Small Brewery doing just Sour/Wild

[Bbump22]

Innoculating i n the bottle?! That would scare me the most. Possibilities include, exploding bottles, excessive or undercarbonation. Nothing happens. Inconsistencies across a batch. What do you do if they dont carbonate? Open them all and redose? Ask New Belgium about that as it happened to them in the early stages of La Folie.

Ditto that!

[nateo]

From a business standpoint, this is a really easy question to answer: Calculate the NPV of the projected OCF for an all-sour brewery, compare that the NPV of offering a range of "regular" beers, compare that to how much money you'll make if you sell all the equipment and open a craft beer bar, and compare that to how much money you can make if you sell all the equipment and the building and get a regular job.

Sunk costs are never relevant to decision making, so it doesn't matter that you've bought the equipment already.

[MashHead]

Sure, sour beers are very popular right now but they are still excellent beers. Excellent beers will always get sold. They key is to make excellent beers!

I think it's definitely possible. You just need a solid business plan, deep pockets, skill and a lot of passion! You will tie up a ton of money in beer while it's in the barrels. You will spend a ton of money making sure the barrels are stored under the right conditions. And when it's time to blend, will you have the guts to dump a barrel or two?

It will probably take some time to actually make money but I believe it is possible.

There are a few inspirational breweries you should look at for inspiration Russian River, Jolly Pumpkin, Jester King, Anchorage Brewing, Crooked Stave Artisan Beer Project, The Bruery. Some of them have done really good interviews on The Brewing Network and on YouTube.

[Mobtown]

Sours are a secret niche

I travel a lot around the US visiting every brewpub and brewery in my path doing research to open a small brewpub and last week took me to Portland, Oregon. I visited many places in the three days and without a doubt one of my new favorite places possibly of all time was the Cascade Barrel House. The specialize in Sours with Brett and Lacto but not sure about wilds. The beers were fabulous and so completely different than the IPA's of the area that I went back the next day. During the two visits the place had a very good crowd mixed old and young and seemed to be a well established and successful place. One important note is that they do also serve non-sour beers such as IPA, Porter, etc for balance especially given the fact that most of the sours were over 10% ABV. I realize Portland is a different kind of beer town but I believe that the business model can be very successful if done correctly.
Cheers

[tariq khan]

Small Brewery doing just Sour/Wild

[QUOTE=nateo;97778]From a business standpoint, this is a really easy question to answer: Calculate the NPV of the projected OCF for an all-sour brewer.


Uh... what would that be in layman's terms ?

[nateo]

Uh... what would that be in layman's terms ?

Sorry for the jargon. Here's a quick rundown. OCF = operating cash flow. NPV = net present value. NPV is used to determine the net effect a plan will have on the value of a firm (developing a new product, investing in plant and equipment, discontinuing a division, etc.) NPV is the best tool to use to estimate the profitability of a project, and is the most widely-used analysis in corporate finance.

There are three types of business activities, operating (the "business" part of the business, making and selling beer, in this case), financing (getting cash for the business), and investing (purchasing assets, like plant and equipment T-bills, etc.) The OCF is just the cash flow from operating activities.

You may see more than one definition for OCF, and there are a few ways to find it. It's basically Sales - COGS - other (operating) expenses - tax. Or you could start with Net income, and add back depreciation and interest expense, since the former is a financing activity, and the latter is a non-cash expense. We only care about operating cash flows right now.

The NPV of the cash flows is the sum of the present values of each cash flow. A present value is a way to discount a future nominal dollar to what the real value of that dollar is. A dollar today is worth more than a dollar tomorrow. Inflation is probably the easiest way to see this relationship, but it also reflects opportunity costs (the amount you could have made in other investments).

The appropriate discount rate is usually at least the weighted average cost of capital (WACC) for a firm. The WACC includes the cost of debt and the cost of equity. The cost of debt is easy, it's just the effective interest rate. The cost of equity is a longer story, so I'll leave that out for now.

Risk is also an important factor. Buying T-bills is much safer than buying a brewery. The discount rate applied to a brewery project should be at least the WACC, but a higher discount rate is safer.

Here's a hypothetical example. You spend $1m on equipment that will be worthless in 5 years. In one scenario, you make $100k per year for 5 years:

(Time) (Cash flow)
Year 0 = -1,000k
Year 1 = $100k
Year 2 = $100k
Year 3 = $100k
Year 4 = $100k
Year 5 = $100k

You invested $1000k, and you made $500k. So did you lose $500k? NO! You lost $620,921 if the WACC was 10%.

Y0 = -1,000k
y1 = 0
y2 = 50k
y3 = 100k
y4 = 150k
y5 = 200k

You invest $1000k again, and you made $500k again. This time, since the income started small, you lost even more than before. NPV = -656,909.

Projects with negative NPVs should always be rejected. For mutually exclusive projects, you should always take the one with the highest NPV, all other things equal.

So, why should anyone care about this stuff? It's not enough to just "break even" in nominal terms. You have to pay interest on loans and/or dividends to investors. It doesn't matter if you'll make money 10 years from now if you go out of business in the meantime. Cash flows far in the future are the riskiest, because they're hardest to forecast, so they should be discounted the most.

You can make these calculations much more complex, for instance if you know after 5 years you'll need to upgrade equipment, or something like that.

[populuxebrewing]

You have to pay interest on loans and/or dividends to investors.

Not at the OPs scale. He stated that the building is paid for and the equipment is at hand. I suppose it's possible that loans were taken out for those things, but I sure hope not. Getting a loan 1st and then asking ProBrewer if it's feasible does not sound like a good idea...

As for the whole "you can't be successful as a nano", I call BS. It's like telling a kid to put down that guitar and learn accounting because your band is never making it out of the garage.

[nateo]

Not at the OPs scale. He stated that the building is paid for and the equipment is at hand.

In the OP's case, the discount rate would be the opportunity cost of not making other investments, which would be at least the T-bill rate, but the market rate of return would be a better value to use. The amount of money "going out" at time 0 would be the current resale value of the building and equipment, that is, the opportunity cost of NOT selling it.

And even at the OP's scale, someone paid for the equipment and building. Does that person ever want their money back? If so, the cost of equity is a reasonable thing to consider.

[einhorn]

As for the whole "you can't be successful as a nano", I call BS. It's like telling a kid to put down that guitar and learn accounting because your band is never making it out of the garage.

Maybe mixing apples & oranges here...

There has been a lot of discussion about the possibilities of success at the nano level, and most on this site and those who are doing it agree that as a long term idea, it's not sustainable, but as a stepping stone to ramping up production down the road, it is feasible. One caveat: by also selling guest beers, your nano has better chances of success.

A nano wild/sour is probably comparable to a micro-wine label. Yes, it's do-able, but bring a lot of patience, know-how, cash and don't quit your day job too early.

[nateo]

As for the whole "you can't be successful as a nano", I call BS. It's like telling a kid to put down that guitar and learn accounting because your band is never making it out of the garage.

Is it reasonable to tell that kid to take guitar lessons if he wants to be a musician?

A brewery is a business. If you just want to make awesome beer in your garage, do it. But if you want to own/operate a for-profit corporation making beer, it's probably a good idea to know how successful businesses are run. In that case, knowing about finance and accounting sounds a lot like taking guitar lessons, to me.

[tariq khan]

Small Brewery doing just Sour/Wild

Maybe mixing apples & oranges here...

There has been a lot of discussion about the possibilities of success at the nano level, and most on this site and those who are doing it agree that as a long term idea, it's not sustainable, but as a stepping stone to ramping up production down the road, it is feasible. One caveat: by also selling guest beers, your nano has better chances of success.

A nano wild/sour is probably comparable to a micro-wine label. Yes, it's do-able, but bring a lot of patience, know-how, cash and don't quit your day job too early.

Agreed ! That makes a lot of sense

T

[Cambria Beer Co]

We are a 3 bbl Nano, doing quite well with the standard beers, Pale, IPA, Porter, Stout, and Amber. Right after we opened I made up 40 gallons of wort and soured it up, and serve it through the taps from corny kegs. It was about 11 months to get the sours right, so other beers will need to be served to keep money flowing. We did the 40 gallons as a test batch to see how they would be received, and as it turns out they are well received. We only used Brett to sour it up.

Our next step is to get barrels and do some bottling. One thing i learned from the sour batch is that they are selling well amongst beer geeks and the curious alike. We get $5 for 8 oz pours, but selling these alone would have been suicide. 22 ounce bottle may just price your customer into a another bottle. When we bottle we will probably do 375 mL bottles.

What is my point? I dunno, just go for it, but I don't think at the level you are talking about sours is the way to go. In conjunction with others? Sure, but not as a sole source of cash flow.

[caseyjones]

Sorry, long time since I've checked back in . A lot of good feedback here and I appreciate it. I agree fully with having other beers in distribution to keep the business afloat while aging other brands. But I feel like these could still be wild beers. Why not a solid Saison w/ Brett, a Berliner, and a 100% Brett Pale Ale to start things off. Those are 3 beers that I've made successfully in less than 6 weeks. I agree that without having some quicker turnaround beers, this project would not be financially feasible.