Nine Things to Consider When Starting a Craft Brewery
By Jeff Bardos (avid home brewer) and CEO, Speritas Capital Partners
September 8, 2020 – Greenwich, CT
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There’s no denying the massive boom in the craft beer industry. The nation now boasts over 5,500 small, independent breweries, and that number continues to grow. If you’ve been avidly brewing beer in your basement or in your garage on home brewing equipment, you may want to take the next step of starting your own craft brewery or micro-brewery.
Once you’re ready to take the plunge – and your sure that your beer flavors and recipes are distinct there are a few more things to consider. You’ll need a brewmaster who can brew at scale. A unique brand is critical. Consider investing in tasting room, where margins are higher and fans can experience your brand & beer.
Distribution is very hard for brewery startups. Fairs, local restaurants, tastings, events – you’ll need to think out of the box because getting on the package store shelf is nearly impossible without a wholesale distributor.
Breweries are a bit like indie bands – it will take a LOT of hard work to build your fan base.
Define Your Equipment Needs
Breweries are equipment intensive, and you’ll need to know going in just how much you’ll need to spend. At the low end, you could shell out $100,000 or so for a used one barrel system. At the other extreme, you could pay $1 million for a 30-barrel system. You’ll also need other equipment, including kegs, kegging tools, bottles, a labeling system that can accommodate dates (or a canning line if you prefer), and more.
Know the Where – Location, Location, Location
Craft breweries are hipster by definition and run by people who consider the craft and the mission as integral to the business. And hipster doesn’t necessarily mean young! Where will you set up your brewery? What’s the competition like in the area? What about the market sentiment – does the local community locals want a brewery in the area?
You also need to assess the logistics of the physical location. How easy is it for delivery trucks to reach? How much will you spend on building the brewery itself? What about space for expansion?
Tasting and Taprooms are now the norm. If your brewery location can be the same as your tasting room, you can create economies of scale by investing in one location for real estate acquisition and development. Tasting rooms are best if there’s a great vibe and people want to come not just for the beer, but for the atmosphere. Accessibility, easy parking and vibe – no one wants to drink their craft beer next to a coal plant or under an overpass. The best locations for your tasting/taproom will be expensive.
Permitting and Legal Issues
Breweries face significant hurdles in terms of legal hoops to jump through. You’ll need to obtain federal permission to open a brewery, but you’ll also need state permission, and possibly even local permission. All of these require permits, and getting them takes time and costs money.
Industry Association Rules & Certification
You also need to consider where you fall in the official market segments defined by the Brewers Association. Depending on how much beer you brew, how you distribute and how much food you sell, you could be a microbrewery, brewpub, taproom, or regional brewer – all with their own regulations. There are also options to contract brew, something like a shared commercial kitchen. Be sure you qualify for certification as an independent craft brewer!
Finding the Right Brewmaster
Brewing beer is complicated. Combining malts and hops and innovative, nontraditional ingredients and flavors is both an art and a science. Knowing how to use brewing equipment designed to brew at scale and maintaining quality and flavor profiles is something an experienced brewmaster knows. Knowing how to buy ingredients at scale and existing relationships with suppliers is valuable knowledge you gain with the right brewmaster. You could spend years learning/mastering these skills if you’ve only home brewed.
If you’ve borrowed money to start your brewery, you need to get up to speed as quickly as possible.
Develop a Sophisticated Brand Strategy
Have you ever bought a craft beer just because of its incredible packaging? The answer is probably yes, but if the beer sucked you didn’t buy it again. Packaging, cache, a STORY about why you started, how you started, that inspires your fans can make or break both great and terrible beers.
Carefully Consider your Distribution Strategy
Distribution is the most difficult challenge for a craft brewery. Shelf space is at a premium and hiring a wholesaler to sell and truck your FRESH beer across the county quickly eats up margins. You wonder why craft beers cost on average $16 a four pack? It’s distribution and branding. Will you be a 3 tier, 2 tier or direct to consumer? Your choice of distribution model should match your personal and business goals.
Define Your Goals
Do you want to be a Bissel Brothers and be found all across Maine with a taproom and spin off your own wholesale distribution company? Or are you leaning more towards the Cisco Brewers of Nantucket model, now with 5 taprooms in uber-cool locations, and significant Northeast distribution, and product line expansion into hard teas, distilling and wine?
Maybe you’re more into the low-key Taproom approach – check out Post and Beam Brewery/taproom in Peterborough NH. They restored a historically significant town-owned GAR building for their taproom with help from community partners, including tax relief from the town.
How much do you want to make, how big to you want to go? You may decide from a lifestyle / investment perspective to stay micro and local.
Finding the Money – Financing and/or Friends & Family
Starting a brewery can be very expensive, but you can cut some costs out with savvy planning. Depending on the amount you need, and the number of people going into the project with you, initial startup funds could come from investments or loans from friends and family, a home equity loan or your retirement savings.
You can also finance brewery equipment, real estate and other costs from bank, nonbank and SBA sources. Learn more about creative ways to finance your craft brewery here.
Are you Really Ready to Start a Craft Brewery?
Not to rain on anyone’s parade, but take a moment to read this great article by Christopher Osburn, a freelance drinks writer, entitled “We Asked 10 Brewers: Should I Open a Brewery?” The article appears on Vinepair.com.
About the Author
Jeff Bardos, CEO, Speritas Capital Partners
As a veteran home brewer I know how hard it is to produce a good beer! So far I only share my efforts with my poker buddies. My skills as a debt advisor are arguably better than my brewing skills, which is unfortunate for the poker group, but good for craft brewers! And now for a shout out to one of my favorite breweries, Tuckerman Brewing in North Conway, NH – try their Pale Ale, available in NH, MA & ME.
Jeff has over 30 years of experience in the financial services industry and over 12 years of sketchy home brewing in his basement. After graduating from the Columbia Business School, he joined the New York Federal Reserve Bank as a senior staff member in Bank Supervision, leading the Bank Analysis department. From the nation’s central bank, Jeff moved into the private sector, working at senior levels in commercial banking, retail banking and risk management. He has also played senior founding roles in several start-ups. Learn more about Jeff.
Speritas Capital Partners specializes in complex credit, collateral and cash flow situations and we never take upfront fees.