Beer Startups Join the SMB SaaS Universe

Vertical Challenge is Localogy’s series that examines SMB SaaS players that specialize in vertical business categories. See the rest of the series here

Among the varied operational tools in the SMB SaaS universe, capabilities are getting increasingly specialized. As vendors look to differentiate and solve SMB pain points, things gravitate towards specialized functions that address particular pain points in specific verticals.

This gets back to our ongoing question: To verticalize or not to verticalize? The former can achieve specialty and differentiation but it can also diminish total addressable market. The latter is the flip side: less specialized functionality but a broader potential market.

So there’s no one answer, but variables can sometimes compel specialization. For example, LSA’s Modern Commerce Monitor indicates SMB demand for specialized single-vendor offerings in areas with unique needs or regulatory nuances, such as finance and healthcare.

Another area that potentially hits some of those marks and compels verticalization is beer. Yes, beer. Specialized buying patterns and regulations make it potentially primed for more focused software tools. Cannabis software startups are in a similar boat (a different post).

Tapping In

With this backdrop, we’ve observed several beer-focused SMB SaaS startups that do things like manage inventory, production and logistics for small breweries. This will be an ongoing focus as we profile some of these beer-as-a-service players, as I’m starting to call them.

The latest is TapRM (pronounced “taproom”). It helps small breweries gain greater eCommerce functionality. It also has the ambitious goal of changing consumer habits and cultural acclimation for ordering beer online — something that only happens with 0.2% of beer sales.

The reason for that is mostly regulatory, TamRm CEO Jason Sherman told TechCrunch. There are different rules in different states, but they mostly follow the “three-tier” system. That involves alcohol produced by one group, distributed by another and sold to consumers by another.

TapRM claims to have found a bit of a loophole to these regulations by bringing licenses together and finding legal ways to combine tiers. By doing so, it can serve as distributor and retailer, thereby working with breweries (the third entity) to sell beer to bars and grocery stores.

But the ultimate goal is to empower breweries to sell directly to consumers. Though this would be a new customer behavior to be conditioned, it aligns with the existing direct-to-consumer (DTC) trend popularized through shave clubs, prescription glasses and mattresses startups.

If TapRm can educate consumers and get past this behavioral hump, the typical DTC benefit is being able to carve out greater margins. That represents its revenue and that of its brewery partners, which should provide incentive including $2-$8 in additional margin per case.

Curation Play

Of course this likely won’t be very additive for common big-brand beers that consumers can already get easily. But it could be a draw for beer connoisseurs that are otherwise challenged to buy from smaller breweries that they may like, or others they may want to discover.

Speaking of discovery, once TapRm gets a critical mass of brewery partners, it could be logical for it to build a sort of monthly membership for curated variety packs (our speculation). This would align it even more with the DTC movement. Think: Birchbox for Beer.

That would also move the company towards more consistent and recurring revenue, which is a key goal these days, as we continue to see. And TapRM is already halfway towards such a curation play, given its online content portal for recommendations and single-purchase variety packs.

TapRm currently delivers in New York, including 2-hour delivery in Brooklyn. New York City is generally a good testbed for local startups given demand aggregation and density. But TapRm wants to move into three more cities in 2020. Its recent $1.5 million in funding should help.

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