Should I start a brewery?
That depends. There is still plenty of opportunity start a brewery. If you look at the overall beer market, craft beer still only represents 12.3% of the total market share. There is a lot of room for growth there – especially in certain areas of the country, like the South and Midwest. States that were not traditional craft brewing hotspots have seen a huge boom in growth over the last few years. So, yes, now is a great time to start a brewery, particularly if you are passionate about what you are doing and have a clear vision of how you want to do it.
How do I start a brewery?
The first thing you want to do is to define the type of brewery that you want to start. There are all kinds of breweries, but one of the biggest decisions is whether to focus on taproom sales, distribution or a combination of the two.
Because the margins for onsite sales are so much better, most people start focusing on their taproom along with some distribution and allow themselves to grow over time. As they start to increase sales, and after they've had a few years of operation, they might launch or expand distribution.
How do I select or assess a location for a brewery?
The real estate for a brewery is really important, but not according to the characteristics that a traditional real estate broker might define. Some of the “best real estate” isn’t always well-suited for breweries, nor is the most expensive real estate.
There are breweries in rural areas that are located on farmhouses and breweries in downtown urban centers. There's any way in which you can do that, but the real estate still needs to work. Finding a space and/or building that already has some sort of character is important.
Many times, when evaluating a space or location, people note that there's not another brewery in two, five, or ten miles from the location. That is a factor, but what people often don't realize is that you are not just competing with other breweries -- you are also competing with any activities that can take up people’s free time. So, you are competing with traditional bars, restaurants and miscellaneous entertainment activities in addition to other breweries.
At the end of the day, your success as a brewery will be determined by the way which in which you operate the experience -- creating a space and product that people want to go spend time in. That means you need to have an atmosphere that draws people in. That is much easier to do if the building is already cool to begin with.
Are breweries profitable?
Yes, they can be very profitable. From a gross margin perspective, breweries are highly profitable. The average Cost of Goods Sold relative to the sales price of beer is quite low compared to many other industries. With that said, if you’re dry hopping at really high levels using all New Zealand hops your COGS are going to reflect that.
The real area where breweries can get into trouble is if they spend too much on the build-out and upfront capital expenditures. These other variable factors that go into starting a brewery can end up whittling away at the profit margin as a result of an excessively high debt service on your original loan.
What is a typical budget for a brewery?
This varies significantly. In a taproom-focused model, it depends on the condition of the space before you move in or build it out. But for an average – say 10-barrel system – brewery, the equipment tends to run between $200,000 to $500,000 depending on the cellar configuration. This also varies depending on the type of equipment purchased and the sophistication of the control panel. This does not include installation, as the set-up and build-out of the space also varies significantly.
How much money do I need to start a brewery?
It depends the size of the brewery, the condition of the space you’re going into, the location, etc. I've seen guys start breweries for less than a $100K, and others spend upwards of $5M.
If the right elements are there – the economics as well as the product – and the right team and brand, you can basically start a brewery on any budget. But the flip side is that you can get upside down by spending too much up front and fail to turn a profit because your debt service is so high.
What are my financing options for a brewery?
There are many financing options, but the most common is a combination of some sort of equity (cash that you've raised either from your own savings or friends and family) and an SBA loan.
SBA loans go through a local or regional bank. You can also use a more traditional (non-SBA) loan if you have a solid and proven relationship with your bank.
How do I get an SBA loan for a brewery?
That’s tricky. I have a lot of experience obtaining SBA loans for breweries. SBA loans are somewhat complicated because there are different entities making the decision: people at your local bank and an outside contractor who essentially liaises between the SBA and the bank. Ultimately the SBA is a government entity, and if you haven't applied for an SBA loan before, they end up taking longer and are more prone to fail. I’ve done the process many times and am very familiar with the steps and the information they are requesting.
What size brewhouse should I pick?
If you’re focusing on your taproom first, a good size might be a 10-barrel system. 10 barrels are super flexible because you can have 20- or even 30–40-barrel fermenters in your cellar. Brewing double and triple batches on every brew day might not be a long-term solution, but it does give you the flexibility to grow along with demand. Just make sure you plan your utilities and ancillary equipment to allow for that growth if needed.
How long does construction for a brewery take?
If you have a building with good bones and you don't have to do extensive renovations, you're likely looking at about three to six months of construction. The timeline can definitely be longer, especially if it's your first time building a brewery.
Do I need to trademark the brewery’s name?
YES, definitely!
Trademarks are incredibly competitive everywhere, but especially in the brewing world due to the large number of breweries. It is quite likely that the name you’ve selected is going to have some level of risk attached to it. If you end up losing any sort of trademark battle, the legal result is very punitive. You can essentially lose your business due to the way the courts approach trademark disputes. They err on the side of the person who uses the mark first. With that said, the craft brewing industry tends to be a fairly friendly space in terms of willingness to compromise or coexist. Sometimes breweries can work out a coexistence agreement allowing for both breweries to continue operating.