I get it. I’ve dreamed about it myself.
You’re a homebrewer. You love making beer, and climbing the corporate ladder is a drag. You’ve noticed a bunch of small breweries opening in the last few years, so why not you? Live the dream!
Although I love brewing beer at home I have not taken the “going pro” plunge myself (but haven’t ruled it out for later in life). I am in my fifth year working in the wholesale tier of the beer business and I know and regularly speak with lots of people who have started their own breweries. I have a pretty good perspective on the risks and rewards, so I’d like to offer up a few words of caution to people seriously considering the professional craft brewer angle.
NOTE: This is not intended to be an exhaustive list of issues facing aspiring pro brewers. It simply touches on some key issues that I’ve witnessed brewery start ups not sufficiently considering before launch.
Your Wheel Was Already Invented
First things first: have you had a long conversation with someone who started another brewery in your area? There really isn’t anything more valuable you could do than learn as much as possible from someone who’s been where you are now, and who really did take the plunge. Fortunately the craft beer community is generally very friendly. Jot down a long list of questions and spend as much time as possible mining information from people with experience doing exactly what you want to do. There is no substitute.
Too Small, Too Big, Or Just Right
Next, how realistic is your ambition? Do you have any idea what a reasonable volume projection is for a start up brewery in your area, and do you have any idea how you’d reach those sales numbers? I’m not talking about “if I buy three 10 barrel fermenters and turn them over every two weeks I could fill 360 sixtels a month” kind of stuff. I’m asking if you know how many bars, restaurants, and growler retailers would have to have your beer on tap in order to sell 360 sixtels every month. If every single account went through one keg a week (highly optimistic scenario) you’d need 90 accounts to utilize all of your capacity. If you consider a more realistic scenario in which some accounts only go through a keg once every couple of weeks, and some only go through one keg a month, you would need close to 200 accounts to utilize all of your capacity on three 10 barrel tanks.
Can you name 200 businesses in your area that sell craft beer? Do you have an idea of which products all 200 would be willing to take off a tap in order to put your beer on tap? Yes, this stuff is what wholesalers deal with, but if you don’t have answers to these questions yourself, you may be setting yourself up for failure. If you went big (for a startup) as some do and got 20 barrel tanks instead of 10s, you’d probably need to be in nearly 400 accounts to utilize full capacity for just three tanks. 400 bars and restaurants.
Tap Room Magic
That calculus changes if you have a tap room. You will sell far more volume in your tap room than any one of your accounts ever would or could. IF your brewery is in a good location, and IF your tap room is big enough to hold a large number of people, and IF your beer is sessionable, and IF you have good enough ambiance that people want to hang out at your place.
If a tap room is in your plans, do you know what the commercial real estate market is like in the area where you want to locate? Do you know the zoning restrictions in the area and do you know how the city zones breweries? Are you familiar with the health department and ABC regulations that would be imposed on your tap room, and do you have any idea what the costs would be to conform to those regulations?
All Hail The Six Pack
The previous paragraphs focused on a draft-only operation because packaging equipment is expensive, leading many brewery start ups to open for business selling only draft for a year, or two, or three. Have you thoroughly analyzed the ROI on packaging equipment? Have you thought about the “bottles vs. cans” debate and do you have sound business reasons for preferring one over the other? Do you know what a realistic volume projection would be for a craft start up selling both package and draft vs. only draft? If applicable, do you know which convenience stores in your area sell craft beer? Do you know all of the non-chain grocery stores that sell craft beer? Do you have any idea what is involved in getting a new beer package approved for sale in a chain store?
Make It Sexy
The days of start up craft brewers thriving without any marketing effort are long gone. The competition is too steep. There are too many options, even for local beer. Yes, you have to make great beer, but great beer almost certainly won’t be enough. Do you know anything at all about marketing? Do you know how to find and evaluate a talented graphic artist? Do you even have a marketing budget in your business plan? Do you have a tap handle design that will stand out on a wall of 30+ taps? Any thought given to marketing firms or having a marketing person in-house?
Relatedly, do you have a name picked out for your brewery, and do you think it will resonate with consumers? Are you planning a theme for your beer names, and if so, have you researched trademarked names in that theme? Picking out names that aren’t already trademarked is getting more difficult with over 2,700 breweries as of the end of 2013 and hundreds more slated to open soon. I already mentioned the friendly nature of the craft brewing industry, but that camaraderie is being sorely tested by the rapidly shrinking pool of unique beer names. And beer name trademarks aren’t just competing with other breweries, you probably can’t get away with a name that overlaps with any alcoholic beverage. Wine and spirits are adding new brands all the time, too.
Love The Middle-Man
Wholesalers sometimes have a bad rap in the craft community and some of the negative feelings have merit. The value added by the middle tier is something I’ll write about another day. For now, though, do you know anyone that works for a beer wholesaler in your area? Have you talked to him about challenges he thinks you might face? If you don’t know someone who works for a wholesaler, do you even know who the wholesalers are in your area and what they sell? Have you ever had a conversation with anyone employed at the wholesale tier to gain some general insights into the beer business?
Do you know the difference between gross profit margin and markup? Do you know which calculation is used most often by wholesalers? By retailers? Do you know what percentage (of margin or markup) will be used by wholesalers and retailers in your area? Do you know typical profit-per-barrel numbers for craft brewers of different sizes?
Live or Die at Retail
Do you know employees at all of the top craft beer bars and retailers in your area? Do you know what their best selling beers are? Do you know what their preferences are with regard to keg size and pricing? Do you know whether they are excited by the prospect of more locals coming online, or if they might be feeling overwhelmed by the flood of new choices making their job more difficult?
The people who sell directly to consumers will make or break you. The more you know about them and the more relationships you have among their ranks, the better your chances of success.
Details, Details, Details
What sort of beers do you envision your brewery producing? Were you thinking of doing a porter and/or a pale ale and/or an IPA and/or a brown ale that a dozen other breweries in your region already sell, or do you want to be experimental and cutting edge? Or something in-between? If you dream of being cutting edge, do you have any idea what the sales volume difference is between a “successful” average-priced pale ale and a “successful” cutting edge beer which might cost twice as much for the retailer and consumer?
Have you thought about the factors related to buying your own kegs vs. leasing? Various types of plastic kegs? The pros and cons of 1/2 bbls vs 1/4 bbls vs 1/6 bbls? Do you know which size keg each of the key retailers in your area prefers?
Are you partnering with a group of friends to make the initial investment? Do you have a process in place if there is a falling out and someone needs to divest early in the life of the brewery? Or are you counting on a loan? Or venture capital? Where is the money coming from, and how much ownership interest does that get the people providing it? Also, THIS.
Do you know all of the larger trends in craft brewing across the country? What are your aspirations for the size of your brewery? Is selling a couple thousand barrels a year in a small geographic area enough for you? Do you want to be regional? National? Lots of folks believe it’s likely new breweries will have to settle for being more local and only already-established large regional and national craft brewers are in a position to be big players on the national stage going forward.
Hooray (Local) Beer
I have no idea how many breweries the U.S. or Alabama can handle. I’m pretty confident that we haven’t reached that number in either case. But it is possible for the growth of supply to outpace the growth of demand in any industry. My sincere hope is that we can avoid that in craft beer.
I have added a post with data illustrating where Alabama stands in relation to select other states with regard to its number of breweries: Visualizing Breweries Per Capita
See something I missed here? Let me know in comments and I may add it.
I first became obsessed with craft beer ten years ago, in 2004. I had previously dabbled in better beer, but 2004 was the year I went over the edge and pretty much went exclusively craft. It was also the year (not coincidentally) I founded Free The Hops in Alabama. I have been passionate about craft beer for ten years, and lately I’ve found myself a little concerned about the sustainability of the growth in the number of breweries in my state. Not because I want less craft beer, but because I want more, and my greatest fear is that growth will outpace demand and lead to a collapse in the industry, locally if not nationally. I have an insider’s perspective on the industry as the Craft Beer Manager for a wholesaler. I am also a Certified Cicerone.