Startup in a "virgin" craft beer market (long)
For a while now I have been thinking of returning to my home country and starting a microbrewery there. After homebrewing in the USA for the past four years, I have been working extensively on my business plan for almost a year now. This was more due to a need of accuracy for myself and to make sure the economics of the plan will work. Add to the “normal” risk of starting a brewery, packing up and moving half way across the world makes me want to be very sure that I want to do this.
On a recent "vacation" to my home country, I used the opportunity to visit with some of the existing microbreweries. I also did some market research in the area where I was hoping to settle. One of the surprises was the huge difference in the retail mark-up between keg sales (200%) and off-site (35%) sales. For off-site sales one has to deal with additional costs for bottling although most of the microbrewers seemed to manually bottle or contract bottle their brews. My conversations with some of the local microbrewers indicated that their main problem was that retailers had no incentive to push the craft beers and cared only about achieving their mark-up. Whether this was achieved with craft sales or domestic macros, did not matter to the retailers.
Furthermore it would seem that generally consumers had very little exposure to craft beers and hence were very sensitive to costs i.e. cost was a limiting factor preventing a chance initial buyer to try his hand at something new. At my lowest breakeven wholesale price, I figure I am about 60% more expensive than the main macro and based on price, it did not look great in establishing the sales that I would require. Although this was fairly sobering to my lofty assumptions in my business plans, on my return to the States I started thinking that the initial pioneers in the USA craft brew industry must have gone through the same sort of issues. Hence my purpose of this post.
I would appreciate some feedback of the vast experience tied up in these forums on this issue. Questions that came to me include:
- What is the average markup from the craft brewer (wholesale) to the retailer in the USA? Many brewers do not / can not self distribute and this adds the extra cut for the middleman. How does this compare to 200% I am looking at back home?
- As much as I dislike the idea of a brewpub (I have no restaurant experience), it might be the better choice to make in my plans. Something simple like a Texas style smokehouse (my other hobby I picked up in the USA) combined with a brewery might work and be less expensive than a brew pub with a full blown menu. Any comments on the requirements on restaurant experience to be successful in a brewpub? Also any comments on simple style brewpub, i.e. ones without an extensive menu and the odds for its success?
- What advise would you have for someone trying to set up a microbrewery in what really is still a virgin market? Given the fact that one cannot even attempt to compete on price, what is required to win over that 0.001 percent of the domestic larger macro market to drive my ambitions of produce and sell 2500 to 3000 barrels a year given the usual limitations on the marketing budget?
- What suggestions to get the local retailers involved in pushing the beer? How does one get retailers on board and once they are onboard, how does one hook the customers?
- With the exception of one or two microbreweries back home, my impression was that most of the others had very weak name/brand recognision. What are characteristics of good brand names that will stick and propagate?
My apologies for this VERY long post – I did not want to break it into multi posts. Also I realize that a lot of this topic has been exchausted on probrewer.com, but since my circumstance are somewhat different, any feedback would be greatly appreciated.
Thanks for the great forums,
For private comments, please email me at email@example.com.