By: Damon Shrauner
Starting a brewery is one of the most popular business options for entrepreneurs looking to enter the food and beverage industry. Starting a brewery offers investors a chance to reap high returns and grow substantially once the business takes off. With several microbreweries and craft beer establishments opening up in the recent past, craft brewer sales increased by 8% in 2021. As beer retail shifted from packaged sales to bars and restaurants in 2021, craft beer saw nearly $27 billion in sales in 2021.
Today, craft beer occupies a comfortable 26.8% of the beer market. Demand in this growing market is clearly on the rise, and so is competition. This makes way for more breweries on the market and incentivizes potential business owners looking to start a brewery and serve customers their fermented creations. However, brewing beer is no easy task. The job requires meticulous efforts and relies on both creativity and a scientific understanding of the process. Read on to learn how to avoid some of the common mistakes made by rookie brewers and a few important pointers to help you get started with setting up your brewery.
Common Mistakes to Avoid When Starting a Brewery Business
Breweries need to follow a delicate brewery process with several critical nodes that can endanger the quality and safety standards of the final product when not done properly. Be it non potable water, poor-quality equipment, or unsafe ingredients, the quality of the beer at your brewery is challenged by processes that deserve your utmost attention. Here are a few pitfalls to avoid at all costs:
1. Using Untreated Water
Tap water contains several contaminants such as magnesium salts, fluoride, chlorine and dissolved calcium salts. These contaminants can alter the taste of the brew and lead to a batch of beer that tastes odd and doesn’t quite meet the mark.
When starting a brewery, it’s essential to outfit your establishment with water purification equipment that suits your needs. Reverse osmosis is a water purification technique best suited to breweries as it removes all the contaminants from tap water. Water is the most important component of brewed beer. Ensure you have pure water for brewing purposes at all times.
2. Not Using Quality Equipment
Most brewers new to the business end up investing in substandard equipment, and invariably, it ends up affecting their product. This error eventually leads to major losses they find difficult to recuperate. Brewing requires several pieces of equipment and rookie brewers try to manage equipment costs by settling for either refurbished or substandard machinery. However, this comes with major risks and can potentially hamper your entire operation.
Be sure to read up on brands that make the best brewery supplies and equipment and conduct thorough research before you decide on the equipment your establishment requires when starting a brewery.
2. Using Expired or Poor Quality Ingredients
The quality of the ingredients you use needs to be pristine so you don’t end up contaminating the brew and jeopardize the final product. Good beer comes from the highest quality ingredients. Don’t try to swap fresh ingredients with stuff that’s been lying around the shelves for months. It is bound to affect the brewing process and might potentially ruin the entire batch.
Be sure to procure high-quality ingredients like yeast, malt, hops and grain from trusted suppliers. Use up these ingredients as and when you procure them because leaving them around for too long will cause them to go stale.
Are Breweries Profitable?
Like most businesses, breweries are profitable provided they’re built on a solid foundation and grounded on the basic tenets of business. As a business owner, you need to focus on breaking even as early as possible, adjusting your business plan based on your business requirements.
The best source of a brewery’s profit comes from per-glass sales, allowing you to reap margins for each glass served. As a versatile accompaniment or ready to consume on its own, beer presents multiple unconventional modalities to make profits. Be it sports events, charity events, barbecues, or brewpubs/taprooms, beer is a signature beverage for many meals and events, paving the way for multiple modes of sales options. As a result, microbreweries are more likely to draw in profits from several sources, allowing businesses to adjust their sales plans accordingly.
Make sure you take into account all the running costs for your establishment along with the consumables you require to make and market your alcohol brand. Devise a detailed revenue goal and stick to it once you open your doors for business. Here are a few important profitability considerations to address before starting a brewery:
How much does it cost to start a brewery?
While startup costs can vary largely based on the extent of the operation you are planning, on average, a brewery can cost anywhere from $500,000 to $1,000,000 to set up. The most important and major expenses entail rent/lease costs, equipment, labor costs, ingredient costs and monthly utilities. Smaller expenses include licenses and permits, renovations, technology and marketing expenses. Once you start operating, you might also discover certain hidden costs along the way. However, setting aside enough money to cover this can help you offset these hidden costs.
How much does it cost to start a local brewery?
Local breweries are smaller operations and require comparatively less capital to start when compared to a large-scale brewing operation. However, the extent of your local brewery and scope will factor into the costs and determine how much you will need to start up. Costs can be as low as $250,000 and go up to $800,000 for setting up a local brewery that can serve your city’s patrons.
How much money do brewery owners make?
Breweries have substantial potential for profit. Indeed, a 3,000-barrel brewery can rake in anywhere between $2.7 to $3 million in revenue, taking in steady profits between $50,000 and $300,000. The gross profit margin on breweries ranges between 60% and 70%. Often, a brewery owner’s salary from the operation is less than 50% of the profits earned. However, in case you’re running a small operation like a local brewery, your salary margin from your profit tends to be higher. Owners are often faced with the conundrum of investing the money back into the business versus taking home a bigger paycheck. Try to break even as soon as you can so that you can increase the chances of taking a salary from your profits sooner.
Why do so many breweries fail?
With the amount of increased competition in the market, a lot of businesses find it difficult to compete effectively and stay afloat. Cashflow issues in the initial years of operations and unconventional brewing methods are also significant causes of brewery failure. Thankfully, several workarounds to these challenges exist, and owners can always adjust their business models and pricing strategies to make sure their business thrives despite a competitive market. A few pricing strategies include:
○ Psychological pricing; for example, pricing a product at $9.99 instead of $10,
○ Price skimming; introducing a product at a premium price and lowering it over time to attract a wider customer base,
○ and inversely, market penetration, where a product is introduced at a lower price than competing products to attract customers, and gradually increased to maximize revenue.
The answer remains in striking a balance between meeting your pricing objectives while not compromising on your long-term revenue to attract more customers.
Starting a Brewery Summed Up
Breweries are seeing increased demand by the day, and despite the rapidly increasing competition, industry veterans and amateurs alike are looking to get their horses in the race. These businesses can offer lucrative business opportunities and large margins if you manage to build a brand for yourself. Consider your options and be sure to avoid the common mistakes mentioned above before starting a brewery.
- Are breweries a good business option?
With craft beer sales rising by over 8% last year and experts estimating the microbrewery market to grow by at least 5.2% year-on-year for the next decade, breweries are some of the most promising business options in the food and beverage industry.
- Do you need a license to operate a brewery?
Yes, breweries require several licenses and legal permits to operate. Business licenses, tobacco & alcohol permits, state liquor licenses, tax trade bureau certificates, and a brewer’s bond are some of the important legal documents a brewery owner must have. Get in touch with a legal advisor to know more about permits and licenses that apply to your business.
- Is it possible to start a brewery with no money?
Breweries require fairly large amounts of starting capital. You will either require a business loan or investment funding from interested partners in case you’re thinking about opening a brewery with no money. However, having some portion of your expected starting capital is always a requirement when starting a brewery.
Author Bio: Damon Shrauner, a Senior Sales Consultant and VP on B2B Sales at CKitchen, has been working in the food service equipment sector since 1994. With his expertise in market analysis, product placement, sales and project management, he enjoys guiding other industry professionals and helping them do what’s best for their business.