Wondering how to start a brewery? It’s an excellent idea. But you’ll need to be aware of the federal and state laws involved with this business model. And other things like equipment costs. There’s a lot to think about if you want to start a small business in the craft beer industry.
Is Owning a Brewery Profitable?
Any new business is concerned with the bottom line. A new venture in the brewing industry is no exception. Here are some numbers budding entrepreneurs can mull over.
- Small-scale breweries are a great model. The profit on a keg is 75 percent.
- There are some headwinds. The Brewers Association reported a 9% decline for craft brewers in 2020. That’s pandemic related.
Overall, the beer market in the USA was worth $94.1. billion in 2020. The craft beer market was $22.2 billion.
How Much Does it Cost to Start a Brewery?
You need to spend money to start one of these small businesses. Many breweries will set you back $500,000 to $1 million.
Both major and smaller expenses must be covered in your startup costs. These include staff salaries, ingredient prices, utilities, rental fees and, of course, the cost of equipment, to name just a few.
Don’t forget to put a market analysis focusing on the craft beer community in your business plan.
Small Business Deals
How to Open a Brewery
Starting your own business is about more than just figuring out start-up costs. You might be looking to turn your home brewery into a business, so there are many options. Use the following steps as a guide and watch your craft brewery take shape.
1. Look at the Current Market (and other Brewery Owners)
Brewing beer is competitive. Get excellent stats here. But you’ll need to have an account.
Look into neighborhood features and demographics. And what other breweries are doing, as well as problems facing the beer industry.
2. Name and Brand Your Business
Brand identity will separate you from the competition. A good name gives the customer a first impression. It should be meaningful and distinctive. You need to trademark it. And you’ll get more sales when it’s visually suited to graphics and packaging.
3. Choose a Niche
Choosing the right niche is a big part of success when selling craft beers. There are several options that appeal to specific craft beer drinkers.
- A Taproom brewery sells beer onsite. There’s no restaurant.
- A Nano Brewery is the smallest.
- A Microbrewery produces 15,000 barrels a year.
- A Brewpub adds food in a restaurant/bar setting.
- Contract Brewing Business. These hire other SMBs to produce their beer.
- Regional Brewery. These are recognized worldwide.
4. Write a Brewery Business Plan
A good business plan is a financial road map. It’s also an overview detailing things like the startup capital needed. And it includes numbers like projected cash flow.
Here are a few boxes to check.
- Executive Summary. Cover what’s to come in one page.
- Business Overview. Just the facts here–contact details, legal address, name.
- Description. Add the goals and objectives.
- Market Analysis. Fill in the stats and trends for your niche.
- Competition Analysis. Make sure to include both direct and indirect competitors.
- Marketing. What’s your strategy? Add in promotion ideas, pricing, etc.
- Operations. An overview of your day-to-day. Don’t forget staffing and licensing requirements.
- Financials. Pitching to investors and/or looking for a loan? Include the money details here, like expenses, costs, and forecasted revenue.
5. Register and Form a Business Structure
The right business format is critical. The one you choose dictates your SMB structure.
- Sole Proprietorship. This is top-of-list because it’s the simplest. But you’re responsible for all the liabilities and debts.
- General Partnership. There are two or more owners here. Partners divvy up both profits and losses.
- Limited Partnership. You’ll need to file paperwork in your state to form an LP. A limited partner is usually an investor.
- C Corporation. A business entity with shareholders and others with control over the brewery. Lots of tax deductions.
- S Corp. The profits and losses here can be filtered through the owner’s personal returns.
- Limited Liability Company. There are big bonuses here. Less paperwork and no owner personal liability for profits and losses.
6. Create a Business Bank Account
Opening a business bank account leads to a business credit card. Buy equipment and supplies. You’ll need an Employer Identification Number and other documents like a business license.
7. Look into Small Business Loans
There are costs involved with breweries. You’ll need funding. Here are a few options.
- Traditional avenues like bank loans, SBA loans, and business lines of credit. Here’s a bit of the process for these.
- Crowdfunding or CrowdBrewed is a relatively new way to get funding. Supporters donate cash online.
- Investors. A solid business plan helps your pitch.
8. Choose a Location
Choosing the right location is about how much space you’ll need. Craft breweries should consider the following.
- Utilities. Look to see if your gas, electric, water and sewer needs will be met.
- Your needs and wants. For example, your day-to-day operations might not need a loading dock. Sometimes a forklift and drive-in door will do. This depends on how much beer you sell.
- You’ll need to have some restroom stalls for a tap room.
Other considerations include local zoning regulations and leasing considerations.
9. Have the Required Licences and Permits for Starting a Brewery
You need to remember a brewery is connected to alcohol production and sales. That means there are state regulations to follow. Check with your local government or the feds for:
- A Retailer’s License. So you can sell stuff like shirts and such.
- Insurance. Get liability, casualty and property.
- An Operating Agreement. Covers the rules for an LLC.
- A Federal Brewer’s Permit. To produce beer and serve food.
- A State Liquor License. So you can sell beer to your target consumer.
- A Brewer’s Bond. Ensures you pay state and federal taxes.
10. Get Your Taxes in Order
There are both government and state taxes you’ll need to pay. Here are the main ones a brewery will have to dole out.
- Federal Excise Tax. The first 60,000 barrels will cost $3.50 per. Here’s more about those rates.
- There are state taxes too. Only five states don’t charge.
11. Purchase Business Insurance
Business insurance is another must. A brewery owner needs these standard types.
- Commercial Property. Covers physical damage.
- Business Income. Covers you if you need to shut down.
- General Liability. Protects against injuries and lawsuits. Important for new brewery owners.
12. Finalize Plans for the Brewing Process
Don’t forget why you opened a business. How you brew your beer makes all the difference.
Most breweries start with a milling and mashing process. Down the list are boiling and fermentation.
13. Purchase Brewing Equipment and Other Essential Items
Equipment prices are important to consider. The right brewery equipment is as critical as the suds themselves. Getting the most from brewing equipment ultimately depends on your skill level.
These items need to be on the list. Some are the same as for liquor stores.
- Refrigeration Equipment. Here’s a checklist covering compressors and pump motors.
- Canning Lines. These are cheaper than bottling lines. Look at cans per minute speed.
- Cleaning Equipment. You’re tackling things like protein and mineral scale. Look for a strong alkaline cleaner.
Other items include kettles, boilers and storage tanks. Some items are the same for companies that sell alcohol.
14. Set Your Prices
The average markup for beer is as much as 300 percent. The same price works for draft, bottles and canned beer.
15. Find Beer Distributors
A contract brewing company needs distributors, Look for clearly laid out policies. Decide on your distribution approach, whether you plan to distribute your products locally, regionally, or nationally. This will impact your logistics and supply chain management.
16. Hire Employees
Good employees make everything happen.
- Like a Head Brewer. They choose ingredients and create recipes.
- A General Manager looks after the other employees. They look after inventory too.
- The Assistant Brewer is basically an apprentice.
17. Market Your Business
Here are a few proven ideas.
- Look for a Brand Ambassador. Make sure they’re willing to undergo product training.
- Be An Active Community Member. Your city should have events, festivals and the like. Get involved. Be a vendor or sponsor.
- Optimize Your Profiles. Review sites attract customers. Here’s a list to get started.
18. Expand Your Brewery
Expanding your brewery can be challenging and the fact that you are considering is a good sign, but it requires careful planning and execution. Here’s a proven framework to help you navigate the expansion process:
- Market Research: Conduct thorough market research to identify demand, trends, and potential competition in your target area. Understanding the market will help you determine the viability of expansion and make informed decisions.
- Financial Assessment: Evaluate your current financial situation and project the costs associated with the expansion. Consider expenses like equipment, raw materials, labor, marketing, and any necessary permits or licenses. Ensure you have sufficient funds or access to financing options.
- Business Plan: Create a detailed business plan outlining your expansion strategy, objectives, target market, marketing approach, and financial projections. This plan will serve as a roadmap to guide your expansion efforts and attract potential investors or lenders.
- Location Selection: If you plan to open a new brewery, choose a location strategically. Consider factors such as accessibility, proximity to your target market, competition, and local regulations. If expanding an existing brewery, assess the current location’s capacity and potential for growth.
- Production Capacity: Assess your current production capacity and determine how much you need to increase it to meet the demand. This might involve investing in larger equipment or optimizing existing processes.
- Quality Control: Maintain or improve the quality of your products during expansion. Implement strict quality control measures to ensure consistency and customer satisfaction.
- Staffing: Analyze your workforce needs and hire skilled personnel as required. Well-trained and motivated employees play a crucial role in the success of your brewery.
- Regulatory Compliance: Be aware of all local, state, and federal regulations related to alcohol production, distribution, and sales. Ensure that your expansion complies with all legal requirements and obtain the necessary licenses and permits.
- Marketing and Branding: Develop a robust marketing and branding strategy to create brand awareness and attract new customers. Utilize both traditional and digital marketing channels to reach a broader audience.
- Distribution Strategy: Decide on your distribution approach, whether you plan to distribute your products locally, regionally, or nationally. This will impact your logistics and supply chain management.
- Sustainability: Consider implementing sustainable practices in your expanded brewery, such as energy efficiency, waste reduction, and water conservation. Consumers are increasingly interested in environmentally responsible businesses.
- Customer Feedback: Continuously collect feedback from customers to understand their preferences and adapt your products accordingly. Building strong customer relationships is essential for long-term success.
- Partnerships and Collaborations: Explore opportunities for collaborations with other businesses or breweries. Partnerships can open up new markets and help expand your reach.
- Risk Management: Identify potential risks and have contingency plans in place. Expansion involves inherent risks, and being prepared to handle unforeseen challenges is crucial.
- Monitoring and Evaluation: Regularly monitor the progress of your expansion and evaluate its success against the objectives outlined in your business plan. Be prepared to adjust your strategies based on the results.
19. Be the Successful Business Owner of Your Own Brewery
Your new brewery is waiting. Take these ideas and get started today.
Getting Your Own Brewery or Contract Brewing
|Aspect||Owning Your Own Brewery||Contract Brewing|
|Ownership||You own the entire operation - brewery, equipment, brand.||You rent space and equipment, don't own the brand.|
|Investment||Major investment required (brewery, equipment, ingredients).||Lower-cost option, pay for ingredients and brewing time.|
|Risk||Risky venture, no guarantee of success, potential for high losses.||Lower-risk, less investment, not responsible for day-to-day operations.|
|Control||Complete control over brewing process, beer selection, marketing.||Less control over brewing process, limited beer selection.|
|Branding||Create your own unique brand identity reflecting your vision.||Limited ability to build your own brand, may use another brewery's brand.|
|Distribution||Control over distribution, choose where to sell and set prices.||Less control over distribution, handled by other brewery.|
|Profitability||Potentially more profitable due to full profit from beer sales.||Typically less profitable due to brewery/equipment costs.|
|Time commitment||Very time-consuming, involved in all aspects of the business.||Less time-consuming, focus on brewing and marketing.|
|Flexibility||Greater flexibility in brewing and marketing decisions.||Less flexible, may have to brew beers as per other brewery's wishes.|
|Scalability||Can scale brewery up or down based on demand.||Less scalable, limited by capacity of the other brewery.|
Keep in mind that the decision between owning your own brewery and contract brewing depends on various factors, including financial capacity, risk appetite, desired level of control, and long-term business goals.
- Ownership: When you have your own brewery, you own the entire operation. This includes the brewery itself, the equipment, and the brand. When you contract brew, you are essentially renting space and equipment from another brewery. You do not own the brand and may not have as much control over the brewing process.
- Investment: Starting your own brewery is a major investment. You will need to purchase the brewery, the equipment, and the ingredients. Contract brewing is a much lower-cost option. You only need to pay for the ingredients and the brewing time.
- Risk: Starting your own brewery is a risky venture. There is no guarantee of success, and you could lose a lot of money. Contract brewing is a lower-risk option. You do not have to invest as much money, and you are not responsible for the brewery’s day-to-day operations.
- Control: When you have your own brewery, you have complete control over the brewing process. You can decide what beers to brew, how to brew them, and how to market them. When you contract brew, you have less control over the brewing process. You may have to brew beers that the other brewery wants to brew, and you may not be able to use your own recipes.
- Branding: When you have your own brewery, you can build your own brand. You can create a unique brand identity reflecting your brewery’s vision. When you contract brew, you may not be able to build your own brand. You may have to use the brand of the other brewery, or you may have to share the brand with other contract brewers.
- Distribution: When you have your own brewery, you can control your own distribution. You can decide where to sell your beer and set your own prices. When you contract brew, you may not have as much control over distribution. The other brewery may handle distribution for you, or you may have to find your own distributors.
- Profitability: The profitability of a brewery depends on a number of factors, including the size of the brewery, the type of beer brewed, and the marketing strategy. Contract brewing is typically less profitable than having your own brewery. This is because you are paying for the use of the brewery and the equipment, and you are not getting the full profit from the sale of your beer.
- Time commitment: Starting your own brewery is a very time-consuming venture. You will need to be involved in all aspects of the business, from brewing the beer to marketing it. Contract brewing is a less time-consuming option. You will not need to be involved in the brewery’s day-to-day operations, and you can focus on brewing the beer and marketing it.
- Flexibility: Having your own brewery gives you a lot of flexibility. You can brew whatever beers you want and market your beer however you want. Contract brewing is less flexible. You may have to brew beers that the other brewery wants to brew, and you may not be able to market your beer as you want.
- Scalability: A brewery can be scaled up or down depending on demand. If demand increases, you can brew more beer. If demand decreases, you can brew less beer. Contract brewing is less scalable. The capacity of the other brewery limits you.
What are the legal requirements for starting a brewery?
- You need to obtain necessary licenses and permits to produce and sell alcohol.
- Compliance with local, state, and federal regulations is crucial.
How much capital do I need to start a brewery?
- The required capital varies based on the scale and location of your brewery.
- Consider expenses for equipment, ingredients, staff, and marketing.
Do I need prior brewing experience to start a brewery?
- While prior experience is beneficial, it’s not mandatory.
- You can hire experienced brewers or take brewing courses to learn the craft.
What equipment is essential for a brewery startup?
- Basic equipment includes fermenters, kettles, bottling lines, and storage tanks.
- The size and capacity of equipment depend on your production scale.
How do I select a suitable location for the brewery?
- Look for areas with access to your target market and distribution channels.
- Consider factors like zoning laws, proximity to suppliers, and customer footfall.
What marketing strategies can I use to promote my brewery?
- Social media, events, brewery tours, and collaborations with local businesses.
- Focus on building a strong brand identity and connecting with the community.
Is sustainability important in brewery operations?
- Yes, sustainable practices can attract environmentally conscious consumers.
- Consider energy-efficient systems, waste management, and eco-friendly packaging.
Image: Depositphotos, Envato Elements
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