ventures and angel investors. The co-founders are currently in talks about the next round, which Hershberger expects to be in the $4 million to $6 million range.
In the meantime, the company is continuing to refine the software and court new customers, starting with larger retailers and distributors. With $23 billion worth of draft beer sold each year at 340,000 locations in the U.S., Hershberger says, there's a $1.5 billion market space for the iKeg system. Suddenly, it becomes clear why it was worth trying to create something that most people said could never work. "When I was running my analytics company, I worked with some really smart firms that were asking us to run analytics on things they thought weren't possible," he says. "With enough time, effort, and brainpower, what appears to be impossible is just difficult and not yet done."