Opening a Nano with Future Expansion: Site Selection and Other Questions

[nateo]

Sunk cost. The equipment will be 100% paid for up front, and I'm okay considering that a loss from the start. I'm then happy if revenues come close to meeting the ongoing costs of rent/mortgage, ingredients, utilities, etc.

I understand what sunk costs are. My point was they're still costs that need to be allocated to the goods you produce. If you redefine success to mean "I threw away a bunch of money upfront, but I'm making enough to cover my fixed and variable expenses now" then I guess that's fine, but I think that's a really strange way to run a business.

It makes a lot of sense if someone wants to start out on a smaller budget and not sink tons of money (personal, loans, and/or investor money) into a larger brewery without first putting their feet in the water. I would much rather spend $50,000 on a small-scale nano operation and then call it quits than twenty times that on a larger system and have it not work out.

Or, you could find a brewery you could contract brew in and focus your efforts on growing your brand to justify expansion in the future. That is a surer/cheaper path to actual success than an undersized nano and not being able to devote the time your business needs to grow.

As I've stated several times above, I'm not interested in this making a profit or even paying for any labor. If you want to call that ignoring costs, fine. I call that doing more of something I'm already doing on a larger scale where I have more production options, increase variability in recipes, and the ability to share my beer with the public.

If you don't want to make a profit why are you starting a business? The brewing industry is hard enough for brewers who can turn a profit. I can't imagine you sticking to it when it's year 2 and you've done nothing but throw good money after bad in a business that, by design, isn't profitable.

[ambrosiaales]

I understand what sunk costs are. My point was they're still costs that need to be allocated to the goods you produce. If you redefine success to mean "I threw away a bunch of money upfront, but I'm making enough to cover my fixed and variable expenses now" then I guess that's fine, but I think that's a really strange way to run a business.

They don't need to be allocated if I'm viewing them as in the past and not factoring into future decisions. Call those an "entrance fee" if you want. And it's not defining success as not ever getting those costs back. It's saying that those costs have already been incurred, and if the business is able to have revenues that exceed ongoing costs, then that's the goal and each penny of revenue beyond that goes toward expansion and/or repaying the original investment.

Or, you could find a brewery you could contract brew in and focus your efforts on growing your brand to justify expansion in the future. That is a surer/cheaper path to actual success than an undersized nano and not being able to devote the time your business needs to grow.

I would like to start a brewery to brew my beer and create something for myself, not to tell someone else how to brew what I want. There's nothing wrong with that, but it's not what I'm going after. I'm not dead set on "growing my brand." I don't see why that needs to be a huge focus. If it's a tiny niche product, I'm fine with that.

If you don't want to make a profit why are you starting a business? The brewing industry is hard enough for brewers who can turn a profit. I can't imagine you sticking to it when it's year 2 and you've done nothing but throw good money after bad in a business that, by design, isn't profitable.[/QUOTE]

Why does profit have to be my goal? I'm fortunate enough to have a job where I can work part time if I want and pay for everything I need, giving me free time to do whatever I'd like. I could sit around and watch TV, or I could brew beer. I think it's a lot easier to stick to something when I'm doing it because I LIKE it and WANT to do it, rather than putting far too much money in up front and being stuck. That's the whole point of the "proof of concept" that you dismissed. If I (or many other nanos, for that matter) start up small, enjoy it, and find a market, then there's room to expand. If things go wrong, not much lost. If I start too big, then that might mean continuing in something I don't enjoy just to stay away from disaster.

For the cost of a nano operation, some people buy a luxury car. Some people buy expensive artwork or renovate their house. There are plenty of ways to spend money. I would rather spend mine starting up a company doing something I love, hoping that I continue to love it and as a bonus make some money off of it someday.

Anyhow, this is now way off topic from the original post. I have questions about what I need to know now and what I should be looking for if thinking of eventual expansion. The point of this post isn't to re-hash whether nanos in general are a good idea, as there are dozens of other threads on that topic, and clearly opinions differ.

[Bainbridge]

In light of Russell's (Bainbridge) comments: I filled 14,000 12oz bottles in 18 months with a beer-gun and my awesome wife stuck labels on them. It was a massive undertaking. We did not bottle condition and shelf-life suffered for this because of DO. Even on the 4-head wine filler we used as an interim filler it was heaps of work and DO was still an issue. Today we can package with <50PPB TPDO, but this has only been possible after spending many, many dollars.

Well I think you cracked that nut there Chris! Finally opened a bottle of the Moonless Stout that you gave me when I visited back in March, on this Thanksgiving. Obviously a little age to it for being six months past date, but otherwise fresh as a daisy! Been meaning to tell you, this just reminded me, but well done sir. (Sorry for the deviation from the theme.)

[Brewtopian]

If you don't want to make money but want to brew beer why not just build a kick ass home-brew setup and give the beer away?

I don't think you're prepared for the amount of work running a brewery, even a small one is. The paperwork alone is more than most people would put up with in a month much less to do it at a loss.

As for contract brewing and Crooked Stave. Their wort is still being produced under contract with Epic and they transport it back to their space where they pump it into fermenters.

If I were you I'd find a local brewery and weasel your way into brewing a couple batches with and for them and get it into barrels. If you do this a few times you'll know if you're beer sells and you'll know if its something you want to do.

[ambrosiaales]

If you don't want to make money but want to brew beer why not just build a kick ass home-brew setup and give the beer away?

I don't think you're prepared for the amount of work running a brewery, even a small one is. The paperwork alone is more than most people would put up with in a month much less to do it at a loss.

As for contract brewing and Crooked Stave. Their wort is still being produced under contract with Epic and they transport it back to their space where they pump it into fermenters.

If I were you I'd find a local brewery and weasel your way into brewing a couple batches with and for them and get it into barrels. If you do this a few times you'll know if you're beer sells and you'll know if its something you want to do.

I've never said that I don't want to make money. I've said that it's not the primary goal and I'm happy with the nano for a year or two breaking even without turning a profit. From there, if things are going well, I'm enjoying it, and the customer base is there, I would look into expanding, and from that point would fully expect and desire to have enough money for staff and a profit. The entire initial post was asking about expansion and making sure I wasn't putting myself in a bad place for future expansions with any initial decisions.

As for Crooked Stave, I'm fully aware of all that Chad is doing and how they've operated. They make great beer, but that's not the route I'm interested in going.

[nateo]

I honestly have no idea what you're talking about when you say stuff like this:

I'm not dead set on "growing my brand." I don't see why that needs to be a huge focus. If it's a tiny niche product, I'm fine with that.

and then this:

The entire initial post was asking about expansion and making sure I wasn't putting myself in a bad place for future expansions with any initial decisions.

The market won't find you. You need to find the market. That takes time and effort. Brewing is more about marketing than making beer. Just look at all the successful breweries that make middling beer. To get back to your question directly, IMO you're putting yourself in a bad place for future expansion if you don't think marketing is important and if you don't want to invest the time focusing on growing your brand.

Also, this makes no sense:

I've said that it's not the primary goal and I'm happy with the nano for a year or two breaking even without turning a profit.

To accomplish your goal involves redefining what finance and accounting professionals mean when they say "breaking even."

It really sounds like you're dead set on this plan, so I'm not sure what kind of advice you're actually looking for, other than "Awesome plan, you're the smartest/bestest brewer and you'll do great. Attaboy champ."

[ambrosiaales]

I honestly have no idea what you're talking about when you say stuff like this:



and then this:



The market won't find you. You need to find the market. That takes time and effort. Brewing is more about marketing than making beer. Just look at all the successful breweries that make middling beer. To get back to your question directly, IMO you're putting yourself in a bad place for future expansion if you don't think marketing is important and if you don't want to invest the time focusing on growing your brand.

Also, this makes no sense:


To accomplish your goal involves redefining what finance and accounting professionals mean when they say "breaking even."

It really sounds like you're dead set on this plan, so I'm not sure what kind of advice you're actually looking for, other than "Awesome plan, you're the smartest/bestest brewer and you'll do great. Attaboy champ."

Not being focused on growing a brand initially and being in a position not to preclude eventual expansion are not mutually exclusive. Growth to a certain level isn't required, but it's not something to dismiss.

Marketing is not essential if you make great beer. There are plenty of breweries that have proved that. If a brewery needs to rely too much on marketing, its beer isn't good enough. That's my opinion on the matter, though it's not something I came here to debate. Through some initial replies here and private messages, others have offered constructive advice on the questions I did ask.

The "breaking even" I have been referring to is basic microeconomics. If revenues exceed variable costs, if firm continues to operate, at least in the short run, which is what I'm talking about. Use whatever finance or accounting terms you want to get to that same truth.

I don't care whether you approve of my plans. You obviously aren't a fan of nanos, as many aren't. There are plenty of threads out there on the wisdom of starting small, and that's not something that I asked commenters to re-hash here.

And not sure on what advice I'm looking for? Answers to the questions I initially posed on what makes sense to have from the start, and what can/should be done with expansion. Also, which outside advisors would be helpful to have from the start. Again, others have provided helpful advice here, and haven't had any issue locating the actual questions posed (hint: they were in bold) and providing helpful information.

Unless you have something constructive relating to the original post, that's all I have to say.

[Brewtopian]

There's obviously a million ways to own and operate a brewery and achieve "success" defined on your own terms. That being said though, marketing is critical to any kind of success despite individual terms. When I say marketing I'm talking big vision stuff. Its the name of your brewery, your logo, labeling, packaging, messaging, story and then once that's figured out its the stuff you do in the market. With a product that is largely package driven having a well defined brand through marketing is the only way you're going to get that guy to buy that bottle.

Craft beer drinkers are fickle and are way more interested in the next new thing than they are in the beer in their hand at any given moment. This creates a huge problem for brewers, especially brewers with limited capacity. Having a compelling story and brand identity can help overcome this. That is the sort of marketing that is necessary at this point in craft beer's maturing market. There are to many breweries out there competing for the same slot on a shelf and buyers know what's going to move for that first round but you may not get a second unless the brand compelling.

[ambrosiaales]

There's obviously a million ways to own and operate a brewery and achieve "success" defined on your own terms. That being said though, marketing is critical to any kind of success despite individual terms. When I say marketing I'm talking big vision stuff. Its the name of your brewery, your logo, labeling, packaging, messaging, story and then once that's figured out its the stuff you do in the market. With a product that is largely package driven having a well defined brand through marketing is the only way you're going to get that guy to buy that bottle.

Craft beer drinkers are fickle and are way more interested in the next new thing than they are in the beer in their hand at any given moment. This creates a huge problem for brewers, especially brewers with limited capacity. Having a compelling story and brand identity can help overcome this. That is the sort of marketing that is necessary at this point in craft beer's maturing market. There are to many breweries out there competing for the same slot on a shelf and buyers know what's going to move for that first round but you may not get a second unless the brand compelling.

Defining marketing that way, I totally agree. Interacting with customers, discussing the brewery's beers and ideals, and plans for the future are very important. I would not plan to do outside marketing other than through a website and social media. However, in terms of giving customers a good experience and engaging with them onsite, most definitely.

Currently, there are surprisingly few farmhouse-style breweries and breweries focused on local ingredients in the Midwest, especially compared to the East Coast and, to a lesser extent, the West Coast. This seems to be a bit of a void given the agricultural focus of much of the area. I have branding, bands, and plans that fit in here.

I also like the idea of being a brewery with a focus rather than one that makes every style imaginable. That isn't particularly common here, even though it's more of the norm in places like Belgium. With that said, I think havjng variability and a new and rotating selection for consumers is important to keep people coming back. I would plan to use a base saison and infuse with different fruit, herbs, and spices to offer additional variety. This is a necessity given the lack of loyalty among consumers and focus on new and "rare" offerings. To me, it's crazy that amazing beers like Orval and standard Jolly Pumpkin offerings are looked over simply because they are always available, but that's the current reality.

[Brewtopian]

With that sort of plan you might look at St. Somewhere or Anchorage Brewing for examples of how to do it. Both started small with boutique lines and instead of trying to capture local markets which weren't particularly large or craft-centric they elected to go with Shelton Bros. which is an importer. It may seem odd to go with an importer for a domestically produced product but it gave them both the ability to sell their product to a single customer who could then put it into as many markets as they wanted spreading a little bit of beer over a much larger area. There's downsides to this scenario for sure but not having beer sitting in your brewery waiting for a buyer is a pretty great thing.

[Floor Malted]

Background

(Actual questions in bold below for those who don’t want to spend too much time reading background info.)

I am looking to open up a 2-barrel nanobrewery within the next few years in a suburb outside of Chicago and, in the interim, am working to perform all the necessary diligence to that I’m ready (or as ready as I can be) when the time comes. I’ve read through all the nano posts that I can find here and elsewhere, and still have some preliminary questions.

First, as background, I’d plan to start out around 2 barrels, likely with Blichmann equipment, and would be focused on saisons, lambic-style beers, and other wild/mixed fermentation beers. Given that, my focus from the start would be solely on retail bottles sales without any distribution. Assume for the sake of this post that there are no questions about quality and I would have plenty of capital from the start and would only be relying on sales to cover monthly expenses after sales began. Aside from the small brewhouse, given the nature of the beers being produced, fermentation would occur exclusively in oak barrels. Eventually, once production picked up a bit, I would begin with weekend hours, serving house beers as well as other commercial saisons, lambics, Flanders Reds/Browns, and the like.

I have no direct experience at the professional level, though will be seeking at least volunteer opportunities prior to when I open up shop. My thought is that, at this stage, that wouldn’t be a hindrance given that I’d essentially be starting out with amped-up homebrew equipment on a very small scale, commercially speaking. Bottling at this volume would be doable with Blichmann Beer Guns, though of course a manual filler would be nice.

I would like to open in a location that will allow for expansion in the future. The initial 2-barrel system would serve a few main functions for me. First, proof of concept and dedication. Before sinking a lot of money into this, I’d like to ensure that it’s something I like doing professionally and can dedicate myself toward. Second, and somewhat-relatedly, time constraints. Before proceeding full speed ahead (at which point I would personally begin to work part time at my current job and potentially hire another brewer), I don’t have time to brew multiple times per week, distribute, etc. However, I would like to be prepared for expansion.

Questions

Space. Since I would like to be able to initially locate a space that would allow for a 7-15 bbl system, I’d be going with a space that would have plenty of square footage for such a system. Based on the information available on Specific Mechanical’s website and other sources, I’d also ensure from the start that the building would have the requisite electric, water, and similar capabilities. While the plan from the start is very basic, I don’t want to put myself in a poor position for future expansion.

For budgeting/planning purposes, are there certain things that would be used in a larger system that would be too difficult to install later and should come in from the start? Floor drains for the entire space, not just the small area that the nano system would take up? Large cold room (initial would be small given focus on bottle sales)? Something else I’m not thinking of? I’ve also thought about starting up further out away from Chicago in a more-rural area and building a space from scratch. Would this be significantly easier than a modifying an existing space in an urban area assuming water and the proper utilities were available?

Outside Help. From the beginning, I of course expect that I would need a real estate agent and an attorney to get things started. Given my lack of professional experience, would an architect and/or brewery consultant be wise to have from the start? Or is that really only an issue when putting in a bigger system? Once the bigger system would be going into place, I would determine whether I’d have the time/ability to continue to brew on my own, or whether I’d need to bring in an experienced brewer with a shared vision.

Thanks in advance.

Cheers,

Mike
- Ambrosia Ales

I would suggest finding a good commercial real estate broker. Find one that knows the local ordinances and zoning laws and understands what you are trying to accomplish. Breweries aren't often directly mentioned in zoning laws and sometimes it takes a little investigating. A retail outlet will complicate things so its good to have knowledgeable people working for you.

As far as building from scratch vs. modifying an existing space? It depends. If your only option is to rezone a house into a brewery or have a steel building put up, then go with starting from scratch. I've built out a nano brewpub in a space that probably should not have a nano brewpub it in. I will never do it again. A pain in the ass to build out. Even though we did not pay rent during the build out, the opportunity costs in lost sales was great. You need to weigh those costs in your decision making.

[ambrosiaales]

With that sort of plan you might look at St. Somewhere or Anchorage Brewing for examples of how to do it. Both started small with boutique lines and instead of trying to capture local markets which weren't particularly large or craft-centric they elected to go with Shelton Bros. which is an importer. It may seem odd to go with an importer for a domestically produced product but it gave them both the ability to sell their product to a single customer who could then put it into as many markets as they wanted spreading a little bit of beer over a much larger area. There's downsides to this scenario for sure but not having beer sitting in your brewery waiting for a buyer is a pretty great thing.

Thanks. No am definitely aware of how those breweries have operated. I know that Bob from St. Somewhere used to post on here fairly often. Prairie is another example of an American brewery going through Shelton, though their style offerings are a bit more expansive.

However, as far as I know, those breweries were designed as being production only. (Though St. Somewhere does small tours and tastings.). Jolly Pumpkin might be a closer model with their brewpubs, as my expansion plans would include a full beer bar and hopefully eventually a restaurant.

[ambrosiaales]

I would suggest finding a good commercial real estate broker. Find one that knows the local ordinances and zoning laws and understands what you are trying to accomplish. Breweries aren't often directly mentioned in zoning laws and sometimes it takes a little investigating. A retail outlet will complicate things so its good to have knowledgeable people working for you.

As far as building from scratch vs. modifying an existing space? It depends. If your only option is to rezone a house into a brewery or have a steel building put up, then go with starting from scratch. I've built out a nano brewpub in a space that probably should not have a nano brewpub it in. I will never do it again. A pain in the ass to build out. Even though we did not pay rent during the build out, the opportunity costs in lost sales was great. You need to weigh those costs in your decision making.

Thanks for the reply. I definitely plan on using a commercial real estate agent, and will seek out recommendations from all the other breweries that have started up in the area recently. I also have a lot of friends who work for the city and in zoning (and have been at least partially involved in brewery licensing/permitting), so I will certainly lean on them.