Hello,
Some time ago I came to the realization that working in the craft beer industry was where I wanted to be. However, over time, I also realized that being an entrepreneur was a big part of my vision, and I’m now doing the work necessary to open a nanobrewery.
Based on all the research I’ve done and training I’ve received, any product you’re trying to sell requires you to know what market you’re trying to sell to. My vision is to keg only and be a local beer provider to restaurants (in particular gastro pubs) in my area. I’ve already talked to some owners and they’re thrilled with the idea of being able to purchase very locally made beer. (“Thrilled”, is an understatement. There’s a lot of bugged eyes and, “When are you opening??!!” noises, because they’re looking to differentiate from other restaurants that have cheaper food and are craft ale drinkers.)
The beer style will be very “English” so, definitely a lower hop and alcohol profile than a lot of American beers.
After attending the 2013 NHC: Going Pro panel, I left with a question (or questions) I’m hoping other pros could add insight on.
Questions:
Can I stay a nanobrewery and still make enough money to stop my day job?
Is it too late to pursue the market with a milder beer profile? In other words, has the craft beer market taught craft beer drinkers that “good” beers are essentially IPAs and anything else is just not as good if it doesn’t have 40+ IBUs?
I’ve got to be clear here, I’m not looking for an ideological discussion. I’m truly trying to understand how difficult my distribution road will be if I’m not creating “extreme” beers. Making beer, giving local people jobs and producing a quality delicious product has become my calling; I’m just trying to better understand what it’ll take for my vision to come true. I’m not afraid of hard work, I’m just old enough to understand I want to work hard and smart, with emphasis on the smart.
I greatly appreciate any and all insight pro brewers, especially those who started their own brewery can offer.
There is a recent trend in session beers as a reaction to extreme beers, which are really only the eye candy for most breweries anyway. But trying to be a nano that only fills kegs might be crazy. The margins are thinnest on kegs. Most nanos sell from a tap room because pints have the highest margin. Not that you can’t do it, but make sure you have a sound business plan before trying (do that anyway).
First off, I want to wish you the best of luck in your venture. I spent the last year trying to open my own brewery, only to have my investor pull out at the last minute.
Nano breweries are tough to make a living on. I have a good friend who runs a nano, and his last year’s profit was only 30K. He still works his day job, and the profit goes to paying for his server, and his wife helps out as well. He has a 1 bbl system, with 10 1 bbl fermentors. They are undergoing an expansion, but that is on top of the cost of opening this brewery to begin with. My advice, is to go as big as you can. Best profits come from selling pints in a taproom, or from volume.
I love a variety of styles, and love to see such in a brewery. Don’t limit yourself to one style, but it isn’t necessary to follow the mainstream. Most beer drinkers aren’t craft beer drinkers, and don’t like to deviate too far from their comfort zones. My advice: Cater to both. Have some small batches of the IPAs, honey chocolate coconut coffee porters, hibiscus licorice oaked blonde, and the like, but do keep to your vision of milder English styles to satisfy the masses. It’s not about how wild you can get with a brew, it’s how well you can sell what you make.
Many, many thanks to everyone for their insights. I greatly appreciate it, because every little bit of information helps–especially real world examples.
The smallest brewery I would consider opening is 3BBL. Double size of fermenters.
With 3 BBL do only taproom sales.
I do not know your market but do the math.
There is 124 pints in 1/2 BBL (124price of the beer you sell in the taproom=)
If you would be selling 1/6BBL kegs (the most expensive package in keg/draught market)
(3price per keg over the someone else draught line=)
Draught market is the most labour intensive with least margin.
People talk the talk but they might do not buy your beer when it is available. There is still price of kegs, tap handles, lost kegs… Do you have to sell thru disrtibutor?
Yes you can make it without doing IPAs.
Yes you may quit your day job but you need to have a good wife that is VERY supportive, who caries health insurance and brings stable income to pay the rent and food and gas. And you will be volunteering for yourself for couple of years.
I did not mean to rain on you parade but that is the reality.
Thanks you for this! I’ve been so blinded by either kegging or large bottle production as a primary distribution. In my training, that was the primary focus (in fact nanobreweries didn’t even exist at the time I went to brew school.) The tap room idea was on my radar, but the expenses associated with building one that’s highly appealing to the public seemed a hard sell to investors, given the capital I’ll need for equipment and the operational costs associated with establishing a solid customer base Yr 1 - 3.
However, now this accumulating feedback is making me want to revisit the numbers. I’m trying to avoid the top 3 reasons breweries go under: 1)Inconsistent/bad quality beers, 2)Insufficient capitalization, 3)Over-estimation of demand; but risk is part of this entire endeavor and if I’ve got to extend my plan to include an additional revenue stream I can make that a part of the overall strategic plan.
You have to know your market very well. In my market, selling Dark English Mild, Ordinary Bitter, etc. is a HUGE uphill battle versus selling American IPA, Black IPA, etc. I can literally move 1.5-3x more of the hoppy beers than the session ales. You can choose to either go with the flow or establish your own position in the market. I haven’t completely given up on session beers in our lineup but I’ve realized making them more than 1 or 2 selections of 8 selections is probably not a good idea.
And honestly, start as big as possible. Make your taproom less awesome and spend more money on equipment. Originally we were going to be doing 1.5 BBL, then we went up to 3 BBL, then 7 BBL. As a result we have such a piecemeal, kludged together setup that brewing is a lot more of a pain versus if we had just started with a proper 7 BBL system in the first place.
No, I don’t have to sell through a distributor. In NY state you can self distribute up to 60,000 bbls. You can apply for the license at the same time you apply for the microbrewers license. They are very receptive to small brewers here.
[quote]Yes you can make it without doing IPAs.
Yes you may quit your day job but you need to have a good wife that is VERY supportive, who caries health insurance and brings stable income to pay the rent and food and gas. And you will be volunteering for yourself for couple of years.
[/quote]
How about I stick with my boyfriend, before I get a wife?
I’m not ready to give up on the whole male population, just yet. ;D
All jokes aside, I’m a business analyst in the “real world” and haven’t been particularly naïve about the cost of living since I was 11, which was the last time I didn’t have a job. Nevertheless, I continue to appreciate everyone’s input as I craft the development and production strategy.
" I have a good friend who runs a nano, and his last year’s profit was only 30K. He still works his day job, and the profit goes to paying for his server, and his wife helps out as well. "…SCAREY!
A most common problem with small business owners…understanding difference between profit and gross margin.
Salaries are an expense item…there are no profits until they are paid, including your wifes and you own, and there is something left in the bank. Any other way of looking at it is delusional. Don’t fall into that trap. When you’re loving what you’re doing it’s too easy not to put a value on your own time.
Diedre, if you’re a business analyst, this is most likely preaching to the choir.
Great, great article. I believe I have my answers. I’ve been collecting data on this topic for a while, including speaking directly to two nanobrewery owners: one who borrowed to start his nano and the other who saved up all the cash to buy the equipment outright. They both had extensive support structures to keep the breweries going, but no available capital for expansion, which was a red flag to me (from an analysis standpoint.)
I’ve got to accept that my primary business design (to quote the article above) is 1B, because that’s an attractive model to the type of investors I’ve identified. A nano allows you to show the possible investors you’ve already got clients and the market you’re focusing on is viable: “1)(b) On the other hand, a nano is a great vehicle to get the investment needed to finance a viable craft brewery. In my opinion, that is the only rational reason to go through all of the trouble to build and operate a nano…The nano can be used to show real revenue and cost structure in your market, and can be extrapolated to any project size from there.”
To summarize my findings, for anyone else looking closely at the business structure of a nano (in contrast to the romance of just owning a brewery):
A nanobrewery is only a viable source of revenue (after all expenses) if you can self-distribute. You can be self-sustaining, but don’t expect you’ll generate a growing amount of revenue to replace a consistent salary.
A nanobrewery should only be used to show you can generate capital so that you can significantly increase your investment capital to pump into the equipment necessary for expanding production and operational expenses. Nanobreweries will be too labor intensive to be a long-term plan.
(And I learned this at the NHC) The demand may spike, so just start with a 7BBL system with room for expansion and conditioning tanks.
Clearly outline in the business plan how this progression works.
You may not want to, but the market clearly shows that a good source of revenue is an IPA product.
Thanks again everyone for your patience with this research progression and you professional input. Greatly appreciate your help.
Haven’t read the entire thread, but all I can say is this (having done it): If you don’t mind working on a nano level for 1-2 years (and I’m talking about ~3bbl or less) for a year or two for free, and not make any money, and fund the gig out of your own pocket, even lose money, and you do this to prove a concept to attract loans or investors to grow to the next stage (and don’t mind working long hard hours at that next stage for a fraction of what your 9-5 job paid), then go for it. Otherwise, don’t try it. Find some investors and open a real brewery (and make damn sure you know how to run one or find someone who does!)
I think you’ve received some really great advice here, in particular with the risk of going keg-only to local accounts. If you’re going for an English-themed brewery I think you have to look at cask ale as a strong vein of your business. You can serve your English standards but cask ale has that “extreme” pull on a lot of craft drinkers that will drive business, if your market has a demand for it. You can easily offer a lot of variance in your beer line up just by dry hopping those casks with different hops or spicing in the cask. Of course, if there’s not a big draw for cask beer you should not waste your money buying separate cask equipment and wasting beer.
I’d also look seriously at using those local accounts as marketing for your tap room. You will build a local following and build your brand through your local accounts even if you are not making a lot of money off of it. However, you can find a balance between letting those accounts build your name and driving their customers into your taproom. As others have said, your margins on kegs will be razor thin but a $4 pint in the tap room is a substantially larger margin. If you are leveraging a lot of cask beer you don’t even need a large draft system to finance or support.
