Starting A Brewery

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Starting A Brewery

Postby cajun » Mon Jul 01, 2002 8:25 am

Has anyone out there ever looked into starting a micro-brewary? Does anyone know of a source of information on regulations? Or can anyone provide advice on how to get started?

Anyone ever pondered this? Advice???
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Yes...Yes...& Yes....

Postby Mesa Maltworks » Mon Jul 01, 2002 1:33 pm

Those are the answers to your questions, which I can try to help you with.

You will have to start by telling me where you are locating, what your level of brewing experience is and what the demographics for your area suggest in the way of a tenable customer base. By using the term "micro" I assume you wish to establish a packaging brewery and not a brewpub?

Let me know your answers to the above and the concept you envision and I will try to advise you as best I can. You may e-mail me at ericwatson@mesamaltworks.com if you wish to leave the forum for this topic.

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A good educational source.

Postby Brewer2001 » Mon Jul 01, 2002 9:13 pm

I am a graduate of the American Brewers Guild of Woodland California. If you don't have any formal training or experience it is a good place to start. They also have an informational short course on opening a brewery. Let me know if you are interested. Email me at tjflanagan@covad.net

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Do continue!

Postby lathe » Tue Jul 02, 2002 4:18 am

Please feel free to continue this conversation here. This is an often asked question.

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Step #1: You are NOT brewing for you and your friends !....

Postby Mesa Maltworks » Tue Jul 02, 2002 6:09 pm

Although this sounds horrible, it is the truth !

Unless you have enough friends to patronize your brands or/and pub to cover the investment and operating expenses, you will have to discover what your local (pub) or regional (micro) market can supply in the way of reliable income. This means you are no longer brewing to please yourself alone.... you must please others that may not initially have your enthusiasm, passion and understanding of craft beer.

To determine the reality of your assumed potential, market research must be used in order to discover where your product line(s)/offerings may or may not fit within the target market you have defined.

You need to QUANTIFY the potential market for your product (be it a pub or micro) and then factor it down to what you can reasonably expect given the resources you can allocate. Going through this stuff and producing figures that are meaningful and realistic is very hard and painful work. But... remember, above all it IS A BUSINESS that has to thrive on net income, not simply great beer, passion and "the feeling that" it would work. It is much better to spend the time and money up front to determine whether your concept is tenable or not. In the case that you cannot make the numbers work (DON'T FORCE THEM TO WORK!), you will prevent much greater losses such as personal assets (home, car...), your credit worthiness.. etc...

Remember... you are not the only one in the picture... any other investors, your family, your friends and your employees involved in the venture have a stake in the outcome as well ! As an ethical business owner, you owe it to all stakeholders in the business to ensure that the business is funded sufficiently to carry your operation through to the break-even point. Lack of proper start-up and carry through capital is what kills most new ventures, particularly restaurants, brewpubs and micros.

I know this takes away the "gee wouldn't it be nice if..." aspect of the thought, but again, this is BUSINESS ! That is why we call it "work" not "play".

As an example of what kinds of info can be discovered through marketing research, here are some current issues that are significantly impacting the current micros that would have to be factored in by anyone considering entering into that segment of the business:

1) Malternative sales are stealing customers BOTH from the import and craft brew category. The reason is that due to the pricing similarity among these segments, they are positioned as premium products to the market. How this leads to more sales is via a marketing driven "push" approach.

The wholesale cost of malternatives is very close to that of macro-brews, but they re-sell at a premium at retail. (ie... more profit per unit sold) If you are a business owner, this is a no-brainer, so you will tend to push this product more heavily than any others with which it competes. The is how the imports and crafts are loosing sales. This then comes full circle back to the producer, who upon noting the large sales volumes, increases the national advertising which eventually creates a "pull" situation where the customer asks for it. It is this cycle that those without huge marketing budgets cannot win against. So the key point here is... differentiate your offerings in a way that you offer unique benefits to the consumer that only you can provide to meet their needs. Once again... market research, if properly done, will aide greatly in assessing how this might be accomplished.

2)Shelf space is difficult to get, let alone the proper shelf space (READ REFRIGERATED!). In most markets, there are many products available to retailers. Preference will ALWAYS go to those producers who either outright pay them for the shelf space, co-op or fully pay for all advertising, agree to unconditional buyback provisions, or perform inventory management,product rotation or point of sales (on-site promo stuff) in support of their brands without the retailer's involvement.

Here again, if you lack the budget, you can't win this one. The lowest cost way to get attention on the shelf if you don't have an adequte promo budget is to differentiate the package. At least this way the consumer stands a chance of noticing your brand among all the clutter of six packs and point of sales items for other brands. This reality points out that further market research would be required, ie. you would have to determine what gets your target market's attention among the present offerings which, hopefully, would lead to ideas for package design(s)that has/have the potential to effectively compete for awareness that can be harnessed to induce the trial of your brand. Then you have to keep the customer.... but thats another long story !

3) Most markets are either saturated with choices among beer brands or are pairing down their offerings. A number of markets have had large store involvement in craft brew sales in the past, but have grown wary of craft brews due to the many brands that have come and gone, with many leaving retailers with unsaleable product and un-met commitments. Other failed breweries either lacked education in and knowledge of proper quality control or let their QC lapse until they finally went out of buisness due to declining sales. This reality was, unfortunately, detailed in a second page Wall Street Journal article that ran recently and probably scared a number of potential investors that were interested in funding micro start-ups.

Now on the Positive: Magic can happen where you are able to discover that there is a sufficient market for your products that is presently underserved and also allows you to pursue your interests in beer as well. Most likley, the micros/pubs you revere fit within this category if they are over 5 years old. See what has made these guys survive and see if you can recreate their successes using your concepts.

I'm sorry if this ends up raining on anyone's parade, but I have experienced this either vicariously or through my own involvement many times over and would like to help others avoid any forseeable pit falls. I ended up going a bit overboard here, but that is proof there is alot to think about.

If requested, I can continue this topic in the directions that are of particular interest to the postors.

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The nasty of business

Postby Freon12 » Tue Jul 02, 2002 6:59 pm

Mesa is correct, it is a business. I know about the operation of one.(Technology not brew pub).
The hardest part is surviving 1 year. You make it 1 year and your 50% better than most other resturant upstarts. That's right, resturants/bars(pubs/micros) fail at a 75% rate in 4 years! Let me name- Circle V, Wildcat brewery and Barley Coast as examples. Employee's cause some to fail by stealing or not showing up at an alarming rate. Not knowing exspense/debt ratio and cash flow forcast(which will be negative) will kill a new business. And as Mesa pointed to, cash, underfunding. Quality of product-Beer is bad=business is bad. A nameless micro has glassware with soap residue from the fancy dishwasher that caused major market recovery problems for them. Market, competition like Rock Bottom Brewery, Alcatraz Brewery, Etc.


Accounting and taxes play a real key role as well as the ABC regulations and licences(zoning blah,blah,blah) missing a sales tax payment, ugly.(and that's only a State level offense).

I won't even mention the cost of liability insurance involving alcohol. Workmans comp. and matching payroll taxes. Whew!

I agree that we want to point out the down side because if after you read all this and still what to do it, well, O.K. Go for it!
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Marketing Report

Postby cajun » Wed Jul 03, 2002 7:09 am

Do you recomend getting a marketing report done by a professional firm (if so, what kind of firm would do this? What would a reasonalbe price be?)

If I chose to do this myself, not having an MBA, or having done any other marketing reports, whould I be taken seriously?
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#2: When doing market research, look first to secondary sour

Postby Mesa Maltworks » Wed Jul 03, 2002 8:57 am

You can do the basic demographical analysis as long as 1) you have defined your target market (ie... males, 35~45, white collar employment, income level 45~75K, caucasion, college educated... etc...) and 2) have access to a university level library with a marketing resource reserve.

You need to look for the most current demographical statistics guide that contains the population to which you plan to market. This data needs to be broken down to the city and county level. This is how you can define the areas that contain the individuals who would be most susceptible to your message.

A common misunderstanding of the target market concept: you should not define your market like "males and females, ages 27 to 60, all income levels... etc.". You want to make a VERY narrow range such as that which I illustrated above. Why did I pick those specific demographical dimensions? (not a complete list) The reason is that I am aware that that range has STATISTICALLY been proven to contain the consumers for craft brewed products that also have the most chance for adoption and repeat purchase. By targeting a range like that, you are hedging your bets that you will attract the most desired and likely consumer for your products. The use of narrow target definitions will also later point you toward the appropriate media outlets to use as a vehicle that will have the best chance of reaching your targeted consumers.

Don't get the impression that you are excluding anyone with this line of analysis, you will also catch those that fall outside of the demographical specs as well. The majority of this group of "outliers" will be comprised either of those who exceed the income level specified or are among the aspirational group that want to identify with, or enjoy the same activities and possess the same preferences as those that are within that income level.

Once you have defined your ideal consumer, look up how many of those consumers are residing in the counties that you wish to serve. Then, choose those counties with the most potential target consumers and drill down to the city level to see where they are. Select those consumers within the closest radius to your operations and total their numbers. Given this number, ask yourself if you feel you can afford to invest the resources that will be required to expose these people to your message. If unsure of how much this might cost, consult your regional newspapers, radio and TV stations and any other potential vehicles for your message. Ask them to provide demographical reach and frequency statistics. Match up the target market definition to their statistics. It will be obvious which vehicles will be able to most effectively and efficiently target your ideal consumer. Then get ad rates from those vehicles for your budget. REMEMBER: with advertising and promotion, repetiton is the key to gaining mindshare among consumers. You need to see if you will be able to maintain the consistent delivery of your message long enough to achieve the desired results. Here again, the medias should be able to advise you about the duration required to meet your goals.

Now... consultants. If you go this route, MAKE SURE THEY HAVE SPECIFIC KNOWLEDGE OF THE CRAFT BREW MARKET. This market is a very specialized segment and cannot be approached as if you are Anheuser Busch or utilizing "template" or "textbook" marketing approaches. The pursuit of a marketing mix using these approaches will simply ensure that your money will be wasted. If you do hire someone, make sure they are not single facet... ie... former ad sales person... etc. These people only tend to know what they have worked on in the past and seldom are capable of coming up with new and unique marketing mixes. You need to retain someone that works for a full service marketing firm that can analyize your market based upon your specifications and industry segment that can produce a realistic plan that will achieve a unified approach incorporating all that you plan to accomplish early on and in the forseeable future. If this cannot be achieved within the budget you have set, you either need to re-allocate funds or not proceed.

If you do not feel that you are able to define your target market or/and perform the secondary research on your own, you can try to contact the marketing department of a well repected university in your area and ask them to perform this for you. This usually will be for a fee, but less than a full bore marketing firm would charge. BUT... caution... remember they represent academia, not reality. You would have to review their results for reasonableness and the lack of "template" approaches. If this is not possible, let me know, I may be able to do some of this for you. I'm not in the habit and dislike soliciting business across public forums, but if you need this done, we can talk about it. If this is something you want to investigate, E-mail me. (ericwatson@mesamaltworks.com)

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...and the heartache

Postby stumpwater » Wed Jul 03, 2002 2:33 pm

All of the above cautions are extremely accurate. I started a business and ran it successfully for eight years. It had started as my hobby and it turned into my lifestyle. The last two years in business were absolute heck. Afterall, I was so in love with my business, I didn't want to face the facts of it failing. I ended up exhausting a credit line to keep my business alive because of this thinking. When I finally closed the door, I found myself with a huge debt and monthly payment. Knowing when to call it quits on something you love is hard and if you want to start a business because you love brewing beer, be ready to have to make hard choices. Running a business is hard work, usually consuming 7 days a week every week of the year, often for small financial rewards.
Do not kid yourself. A very small percentage of new ventures actually make it. Having said this, I still think that you should follow your dream. Just do the math very carefully before you start. Friends of mine have succeeded in small business ventures and others have had the same experience as me. Really, do not jump into anything you are not prepared to walk away from.
Good luck, and if you have any questions about the practical parts of running a small business, let me know. I can try and answer questions about advertising, customer relations, banks and credit, bookwork out the wazoo and why you should hire accountants (afterall, business is really a fancy word for piles of paperwork everynight).

P.S. On a bright note, because of my financial situation and not being able to afford beer for 6 months, I finally cracked open the beer making starter kit that I had bought two years before. All the bad things ended up leading to a good thing and now I have a great hobby and about 15 batches of homebrew under my belt. Without such failure, I would never be able to enjoy such tasty success.
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Time amen

Postby Freon12 » Wed Jul 03, 2002 5:28 pm

And not to mention you now have the time to do this. Think of it as retirement.

S.
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Just a couple of other things for you to consider...

Postby Kerouac1964 » Sun Jul 07, 2002 1:58 am

As a former failed business owner I have a few other things to add for your consideration when starting up a business.
First, your startup is going to be a partnership, all partners should have full knowledge of the other's financial situation. My "partner" had debts that he did not disclose to me, and he essentially did not hold up his half of the monthly expenses. Consequently he went bankrupt, which essentially doomed the business, and then my personal finances fell like a row of dominoes. As a personal aside, I lost someone I considered a friend in the process.
A second thing to consider. Make sure you are physically up to the challenge and stress of long hours during your 1st year of startup. I attempted to start my business, while living and working with a serious leg infection. The added stress of a failed business, caused my health to decline, and my health slowly failed to the point I was near death with congestive heart failure. Thankfully I'm a full year into the road to recovery. It took an extended stay in the ICU, another 2 month stay in a specialized cardiac care hospital and finally a 2 month rehab stint for physical strengthening in a nursing home before I was able to go home. This health issue would obviously be pertinent to your potential partners as well. I would go so far as to run professional background checks on all partners/investors. Invite them to do the same. Best of luck! BTW, I don't regret my failed attempt one bit. I learned a heck of a lot about myself as a person under very adverse conditions.
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