Top business questions asked by Craft Breweries

At The Business of Drinks, we are often posed questions from individuals who either are thinking about setting up a Craft Brewery, or who have already set one up and are looking forward to growing it. For this month’s blog we’ve created an FAQ that covers many of these commonly asked questions.

What size Brewery should I have?

Ideally it would be as a minimum around 10BBL. With a 10BBL mash tun, cold & hot water tanks, a range of Fermenting Vessels starting initially at 10BBL and possibly going to 20BBl (30 HL) the brewery will be able to produce around 5000HL in a year which is the max for the SBDR. A well run brewery with a small tap room should be able to achieve around £1.5M -£2M turnover with such a brewery.

Other benefits are by maximising FV’s rather than the brewing kit, you can produce more varieties of beer.  You are as they say, sweating your assets to the maximum.

What range of Beer?

Ideally in the early days you should try to create 4 core beers with only occasional specials.

Core range can include

  • Pale Ale

  • IPA

  • Dark beer – Amber/Ruby

  • Bitter

As your business expands you can add to the range and you can decide whether you take your range in the direction of constantly creating specials all the time, new ones each month etc, or you stick to a core range of product.

Ultimately it’s your choice, dependent on the type of brewery you want to develop.

Running a core range with a few specials is more profitable, constant change is exciting but costs more! So if you go for the constant change you should seek to get £3-£5 more per keg/cask than your normal range.

Cask, Can or Keg?

This will in many ways depend on where you plan on selling.

If your market is more county than town, cask is important, also ABV is an issue for county if you have to drive there. City dwellers often have more esoteric palates.  Public transport mitigates the issues around drinking and keg also sells well in urban areas. If your aim is to create lots of special beers you could decide to go Keg only.

Identify your market, see what sells in it, then create your versions which must be as good as, if not better than your competition.

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Regardless of the Cask/Keg debate (various well know breweries went away from cask to keg for profitability and quality reasons, but are now looking to go back!) there is a demand for both.

Small pack is increasingly becoming important in the mix. It allows you to expand your distribution, increase price achieved per litre, create awareness, specials etc.

Which end of the market should I aim at?

Decide on what you want to make. The market is big enough for many different styles of beer. The key issue is once again to identify the type of consumer who is going to drink your beer and where do they go to do that.

Most new breweries start by selling locally, it is a known statistic that around 75% of craft beer is sold within 40 miles of the brewery. Start there, create a product that people want and like. Do it consistently and then move outwards from the brewery, based on ease of distribution. It takes an hour to go 70 miles on a motorway but 2.5 hours to do 70 miles on country roads!

If I have shareholders, how do I manage it?

To avoid issues later on you need to have a clear shareholders agreement which specifies what happens when certain events take place

  • If people leave - can they take their shares with them? Or do they lose them or have to sell them back into the business or can they keep them, regardless of leaving the business?

  • Can you issue new shares?

  • What is the minimum % of votes to make critical business decisions

  • What happens if there is an offer for the business, can you compel ALL the shareholders to sell?

  • Who can nominate Directors?

All these are covered in a good shareholders agreement, and the time to do that is right at the start.

Should I have a tap room?

More and more breweries are setting up tap rooms. Essentially they give you 3 key benefits;

1)    They allow you to sell beer at retail prices, rather than trade.

2)    They allow you at first hand to gather market research on new beers and existing beers, seeing what your customers like.

3)    They allow you to start building a “Tribe” of fans who will come in useful further down the line when you launch an on-line shop or decide to go crowd funding.

When will I make a profit?

The current numbers would tend to indicate the following.

  • From start up to £250,000 you are unlikely to be able to pay yourself a realistic salary. You might break even if you limit costs, but a profit is unlikely.

  • From £250,000 to £500,000 you gradually move to being able to pay yourself a reasonable salary (not a great one!) As you get towards £500,000 you also should make a small profit (after paying depreciation & interest).

  • From £500,000 to £1 million you MUST make a profit, if you do not, you must be doing it for a good business reason, otherwise why are you continuing?

o   Limit your staff numbers at all times

o   Sweat your asset, Geting “Big” kit from the start isn’t always the answer (the asset finance people will generally be happy to lend you the finance – but don’t forget - you have to pay it back sometime!)

o   Manage your numbers, use online accounting software such as Xero, get a good accountant, don’t find out your profitability at year end when your accountants do the numbers. You should know month by month your profit.

o   Focus on cash flow. At any one time you will generally be owed around 1.5 x your monthly sales. So you need to create the cash to fund this.

o   Think of price per litre – maximise your price per litre.

  • Cask tends to be around £1.95 a litre

  • Keg tends to be around £2.80 a litre

  • Cans around 4.20 a litre

  • Retail (Tap room) £8-£10 per litre

o   Generally for breweries sub £500,000 the cost of sales can be around 55-60% (Cost of Sales are the production costs excluding salaries of brewing staff)

o   As turnover increases above £500,000 the cost of sales tends to decrease towards 50%.

What does a successful brewery look like?

There is no standard formula, but generally they fit into the following

  • Up to £250,000

o   Brewing on 10BBL or smaller.

o   5 FVs

o   Maybe 4 people

  • Founder doing sales/Brewing

  • Sales, if Founder is the brewer (maybe cofounder)

  • Brewery Support

  • Part time driver

  • £250,000 to £500,000

o   Brewing on 10BBL/15BBL

o   Up to 8 FVs

o   5 people

  • Founder

  • Dedicated Sales person

  • Brewer

  • Brewery Assistant

  • Driver/Delivery/odd job

  • £500,000 - £1,000,000

o   Brewing 15BBL, upscaled kit

o   8 – 10 FVs

o   Up to 9 people (ideally 7 or 8)

  • More sales people

  • More Brewery support

o   Possibly canning line

o   Possibly part time staff running tap room at weekend

Our final advice if you have not taken the plunge yet and started a brewery

Spend some time working in one to understand that the work is hard and dirty, margins are tight and competition is fierce.

Growing competition, also means the bar is constantly being raised on quality. It is no longer OK to produce mediocre beer. It has to be better than all the local competition yet too many new brewers are making boring, bland beer and wondering why it doesn’t make money.

If you still feel that your passion and ability to produce great beer is up to the task then get stuck in. There are plenty of opportunities still out there as there is a constantly increasing demand for interesting great beer.

Would you like more detail on some of the statements above? Simply contact us, we are always happy to chat.

Contact David Martin by email at: david.martin@businessofdrinks.co.uk or phone 07790 905558