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Thread: Another Brewpub Startup Post...

  1. #1
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    Another Brewpub Startup Post...

    Hello everyone. I have been reading through the forums for a while now and first off I need to say thank you all for the education so far! Between this forum and my local homebrewer’s club, my knowledge base has grown exponentially. I’ve been homebrewing with my father for about 2.5 years and we’ve both read several of the typical books, but nothing beats hearing it from people who have done it.

    The reason for my post is to float my idea for a brewpub (yes… another Brewpub startup post… but please bear with me!) and get feedback… kind of a smell test so to speak. If anyone would ever been willing to discuss things further in a sort of an informal “pre-consultant” type of way, I’d be more than appreciative.

    So here we go…

    Market Information

    The Brewpub would be located in a southern/southwestern major metropolitan area (over 1.5 mil residents). The immediate market is currently served by two brewpubs. One is located in the art district, which is generally less affluent and demographically speaking would have a higher propensity towards American lager beers than my target location. I don’t know their production, but they have large (30 bbl) serving tanks behind the bar and what appears to be a large brewhouse. The other brewpub is located approximately 15-20 miles outside of the city in a suburb. This second brewpub uses a 10 bbl Bavarian system and from conversations with the manager only produces about 300-500 bbls per year (but they make very good brews).

    Also in the city, and in my target location, is a major beer bar franchise that carries ~75 beers on tap and another 150 or so in bottles at any given time. This would probably be my main competitor (although I’d like to think that we would be partners one another in the fight in getting people to drink good beer). I know the General Manager of this establishment, and they do VERY good business.

    My target location would be what could be considered the hub of major business locations (in my city, most major companies are located along a NW corridor rather than downtown) and where the upper-middle class population resides. Also in this area is a major university (enrollment of about 30k students), although most students do not live on campus (large commuter student population).

    Personnel Background

    Aside from homebrewing, I have no brewing industry experience – nor do I have any restaurant or bar experience. I’m an Economist working for a major oil refining company (which in terms of production processes isn’t that far from brewing – but I don’t count this experience as a plus). I have some exposure and working knowledge of chemical engineering – but not enough to dare to presume I know it. I have a good friend who is a chef with several years of experience in restaurant management who would have total control over the menu and restaurant operations. My role would be as President/General Manager. I would plan on hiring an experienced Brewmaster and a Bar Manager. My father (who would be a 50% owner along with myself) would serve as an “assistant” Brewmaster of sorts, as part of this idea came from our love of homebrewing and wanting to brew for a living. Appropriate control would be given to the head Brewmaster though. These 5 people would make up the brewpub’s management team.

    Business Plan/Projections

    My initial estimate was for $500k in start-up costs based on information from the Sound Brewing Systems website and the 2nd Edition of the Brewery Planner book by IBS. Based on what I’ve read in these forums, this may not be sufficient. Sound Brewing seems to always have a steady supply of used equipment, and my plan would be to source as much equipment from there as possible to get the highest initial capital efficiency. We had planned on an initial capital/debt ratio of 25% based on minimum SBA guidelines (meaning we’d borrow 80% of total startup). This also seems to go against the recommendation of people in this forum. Currently we have approximately $80k in capital raised, which is currently invested in the stock market and subject to those ups and downs. In the time frame I was considering (Fall 2008 start up was the “goal”), I’m not sure that raising any more than $150k is possible. Ideally, we would like to avoid giving up ownership of the brewpub and finance through debt, but that seems to go against the wisdom of this forum. Thoughts?



    My initial projections (which I’ve tried to be conservative on, but I could be daydreaming… this will be a good smell test) are for ~1000 bbls of sales in year one, eventually ramping up to 2,000 bbls in year ten. (I’ve assumed an inverted U growth curve, with the peak (20%) in years 3-4 with years 7-10 growth of only 2%). I have beer sales accounting for 60% of my total revenue, with ~20% of revenue from liquor sales (which would be priced high as to guide people towards drinking the house brews) and ~20% from food sales. It appears that my food sales volume is much lower than suggested on this board. Does 1000 bbls of sales in year 1 sound too optimistic for facility in a market of this size? Ideally I would build for capacity of 175-250 persons (bar, indoor and outdoor seating).



    Based on these volume predictions (1000 bbl in year 1 ramping up to 2000 in year 10), I would initially invest in a 15 bbl brewhouse based on brewery sizing recommendations from Specific Mechanical Systems. (2250 bbl annual capacity based on 3 brews per week).



    On the expense side, my single largest expense is of course for personnel, which I have at ~ 33% of total revenue. In my initial budget projection, I have modest salaries for the brewmaster and chef (~$30k) but include a graduated profit sharing plan. Since this is a start-up operation, that is the most logical compensation set up I could think of – but I’m not sure if a brewmaster would necessarily go for it. For part time staff, I have budgeted 5 bartenders, 20 servers, and 6 kitchen staff at appropriate hourly rates.



    My cost of goods sold for beer comes out to 4.8% which seems low given what I’ve read. I’m assuming that one barrel is 235 pints after accounting for loss, and that a bbl takes $40.00 to produce (in materials, not labor or energy). Selling pints at $3.50 a pop.



    What has me most concerned is that I show a rather healthy profit in year 1, which to me indicates that I may be overstating something, or missing a key cost component. From what I understand, profitability is most likely in year 2.



    -----------------

    If you have made it this far… thank you! I would appreciate any comment about what I’ve written above be it potential problems I may have, ideas to improve upon the idea, financing concerns, my projections, etc. I am an admitted novice… my experience is in business/project development for a large corporation – so the basic business aspect of this I think I can handle… it is the brewery/bar/restaurant operations that I’m new at!



    Thanks - Scott
    Last edited by Butcher Scott; 06-07-2006 at 06:59 PM.

  2. #2
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    Looks like you are doing your homework. The first thing I would say is that you are correct on your year one looking too good. I would doubt you will sell 1000bbls of beer in year one with 175 seats. Just off the top I would guess 500 bbls year one. (Does anyone else agree with this or am I off here?) First of all, you will be an uproven enitity and with your competition, you will need year one to prove to everyone you are solid and worthy of business. The other number that looks off to me is food. I would expect to see it the other way around....60% revenue from food and 20% from beer. What factor are you using for waste to figure cost of goods? There is alot of waste in the brewing process and across the bar too. An example is I kettle up to about 13bbls wort and at the end of the process (after boiling, fermentation, transfers, filtering,ect) I net 10-10.3 bbls. to sell. Then you need to factor in bar waste and shrinkage (no way around it, but you can minimize it). Your cost of goods at 4.8% is totally possible. You can even get it lower than that, I currently run less than 4.0% (with a silo and 98% of sales are over the bar including heavy discount programs we run to attract guests) and could even go lower if we stopped our 1/2 price growler fill days! Efficient process management is also very important. We don't cut corners on ingredients to get low COGS, just brew effeciently, watch our budgets, and minimize waste. Oh, and the silo malt price sure helps!

    You are on the right track, there are many threads that could go from here and endless hours of typing! Feel free to shoot me a private message with more questions.

    -Beaux

  3. #3
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    beauxman,

    Thanks for the response, I probably will be sending you a PM at some point.

    Perhaps I am going about making my financial projections the wrong way. I’m trying to build up logic to support a number for each of my income/expense streams, but it seems that “as a percentage of beer sales” approach makes more sense. I’ll have to go back and revisit.

    As for the food vs. beer sales – I guess that is what you see at your place? I was basing my numbers off a couple of publicans and websites, but I wasn’t sure. Do you think liquor/wine and merchandise sales could really count for the remaining 20% of revenue? Should I go with something like a 60% food, 30% beer, 10% liquor/wine/merch?

    I’m using 6.75% loss from spillage and “give away” (bar waste) on my beer and 5% on my liquor and wine – but I didn’t factor any volumetric gain/loss from the actual wort production. Should I ramp up my COGS by that factor to account for this? Does your sub 4.0% COGS take this into account?

    Thanks again beauxman – great information. I’m going to put together some more cases based on your information.

    Scott

  4. #4
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    Is 20% profit from beer standard for most places? I'm working on my revenue projections now, and I'm coming out with something closer to 40%. Is that unrealistic?

    Best,
    Ben Dooley
    www.oldcrankybrewers.com

  5. #5
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    The way we figure our cost of goods is by taking the total sales of our beer vs the total cost of malt, hops, and yeast. I bring up the process waste factor to help you figure out your cost per batch (actually producing 13bbls wort to net 10bbls). We also do period inventory of all beer, ingredients, and work in progress 13 times per year (every 4 weeks). We can use this information to track our COGS, shrinkage, effeciency, and product sales by categories. By doing this we have a constant picture of where we are and where are problems might be. Our standard waste factor for across the bar, foaming, ect is 3.0%. This does not account for any shrinkage from employees but I don't see it being an issue in our situation. We also run serving tanks to the taps and don't get much waste vs running kegs. If you are running long beer lines and have it all running from kegs, you will find a higher waste factor. If this is the case, use FOB stoppers in-line (www.micromatic.com).

    I think the 60% food/30% beer/20% wine/spirits/other is closer to reality. Of course, all situations are different and objects may have shifted during flight! It would be good to hear from other probrewer types to see what they do.

    Just a few nuggets for you to chew on...
    -Beaux

  6. #6
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    sales percentages

    I agree with Beauxman. We do about 65% food, 20% beer (500 bbls/year), and the rest is wine/spirits/retail/ coffee shop/ice cream shop (don't ask).
    I don't know what other brewpubs do, but (depending on your market of course) if you can do 1000 bbls and have only 20% of your money coming from food you are going to have either 1) VERY popular and very good beer 2) a very small or very bored kitchen staff or 3) very drunk customers or 4) very cheap eats. You need to remember that many people will spend money at your business not because you make the greatest beer in the world (too bad, right? ) but because they can get dinner and wash it down with a coke.
    We'd like to have everyone come in for a beer or three, but the reality is, today, that many people(not all thank goodness) see some brewpubs as a restaurant and "oh they make their own beer too-I guess I'll have whatever is the lightest"-but at least they are coming in, that's your first hurdle.
    ANyway, I have no startup experience so can give you no more than that. Good luck, I hope you set the worlld on fire.
    Matt
    Flossmoor Station
    South suburb of Chicago

  7. #7
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    Matt, thanks for the encouragement!

    From a business perspective, I'm quite please to hear this type of food:sales breakdown. I got 55% of revenue from beer sales from a consultant's website and had the same concerns you have expressed but was quite frankly willing to listen to the website since I am still learning and don't know any better! But 500 barrels is 500 barrels any way you slice it - and food revenue three times what we would make off beer is alot more attractive than only 1/3rd off what we make from beer!

    As an aside... you mentioned ice cream shop... do you guys make "beer" floats? A beer bar in Los Angeles I recently visited had them on the menu... I didn't try one, but the idea seemed interesting. I think the recommended beer float was vanilla ice cream in a Young's Double Chocolate Stout.

    Thanks again!

    Scott

  8. #8
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    Thumbs up beer float

    An aside re: the question about stout floats-Yep-it's on our dessert menu. Not many takers though. Tasty in my opinion.
    For what it's worth, we have an ice cream shop on the property that is in an old caboose (we've got the train thing going). Popular all summer, but probably still paying the cost of depositing it on our property

  9. #9
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    Do you have a copy of the May/June New Brewer magazine from Brewers Association? This issue lists production in barrels from member brewpubs and micros. In my brewpub planning, I was originally thinking sales would be in the 1,000 to 1,200 bbls. per year (170 seat establishment.) After checking the New Brewer figures for brewpubs in my area, I'm thinking more like 600 bbls. per year. The ones in my area range from around 400 to 800 per year.

  10. #10
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    It looks like my little baby is moving faster than I thought, as I now have my planned equity funding ($100k) in place. I plan on going to speak with banks in September or October as I am now putting the finishing touches on my buniess plan.

    Any of you experienced Vets willing to chime in on the following:

    Total Startup budget will be $500k. My big ticket expenses are $90k for the brewery equipment, $25k for a consultant and brewery installation, $40k for kitchen equipment and $125k for bar/resturant/kitchen build out. Does this sound reasonable? My goal is to find a building that was previously a resturant or a development that is build to suit to minimize build out costs.

    I've budgeted $6,700/month for utilities, any opinions on that figure?

    Thanks again for everyone's feedback thus far, it has been a huge help.

  11. #11
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    Some questions first, then some useful answers

    I would like to help you with your startup cost estimation. Before I can, some questions:
    - Size of the establishment in square feet
    - Number of seats
    - Style of food (pub grub, high-end Italian, mainly pizza, general SWest cuisine, breakfast, lunch, dinner, late night?)
    - Style of service (sit-down, cafeteria style, orders at the bar only, 4-table server sections, 10-table server sections?)

    Also, your startup budget may be missing the following (not a complete list):
    - Starting inventory
    - Advertising and promotion
    - Permits and licenses
    - Payroll prior to grand opening and post-opening
    - Working capital
    - Donation to ProBrewer.com (give it up to these guys - this is a good useful site)

    You can check out public companies that operated brewpubs, and review some of their statistics on food, liquor, average check amount, etc. But food at 60 - 65% is about right.

    Cheers,
    --CallerFromLA

  12. #12
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    Thanks Caller, I've sent you a Private Message.

  13. #13
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    Please don't take this as just being crass, but if you were the other members of your team, or you were the investors looking for the best possible President/GM, how would your resume stack up against other applicants for the President/GM job? Would your resume show restaurant GM or other business GM experience? Experience dealing with problem employees? Willingness to fill in when the dishwasher doesn't show up or snake the toilets when they overflow on Sat. night? If other people are hired to do that stuff, what will you do to justify your salary and are you the best person suited for that job?
    I bring this up for two reasons: Firstly, from a (especially start-up phase) business standpoint, what do you want your contribution to be in the business and is that the best possible fit for the sake of the business? I didn't understand from your post what exact duties you were not going to farm out and how your skills made you the best fit for what it is that you would do. I have seen way too many breweries fail because the idea person didn't have the day-to-day skills to efficiently execute an inherently failure-prone type of business.
    Secondly: It would be so much easier if it was all your own money...but these are all questions the bank will need to have hella good answers to....If they have to ask because your paperwork hasn't proved it, you will have an uphill battle. Banks don't care about your project-they have more requests for money than they have the money for. Perhaps their money would more safely be loaned to a new McDonald's or Starbuck's franchisee. How will you prove beyond a reasonable doubt that your project, numbers and key staff members are not just a good investment, but a better investment than another failure-proof Starbuck's?

  14. #14
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    Did you consider...?

    Hi Scott, I'm in the same boat as you...opening a brewpub. I'm doing mine in Japan, which has some pretty unique differences to the US...

    One thing in general that stands out to me is that you're considering a 15 bbl Specific Mechanical system. This is my brand of choice as well as I have yet to have tasted a beer I didn't enjoy made on one of their systems.

    I went and looked at a fantastic used Specific here in Japan, 10 bbls, with a great glycol system and fermenters. It was hardly used, great condition, and priced to sell...but it was just too damn big...

    Space is of course a problem in Japan, not to the degree you might find in the states, but even a metro area of 1.5 million in the US is still going to have some pricey square footage.

    Diamond Knot on the boards here has a 15 bbl Specific, it's a combi so it has less vessels than the one I was looking at (stacked combi saves a lot of room) and it is still housed in a big wharehouse space...far better than what you get in a prime retail situation usually. Something that big is going to cost you an arm and a leg every month in rent.

    Your estimates stated 3 brews a week at 15 bbls, at 3 weeks of processing time per batch, you're going to need a pretty fair amount of fermenters and bright tanks as well to maintain that kind of production...thus requiring even more space at more premium. I understand that's going to take some time for ramp-up to get to that level of production, but you might end up with some space problems on down the line getting into that amount of production.

    Just some food for thought, sounds like you have a lotof stuff pretty well threshed out, just thought I'd see if you considered the actual size requirement of a 15 bbl system and complementary tanks.

  15. #15
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    Moonlight,

    Thanks for the response and I don’t take it as being crass at all. You are absolutely correct that these are the type of questions that I will face from the bank and even members of my own team.

    I have zero experience in managing a restaurant or bar – admittedly, that is strike one against me right off the bat. I do, however, have experience in general project development and management for a major (Fortune 20) public corporation – not to say that those types of experience are interchangeable. Right now on this message board, any declaration of my willingness to “do the dirty work” (act as dishwasher, attend to overflowing toilets, etc.) will be nothing more than lip service. However, I will say my interests will be firmly aligned with those of the business – I’m not some high net worth investor taking a flyer on a potential high return… I’m an individual with a dream who is putting every penny he has into a family business. At least to me, that is the best indication of sincere intentions as I can think of. Does that make me the best candidate for President/GM? No, probably not. There are likely people out there who could step in from day one and do better than me at several metrics. However, I think the same is probably true of some executive of a macro-brewery stepping in and taking over any of our favorite micros. If A-B took over St. Arnold’s (just picking a brewery), I’m sure they could capture huge economies of scale, lower their cost of goods sold, and increase production by a factor of two. But the thing that gets people wanting to drink St. Arnold’s beer would be gone – the love that went into making that beer. So no, I can’t promise I’ll be the best President/GM, but I can promise that I’ll care more about the success of the company and the quality of the product/service than any other President/GM possibly could.

    I’m not sure if that answers the question or not – but my duties as President/GM will be both the typical defined duties (managing the supply chain, promoting the business, managing a staff, looking at the long term picture) as well as the ad hoc duties, like playing bartender, assistant brewmaster, dishwasher, server, janitor or doorman.

    As for fighting the uphill battle with the banks, I certainly agree with your perspective. Banks aren’t just waiting around to give me money – it is my job (as owner, President, and GM) to convince them that my business is a better investment than that Starbucks. My basic approach to this is to put together a sound, yet reasonable, plan and then have to show how *I* can make that plan work. Easier said than done, of course. But of course, that’s why I’m here at the ProBrewer message boards, getting advice from people like you, who have obviously done this sort of thing before.

    I’d like to hear your opinion on what makes a good plan, or your approach to selling a bank on a project that, at least on the surface, isn’t a homerun like a neighborhood Starbucks. I will also say that I feel like I have a *slight* advantage going in, in that I live in a metro area of 1.9 million people that is served only by 1 brewpub on the (demographically speaking) wrong side of town (which is far way in sheer geographic distance).

    Thanks again for the feedback,

    Scott

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