With all the competition, is it still possible to start a new brewery? I hope so

[Haus]

Hey guys or gals,

I have been a long time lurker of this forum, maybe for like 5 years now and decided to finally post!

I am getting close to taking the plunge here in Texas. I have been planning a brewery now for a long time and have gotten delayed due to me finishing medical school and then residency. As I get closer to finishing residency and ready to be out on my own I finally have some free time and say no time is better than now to make this happen. My plan is to open a brewery with no plans to open a brewpub due to the fact that I do not want to own a restaurant. I have several family members who own restaurants and want no part of that aspect of the business.

When I initially wanted to start my brewery only a few guys in Texas existed and now I'm going up against a lot more competition. Now when I walk through HEB I cant help but notice the massive amount of craft brew out there. How do you guys feel about the market becoming saturated? I keep going back and forth between a 15bbl and 30bbl setup and wonder with so many large producers out there will I even be able to compete.


I don't want to sound negative but when I read these threads about people starting up a 7bbl brewery or less i just cant financially see how that makes sense. Maybe my business plan is way off but I cant see making any real money or chance of making money / being self sustainable till I get at least 15bbl.

Are you guys with a 15bbl brewery who recently started out having a hard time? What do you guys think? Anyone in Texas willing to chat?

Thanks guys


A little about my plans
My brewery will be located in a small town located right off a major interstate
I will brew on site and then have to distribute since I will be located in a small town.
Plans now are to start off with one full time employee and myself.
My costs including buying the physical building are in the 400k area

[a10t2]

Every market is different (and I know nothing about TX), but nationally, beer sales have been basically flat over the past decade. Craft beer sales are way, way up, year after year, but at the macro scale you're going to be taking those sales from someone else, not expanding the market. Whether that's true regionally is an important question you'll need to answer.

Generally speaking, a packaging brewery isn't going to be profitable with a 7 bbl cellar. A 7 bbl brew length and 20-30 bbl cellar might be viable.

FWIW, two full-time employees couldn't run any packaging brewery I've ever been in. At a bare minimum you're probably looking at a full-time brewer, full-time packaging tech, and full-time cellarman/floater. That assumes you aren't doing any of your own distribution and don't have a tasting room.

$400k is probably reasonable to get a 30 bbl up and running, excluding major construction and real estate. How did you choose your location? Why doesn't leasing warehouse space in a larger metropolitan area make more sense?

[Bainbridge]

A little about my plans
My brewery will be located in a small town located right off a major interstate
I will brew on site and then have to distribute since I will be located in a small town.
Plans now are to start off with one full time employee and myself.
My costs including buying the physical building are in the 400k area

Market Competition aside, let's takes a look at this. It's always a good idea to run what I like to call 'sanity numbers'. As in, if it sounds insane, it probably is.

It sounds like you don't intend to include a taproom, or if you do, to staff it with homemade, incredibly inexpensive, non-unionized robots. Or maybe you just never need sleep and can magically make more than 24 hours in a day, in which case "You're a wizard, Harry!"

So...no taproom, just production, 100% outside sales, let's assume a reasonable 1,000 bbls a year to start and play with some rough numbers. These are just back of the napkin kinda numbers, I wouldn't, you know, build a whole business plan off this or anything.

1,000 bbls / 1/2bbl kegs = 2000 kegs/year

52 weeks a year = 38.5 kegs a week

Self distributed. What can your van handle? Bout 165lbs a keg, so 12 kegs is just shy of a ton. So that's three vanloads minimum unless you get a big mean van. Pretty close to three full workdays of time too. Just to deliver. Probably two or three days to do the sales calls too. So one full time person's job right there.

But of course you have no accounts yet. Some will do a keg in a day, some a keg a month, just for argument let's say accounts average a keg every two weeks. So you need to line up 80 active accounts, all of whom buy regular 1/2bbl kegs. Are there 80 reliable accounts within a manageable drive that you can land around you? And then visit and keep in touch with them regularly?

You could get a distributor, of course. If you can find one that will take a new brewery with no reputation, no preexisting accounts, no supply chain set up, no sales staff, no brand value, and so on. And you'd need to sell 30% more beer to make up for their cut. So, no, no distributor yet.

Production.
15bbls x 10% loss = 13.5 or so average a brewlength.
1000bbls / 13.5 = about 74 brewdays a year. Or 6-7 ish a month. Three kinds of beer, double batching into 30bbl fermenters, one double brewday per week or so. 12 hours there. Not hard. In fact, seriously underusing the brewhouse. Buy a smaller one, or make more beer.

Can you keep it to one person's job though?
12 hrs a week brewing
40 kegs a week average so probably 3 hours to prep, rack, palletize and clean.
General cellar work, call it 5-6 hours a week.
Keg washing. 40 kegs, two-station semi auto washer, 7 minutes a cycle = about 3 hours.
Deliveries, cleaning, general shenanigans, easily rounds out a full 40 hour work week.

So it can be done, assuming no one ever takes vacations or gets sick and everything runs smoothly all the time always. In reality: no. There's a million things that will take up time. Meetings, friends and accounts showing up, phone calls, paperwork, payroll, orders, deliveries, not to mention endless events and promotions. Managing a brewery is a full time job in and of itself.

Money-wise you're looking at about, let's say, $300 gross income per barrel. So that's $300k to cover ingredients, salaries, mortgage on your building, gas, loans, and the 1000 other expenses that pop up. Can you make a go on that revenue stream?

Or you could put in a taproom. People will just show up at the brewery anyway, might as well sell some beer! Simple interior, maybe 50 seats, no food, just beer. Say you do 500bbls in the taproom and 500 wholesale. Now you're looking at about (500bls x $1200 gross + 500bbls x $300 gross) = $750k. More than double just wholesaling that same amount. And you don't have to deliver it! Which is why people have taprooms. This is also how people make it on smaller systems. You'll need more staff of course. We run a similar setup and need 8 employees to do it.

Point is, nobody who is not part of a team of industry veterans with tons of experience and a phonebook of pre-existing contacts (plus a lot of startup $$$!) can just jump in on a 30bbl and make a go doing only production, and very few people want to go that route anyway. Your taproom and local following keep the lights on, wholesale is where you grow. Nothing wrong with starting on a 15 if you're planning on growing in the future. Personally, I'd start on a 15. But but you likely won't be able to make it doing just wholesale and you certainly won't be able to do it with two people.

Once you've got a good product, built a following, and need to expand, get a good deal on a used 30bbl when the people with more money than sense start going under.

EDIT: Oh yeah, and there's that whole Safety thing. We try to follow a "Two is one, one is none" rule here. Something's gonna break, or someone could get hurt. So have a spare part, or person, around.

[Haus]

Thanks for the quick reply. Yes, every market is different and we all need to do our own assessment of what dictates a good financial decision. I posted the question after talking to a bank about getting a loan got me thinking. They raised concerns about the market being saturated and wanted me to "prove" that this would not be too financially risky from their prospective. I get that they want to make sure they get their money back, but this gentleman seemed to know a lot about the beer business and went on about how hard it is to turn a profit, how saturated the market is, and that they have been down this road before with a brewery and some winemakers and regretted it (yes this is a small independent bank). I showed him my numbers and business plan which silenced his concern for now but the whole experience got me wondering.

As for why I picked my location because its off a major interstate with >10k daily drivers driving by, I can get a location twice the size for what I can get in Austin, employee costs are lower, water costs are lower, my brother has a heavy metal fabrication business next door which will building parts for the brewery. The lease has not been signed just yet and I'm still hunting for alternative spaces if anything turns up.

[ChesterBrew]

Russell is 100% correct... A business plan that relies solely on distribution is speculative -- at best -- unless you already have an agreement signed with a distributor before doing anything.

I personally am starting small (3bbl) and just having a tasting room on-premises where we'll be able to serve tasters, pints, and (eventually) growlers, alongside t-shirts, etc., which is where the serious profit margins can exist. Getting into distribution agreements means you'd have to produce 3x the amount of beer for the same overall profit to your bottom line (assuming TX has the 3-tier system too.) Why sell 16oz to a distributor for $1.50 if you can sell it for $4.50 on premises and not have to worry about stolen kegs, delivery, an outside salesperson to work with distributors, etc.?

I'll admit it, I'm a control freak... but I honestly am not comfortable with the idea that I could do the absolute best job I possibly could and have my company reputation tarnished by dirty lines, poorly-stored kegs, etc., though no fault of my own.

Good luck! Trust your instincts...

[Junkyard]

With a taproom, a very small brewery can be sustainable. There are many out there.

[mashpaddled]

In Texas our market is only starting to get competitive with local breweries. You go to HEB and find a cooler full of beer but probably 75% is from out of state/country. Right now we are still very light in breweries per capita compared to say, Colorado or California. Less so in the major metropolitan areas, obviously, but even Austin, Houston and DFW have fewer breweries per capita than Denver, San Diego, and so forth. There's a lot of room.

I have some of the same concerns posted above. For what cost reductions you gain from being outside a metropolitan area you may eat back up in transportation costs and the expense of sending out sales staff (or losing your production time) to encourage bars/restaurants to pick up your product from your distributor. I am also not sure why you see 10k drivers passing your town as a reason why you generate revenue if people can't stop in your taproom to drink beer. You also need to find out whether any of the distributors are willing to pick up a brewery in your area for the volume you intend to produce. Texas allows self-distribution under a threshold and I am not sure the distributors are interested in competing in the market below that threshold.

[Bainbridge]

I do have to say, of the tourists that have come through my taproom this summer it seems like the Texans are most excited about their growing beer scene. (And good for them too!)

Haha, had one guy come in.

"Y'all make some good beer, but it seems t' me that people around here aren't really into the whole craft beer thing."

*I look at him like he's suddenly grown a second head.* "Actually, no. I totally disagree."

*He, stunned from unexpectedly being disagreed with:* "Well we have all these breweries opening in Texas and I'm just not seein' that sort of thing here."

"Well, I mean, we're currently in my brewery. But there are around 250 breweries in Washington right now. Only California has more. And we only have like six million people."

Texans...always gotta be the biggest at everything

[Haus]

Market Competition aside, let's takes a look at this. It's always a good idea to run what I like to call 'sanity numbers'. As in, if it sounds insane, it probably is.

It sounds like you don't intend to include a taproom, or if you do, to staff it with homemade, incredibly inexpensive, non-unionized robots. Or maybe you just never need sleep and can magically make more than 24 hours in a day, in which case "You're a wizard, Harry!"

So...no taproom, just production, 100% outside sales, let's assume a reasonable 1,000 bbls a year to start and play with some rough numbers. These are just back of the napkin kinda numbers, I wouldn't, you know, build a whole business plan off this or anything.

1,000 bbls / 1/2bbl kegs = 2000 kegs/year

52 weeks a year = 38.5 kegs a week

Self distributed. What can your van handle? Bout 165lbs a keg, so 12 kegs is just shy of a ton. So that's three vanloads minimum unless you get a big mean van. Pretty close to three full workdays of time too. Just to deliver. Probably two or three days to do the sales calls too. So one full time person's job right there.

But of course you have no accounts yet. Some will do a keg in a day, some a keg a month, just for argument let's say accounts average a keg every two weeks. So you need to line up 80 active accounts, all of whom buy regular 1/2bbl kegs. Are there 80 reliable accounts within a manageable drive that you can land around you? And then visit and keep in touch with them regularly?

You could get a distributor, of course. If you can find one that will take a new brewery with no reputation, no preexisting accounts, no supply chain set up, no sales staff, no brand value, and so on. And you'd need to sell 30% more beer to make up for their cut. So, no, no distributor yet.

Production.
15bbls x 10% loss = 13.5 or so average a brewlength.
1000bbls / 13.5 = about 74 brewdays a year. Or 6-7 ish a month. Three kinds of beer, double batching into 30bbl fermenters, one double brewday per week or so. 12 hours there. Not hard. In fact, seriously underusing the brewhouse. Buy a smaller one, or make more beer.

Can you keep it to one person's job though?
12 hrs a week brewing
40 kegs a week average so probably 3 hours to prep, rack, palletize and clean.
General cellar work, call it 5-6 hours a week.
Keg washing. 40 kegs, two-station semi auto washer, 7 minutes a cycle = about 3 hours.
Deliveries, cleaning, general shenanigans, easily rounds out a full 40 hour work week.

So it can be done, assuming no one ever takes vacations or gets sick and everything runs smoothly all the time always. In reality: no. There's a million things that will take up time. Meetings, friends and accounts showing up, phone calls, paperwork, payroll, orders, deliveries, not to mention endless events and promotions. Managing a brewery is a full time job in and of itself.

Money-wise you're looking at about, let's say, $300 gross income per barrel. So that's $300k to cover ingredients, salaries, mortgage on your building, gas, loans, and the 1000 other expenses that pop up. Can you make a go on that revenue stream?

Or you could put in a taproom. People will just show up at the brewery anyway, might as well sell some beer! Simple interior, maybe 50 seats, no food, just beer. Say you do 500bbls in the taproom and 500 wholesale. Now you're looking at about (500bls x $1200 gross + 500bbls x $300 gross) = $750k. More than double just wholesaling that same amount. And you don't have to deliver it! Which is why people have taprooms. This is also how people make it on smaller systems. You'll need more staff of course. We run a similar setup and need 8 employees to do it.

Point is, nobody who is not part of a team of industry veterans with tons of experience and a phonebook of pre-existing contacts (plus a lot of startup $$$!) can just jump in on a 30bbl and make a go doing only production, and very few people want to go that route anyway. Your taproom and local following keep the lights on, wholesale is where you grow. Nothing wrong with starting on a 15 if you're planning on growing in the future. Personally, I'd start on a 15. But but you likely won't be able to make it doing just wholesale and you certainly won't be able to do it with two people.

Once you've got a good product, built a following, and need to expand, get a good deal on a used 30bbl when the people with more money than sense start going under.

EDIT: Oh yeah, and there's that whole Safety thing. We try to follow a "Two is one, one is none" rule here. Something's gonna break, or someone could get hurt. So have a spare part, or person, around.

I have to say, I've never really considered a tap room but those ideas sound like I should at least consider it to maximize revenue. However, as someone else mentioned, even though the interstate gets a lot of traffic I question how many people would stop by to actually drink a beer and not just tour the brewery and accept some free samples or maybe buy a six pack. It does make me glad to hear that its working for you and the idea of selling for such a high price is enticing.

Your post brings up a lot of good points which makes me glad I posted on here. I think with my business plan I grossly underestimated the man hours that I would need to operate a packing brewery by about half. If my other financials are close to reality, this means that I will barely pull a profit if I end up going with a 15bbl system assuming that I distribute a certain percentage myself and use a distributor for the rest.

Another concerned that was raised lead me to realize that I need to also contact distributors to see if they would even take me on. The number I put in my business plan was from talking with some people in the industry who have done deals with distributors before. But, they are much larger than my planned brewery. If I do end up selling such a small percentage of my beer via distributor, then it may be very difficulty or impossible for me to get one to take me on as a client. I definitely need to get this figured out.

I am glad to hear that some people think that their is a lot of room for growth in the craft brewery market in Texas. I know that some people may not understand why I want to start up in the location that I chose (think of a town the size of Shiner, just located directly on an interstate). Financially I need to adjust my business plan over the next couple of days as I mentioned above. In the end, it might make sense to open in a larger, metropolitan market but for now I'll see if I can make my original plan work with the adjusted numbers. Luckily I have not singed any contracts just yet and still plan on doing up to 6 more months of prep work before starting throwing serious money down and signing leases.

I contacted someone from HEB today about eventually getting on their shelf and will be interested to see how that conversation will go. Tomorrow I plan on starting to contact some distributors here in Texas to see if they will even touch someone as big as I plan on starting out.

I'll be sure to keep you guys updated and answer any questions you may have. Thank you all for the helpful thoughts so far. I'm finding them all very helpful!

[Brandjes]

I started my brewery because I love to brew. What I have found is that I get as much enjoyment from talking to my customers in the tasting room as from brewing. If I were only a package brewer I think I would have lost the drive by now.

[Bainbridge]

There's a huge element of "If you build it, they will come..." in craft brewing.

I wouldn't worry about starting it off the main drag. Breweries have always sought cheap rent. And there's the "big fish in a small pond" thing to consider. We're on an island with 25,000 people. Across the bridge from us is a town of 10k with four breweries. There's about 250,000 people in our county and 10 breweries. Across a ferry ride is Seattle, with easily four dozen breweries. The greater Puget Sound Region, population about 3 million, has about 80 breweries in it. The point is that if you give people a place to come enjoy your beer, to meet you all, to see the gear, to get engaged and become part of it, part of your brewery, part of your town, part of you, they will come. If you can translate that to bottle and keg form, you're golden. But I think from a startup point, it's hard to get that following with just production. That's why a lot of contract-only brands stand out as sort of disingenuous on the shelves. Not nearly better than the real thing.

[Junkyard]

I have to say, I've never really considered a tap room but those ideas sound like I should at least consider it to maximize revenue.

I would suggest paying more attention to profit margin, after all you are starting the business for it to be successful right.

I'll lay it out for you.

Profit margin flow chart from worst to best

Bottles and cans < kegs to bars< growlers < pints out of a taproom

And these aren't just small differences in profit either, we're talking hundreds of dollars difference per keg.

If you want your business to have a better chance of success. I would suggest a taproom.

[Thirsty_Monk]

I would suggest paying more attention to profit margin, after all you are starting the business for it to be successful right.

I'll lay it out for you.

Profit margin flow chart from worst to best

Bottles and cans < kegs to bars< growlers < pints out of a taproom

And these aren't just small differences in profit either, we're talking hundreds of dollars difference per keg.

If you want your business to have a better chance of success. I would suggest a taproom.

In my experience it goes like this:
Kegs to the bars < Cans to retail < Cans and Growlers in the taproom < Pints in the taproom.

[callmetim]

In my experience it goes like this:
Kegs to the bars < Cans to retail < Cans and Growlers in the taproom < Pints in the taproom.

Depends on packaging:

22 oz bottles have a much higher margin than 12's so for us its wholesale kegs< wholesale 22's. We do no retail sales and will do about 250 bbls this year and that supports 2. self-distribute and 99% of our accounts are 200 miles from the brewery. Leos and I are competing to see who can overload their transit connects and I think I am winning by a large margin. I have had over 2200 lbs several times and the wheels haven't fallen off yet.

[Bainbridge]

Hah, I put 12 50L's in the bed of my Ranger once. Fun fact: they'll fit, but your tires'll look like they're about to hit critical mass. So we took four kegs out and got back at the load rating.

One thing to think about when considering profit margins is the investment in cooperage, both in the cost of kegs but also the time to transport, clean, fill, and deliver. Once that's taken into account, usually your profit's higher on 22's. Think of them as itty bitty kegs that go away and you never have to deal with them again! See e.g. Portland's Gigantic Brewing. Van and his crew went straight for bottles and while you can see kegs from time to time, it's not their main focus at all. As we just dropped another $10k for more kegs, bottling is looking more and more attractive...