The Art of Beer Pt 8 – Brewery Strategies

Back when the Craft Beer movement was in its infancy and the possibilities endless, there were many folks who dreamed of making their love of beer into a business. Luckily, for us, a lot of them succeeded.

There are currently more breweries in the United States then there have ever been. That is actually no small feat. Almost 100 years ago evil-doers succeeded in banning beer production (along with all other alcoholic beverages) in the United States. For 3 long sober years, legal brewing was banned. Eventually the consequences of the mistake made became evident and Prohibition was repealed in 1923. But by then the damage had been done and where we had once over 4000 breweries only a handful were able to recover and start producing again.

Those breweries survived by changing their production to something that was legal. They adapted to their environment by changing their business strategy.

When Craft Beer started booming around the beginning of the 21st Century, the business strategies that were employed were as varied as the number of breweries. A lot of Craft Brewers started out as Home Brewers. They learned the basics of brewing in their garages and sheds and tried perfecting their recipes there. As their skills improved they would get feedback from folks, usually friends that their creations were good enough to put on the market. So they ventured out and began breweries.

Some started small at the microbrewery/brew pub level, some started in the mid-range at a small production level (kegs only), and others started at a more robust level (bottling along with kegs). Not all of them succeeded. A common factor for all of those who failed was using a bad business strategy, or having no strategy at all.

So the need for a business strategy for any brewery, no matter the size, is evident. But as you can see from what happened with Prohibition, the need to be able to adapt that strategy to changing circumstances is also necessary. While it is unlikely that Prohibition will come again, at least in our life-time, it is quite possible that some other event that is capable of disrupting the business could occur. And you need to be able to adjust any business strategy to account for growth and expansion. Any strategy you develop needs to be able to address or adapt to changes that can and likely will occur.

The following are simple points that need to be addressed with any brewery business, as well as many other businesses, in order to be successful.

1. Capital – No matter what level of brewing you are going to start out at you are going to need funding. You’re not making five gallon batches in your garage anymore. And your friends are no longer your only patrons. You need to be able to produce enough product to serve to patrons. You will need equipment to make that product as well as staffing to not only produce and package it, but also to serve it depending on your business plan. You will need a new location, whether you purchase the property or lease it and that will definitely require some renovation if not brand new construction. You need to establish a supply chain with Vendors who can guarantee a reliable supply of the grains, yeasts, and hops you need to make your product. All of that is going to require funding to purchase. And you need to be able to sustain your business through at least the first year. Until you can garner a regular customer base and have a steady income from that.

2. Location – Since you aren’t in your garage anymore, you need to think about what kind of plan you are going to establish and use that to determine a location. Do you want to stay small or do you plan to expand in the future? If you are a production brewery you need to think about truck access. You also need to take into account the water supply to your new facility. Beer is approximately 95% water. You need to have a clean reliable source of water to make your product. Will it be piped in from a municipality or utility or will you dig your own well? And if you have a serving room or are going the microbrewery/pub route what is a good location for your business? Will it have good exposure in a high traffic setting? Do you have enough parking for your patrons?

3. Economies of Scale – As I said earlier, you are no longer making five gallon batches in your garage. You are going to be making larger batches which will require increasing the quantities of your ingredients. But changing the size of your batches can affect the flavor. You should allow for some initial test batches once you have equipment in place. Then you can tweak it as needed to achieve the flavor profile you are expecting. And while I mentioned water above, another aspect to take into account is the quality of water you are receiving. The pipes or well that you are receiving the water from now will be different. Do you have the water processing equipment in place to treat the water to achieve the formula you need for the style you are brewing?

4. Market – So you can brew good beer. So what? So can a lot of other people who may already be established in your area. What will differentiate your brand from theirs? Is the area you want to establish your business in already saturated? Are you going to specialize in certain types of beers or have flagships ales with specialty beers based on the season? Will you have guest taps for selling other breweries offerings? If you establish a pub or tasting room, will you serve food as well? What will the menu be? Who will cook it? What will be your hours of operation? All of this needs to be thought of and prepared for before you begin building/renovating.

The breweries I mentioned previously that failed, didn’t take these and/or other factors into account when they tried to start. They leapt full force into making the beer because that is the part of the business they thought they knew, and forgot that at the end of the day, it still has to be a business that can sustain itself. And like a lot of American businesses that don’t have a good business strategy they failed to adapt.

A good business strategy will begin with knowing how much operating capital you will have. Then as your business becomes more established and you have your business practices in place, you need to evaluate how those will work if you expand. Will they work on a larger scale? Or do you need to change them so that you can adapt to growth?

Some breweries, even more now than before, start as simple microbreweries or brew pubs with no intentions of expanding. They are targeting a specific market or a niche in a market. Doing this will eliminate headaches that a larger brewery will encounter. They don’t have to deal with the stranglehold that the Big Beer makers have over the distribution system. They also are only worried about local competition, not Regional or National competitors.

The onslaught of new brewery openings has slowed over the last couple of years. While there is still growth, it has slowed to less than 5%, whereas only a few years ago the growth rate was into the 70 percentile range. And the number of production breweries has slowed even more. A larger number of the newer openings are microbreweries or brew pubs.

But the one thing that any craft brewery needs to succeed is true no matter the size…

Good quality product!

Enjoy!!

Papabear

Happy New Beer 2018!! (A Craft Beer State-of-Union)

Welcome to the unofficial State of the Union of Craft Beer (or Independent Beer or Micro Beer or whatever someone decides to name this movement next)!
I call it unofficial because I am certainly not the President of this beer culture. I’m not even a Congressman or Senator. I am simply an amateur brewer, blogger and beer aficionado. But I love great tasting beer and have done so for 36 years now. Spending 36 years doing anything gives you a little bit of license when it comes to speaking about the subject. So, I am going to give you my observations about this last year and a little bit of what I see happening this coming year. Again, these are my opinions, or better yet, my conclusions as I will list some facts to back them up.

As was predicted last year, the Macro Beer companies (ABInBev, Molson-Coors, Heineken and Constellation Brands) continued their campaign of acquisitioning craft breweries instead of actually developing good beer.

ABInBev placed both Wicked Weed from Asheville, NC, and Breckinridge Brewery of Breckinridge, CO, under their umbrella to join Goose Island, Land Shark and Leffe as well as 13 others that make up their High End Division.

Molson-Coors acquired Terrapin Brewing of Athens, GA, because they didn’t have the ability to match Terrapin’s skills with their 97 other brands.

Constellation Brands, while not a big beer player and specializing more in wine and spirits, decided they needed to acquire California based Ballast Point Brewing to go along with their smaller stable of 9 brands. Then later in the year, they also acquired Funky Buddha Brewing of Boca Raton, FL.

And Heineken International, with its stable of 119 brands had to add one more so they went after and acquired Lagunitas Brewing, also California based.

All of these Craft Brewer’s were excellent examples of companies who excelled at what they were doing but in order to do more they needed investors. Which is where Big Beer came in and gobbled up opportunities. Only time will tell if their accepting the offers from Macro Beer companies will be harmful or beneficial.
In protest of Big Beer purchasing these companies I, along, I am sure, with many other Beer Snobs, have abstained from sampling or purchasing any of these former greats products. Another form of protest appeared in late October, in the form of the TakeCraftBack Campaign (see add below).

This Don Quixote-ish attempt to buy out Macro Beer, while hinting at David versus Goliath proportions was actually done in jest. But I believe it did bring to light the practices that ABInBev and others use daily to keep craft beer from obtaining more of the market. And while thousands of Craft Beer fans (including yours truly) pledged more the $3,000,000 to buy out Big Beer the goal of 213 Billion plus was laughably unobtainable. But everyone knew that going in.

And at the tale end of the year some good news appeared in the form of legislation that would lighten the tax burden of many breweries making it easier for them to purchase each other’s beers and spread across the tap rooms of America.

While this legislation benefits all commercial brewers big and small, Big Beer factors the taxes they were paying into their production costs. Smaller breweries may also do that, but smaller breweries are more likely to take that added available funding and experiment more with making different styles of beers. You’ve already seen that Macro Companies prefer to buy already perfected formulas than to develop new ones.

Federal Excise Tax Overview

2017 saw a slowdown in new Brewery openings. In fact, many industry insiders are predicting that the trend going forward will be Micro Breweries or brew pubs. The brewery market is becoming over-filled with the number of brands and styles to choose from. So local pubs which may brew their own and bring guest taps will be where you see the growth.

2017 also saw more loss of market share by Big Beer to craft beer, wine and whiskeys. A trend which will probably continue this next year despite Big Beers efforts to buy up market share. Of the $107,000,000,000+ in revenue generated by the Beer Industry in America in 2016, about $23,000,000,000 of that was from Craft Beer, an increase of 10% from the previous years.

Which brings us to now and the future, or at least 2018.

I think you will see a reduction of buy-outs by Big Beer. The amount of dollars invested in craft Breweries does not equal the amount lost in market share, though that may vary from company to company.

I do believe there will be an increase in Brew Pubs and Micro-breweries though even that will slow down compared to the last few years.

I would not be surprised to see Big Beers change tactics and begin investing more in the retail end of the Beer industry, opening their own brew pubs in large populated cities where they can lock out their competitors. But that will only work if they can bring a good offering of cuisine to accompany their products. Otherwise it will be money down the drain.

I would also not be surprised to see Big Beer begin head-hunting for brewing talent and begin expanding their capabilities for experimenting with new styles.
It’s for sure that their current modus-operandi is not working.

Whatever happens, I encourage everyone to continue to support their local breweries and try new beers as often as possible.

Papabear