Contract brewing margin?
I could use some good advice here :
I'm negotiating with a local brewery, about brewing my brand at their facility.
I got a price offer which in my opinion is way too high.
I say way too high because according to my calculations, they are asking a price per bottle which is 2.5 times more then their gross cost. In gross cost I calculated ingredients, bottles, labels, electricity, water and taxes. I didn't calculate work, rent, depreciation etc.
So to make it simple, if it costs them 1$ (gross) to produce a bottle, they offered me to buy it for 2.5$.
We are not in the states, so the taxes are "per liter produced" here and I'm
pretty sure I can estimate their gross costs accurately.
Is that a reasonable margin?
Would very much appreciate any info\opinion you can share.
I'd say that sounds reasonable. The rent, labor, fermentation capacity (time), and brew system are really what you are paying for with contract brewing which you didn't account for. The raw materials shouldn't be marked up at all (or very little) so that's not a good place to start with determining whether it's a good deal or not. You can probably work it out with the brewery that you provide all the raw materials and pay them a hard price per case or per keg produced. What you need to figure out is how much you are willing to pay per case to not have to deal with the stress or capital involved with actually running a brewery. $5-$7 per case seems reasonable.
One thing to understand with contract brewing is that it is VERY low margin. In my opinion it should only be used as a means to an end (supplementing a existing brewery that doesn't have enough capacity or launching a new brand). It will never make much money unless you are huge (boston beer co.), and in my opinion if you want a product to call your own you should put the blood, sweat, and tears into actually doing it all yourself. If it's just a side project for some fun and experience then go for it, but don't expect to make a living at it for a long time.
My experience with contract brewing was this...we used it to keep our own beer flowing while we went through an expansion where we couldn't brew for a few months. It was all kegged beer, we provided the dirty kegs, as well as all the raw brewing materials. They brewed with our ingredients, washed the kegs, filled them, and delivered them to our door. For that service we paid $45 per keg. One brewery did a good job but it was evident that some of the beer was rushed through it's cycle. Another brewery completely screwed up one of our beers, and it was obvious that no care was taken at all quality wise (all the kegs were 2/3 full and tasted like iodophor residue). Obviously we didn't continue with them but the point is to make sure you know the place doing it is quality, and make sure you know enough about commercial brewing and beer to be able to identify problems, confront the contract brewer about it, and fix it. That's my two cents, I'm not a big fan of contract brewing, but as i said, it can be a means to an end.
Thanks for sharing your info chaser!
Beltway Brewing Company
Contact Beltway Brewing Company to see what they could do for you:
margins for contract brewing stink. Remember the brewer has to make money too. Ive been doing it for way too long and with too many brewers