Recent reports have talked about the news that more small breweries are closing than new ones starting up and that it is becoming harder out there for a small brewery to compete & make money.
Over the last 3 years The Business of Drinks has worked with over 15 smaller breweries with turnovers in the range of £100k to £1M. They are all still going strong and profitable to one degree or another. Our experience would tend to say that there is no reason why a smaller brewery should not be able to compete and make a profit as long as it manages that business, in a structured way – business is not “Rocket Science”.
Running a successful business requires certain disciplines which if not ingrained, are not always easy to maintain when problems and time intervene. Everyone starts off with passion & good intentions, which as problems mount get pushed to one side and forgotten and you find yourself working IN the business not ON the business!
To have a chance of being a successful Craft Beer business that pays its way and builds value you need four clear disciplines that you have to maintain regardless of the problems that you will undoubtedly be challenged with. On the Business of Drinks website you will see quite a few blogs addressing this subject, but at the risk of being boring – they are worth repeating.
1) Quality, Quality, Quality
It is no good any longer making average beer, the market is too competitive for average beer to succeed. As an industry we should take a leaf out of the Ofsted approach where some years ago they realised that grading a school as “satisfactory” really meant “requires Improvement”.
There should be only 3 grades in Beer Quality;
1. Requires improvement
If you are in the first area, you have to improve! In consumer markets product testing and comparison is the reality, you need to constantly be asking yourself the question – is my beer good enough and you need that view from independent observers/drinkers! We have never met a brewery yet, who said “my beer is not that great”, but we have met breweries who said “we are having problems selling our beer”. Your business should have an ongoing quality improvement programme because “Good” in 2018 could well become “requires improvement” in 2019 and it is not easy to climb back up, when you have slipped down.
2) Sales and yet more Sales and some marketing
Sales is a discipline, it is 50% emotion where you stand in front of the potential customer extolling why they should buy your beer and 50% analysing the market to find those opportunities. It is a mix of “Hunting” (finding new accounts) & “Farming” (developing & following up on your existing & old clients). You need a Customer Relationship Mananagement (CRM) system to manage that data.
But it still requires planning, managing and driving. You need to play to your strengths when it comes to competing with the bigger players;
· Better quality beer and wider range.
· Greater knowledge of your customer and your beer
· Ability to be flexible
· Passion for your product
All of this set within a marketing framework that allows you to project a clear message as to who you are and what your product stands for.
3) Creating a team that is greater than the sum of the parts.
As you grow you need to expand your team, at £500,000 turnover it is around 4-5 people, at £1M it is 9-10. You need to grow, train & develop those people (e.g. training courses and coaching/mentoring), secure loyalty (e.g. share option schemes) You as the leader need to move from “Doing” to “Being”.
4) Financial management
Nowadays with web based accounting systems (e.g. Xero) and reasonably priced brewery software there is no excuse for not knowing exactly your financial position on a monthly basis. You must understand the numbers.
There are 5 golden rules for profitability
1) Limit your staff numbers at all times. People are a high cost.
2) Sweat your asset, don’t invest in big kit until you have the sales (the asset finance people will be happy to lend you the finance – but you have to pay it back!) Many companies make a notional profit (EBITDA) but after depreciation & loan repayments, it sadly all disappears.
3) Manage your numbers, use online accounting software, get a good accountant who works with you during the year, not solely at year end. Don’t find out your profitability at year end, when it’s too late.
You should know, month by month, your profit.
4) 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. Overdrafts cost money and can be cancelled at any time.
5) Think of price per litre – maximise your price per litre.
a. Cask tends to be around £1.75 a litre
b. Keg tends to be around £2.80 a litre
c. Cans around 4.00 a litre
d. Tap room £8.00 per litre or more.
Ideally your target should be to hit that 5000HL SBDR target with an average price per litre of around £3.00 ie a £1.5 Million a year business which correctly managed should generate around £150,000 profit.
We know of many companies that operate profitably in the sub £1 million area, yes, it is not easy but it can be done, it just requires process and discipline. We are happy to help you, confidentially, to benchmark your business against others in the industry to see where you can improve. Get in touch to find out more.
The Business of Drinks works with business owners helping them to focus on the business issues and thus achieve more sustained long term growth and a clearer road map for growth.