The following article was posted on Feb. 18, 2015. It has been reviewed and updated as necessary by the ProBrewer editorial staff.
So far, all of the considerations we have discussed have centered on the expense side of the ledger. But there is good news: Good beer is worth money. And, once you have navigated all the red tape to get licensed, scavenged the money to build a brewery and actually brewed some beer, there are people out there willing to pay you for your efforts.
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But there are still many choices you have to make. The biggest is who is going to be your customer – the consumer across the bar at your own taproom or the retailer at a pub, bottle shop or growler station.
And, depending on that choice, you must now don a new hat – either publican or salesman.
If you decide the only way to make your plan make economic sense is to get the full retail markup on each pint, you have to be prepared to enter the service industry. The upside is that you will maximize your income from each of the kegs you produce – about three times what you would make selling a keg at wholesale. The downside is you will have a new list of expenses and regulations to deal with.
The simplest form of retail is an on-site taproom. This could be as simple as a bar set up in a corner of your brewery where you can dispense pints and fill growlers/crowlers (if you so choose). Your state or municipality may require some type of food service. And, you may be able to partner with one or more local food carts or trucks to provide food at your tap room. State laws also vary on whether you will be allowed to serve beers from other breweries in a tap room to help stretch your supply of beer. Your state liquor licensing authority will be able to tell you what is and is not allowed in your area.
If you decide to do a full brewpub (serve meals), your state may allow greater leeway in serving guest beers and wine – and even liquor in some states. This can increase your customer base from hard-core beer lovers to their friends and family. But it comes with the added expenses of building and operating a commercial kitchen and competing in the local restaurant market. Brewpubs often succeed or fail based not on their beer, but on the total restaurant experience. If you decide on a full-scale brewpub, it will be vital to have a seasoned restaurant professional as part of your management team.
Whether you do a simple tap room or brewpub, some of your customers will want to take some of your beer with them to go. So that brings up the Growler Question. For a small brewery that can’t afford a bottling or canning line, they are an inexpensive way to get beer outside of your taproom and in front of more potential customers. However, concerns over sanitation of growlers, carbonation loss when filling, transportation and storage make some brewers cringe. There are counter-pressure growler filling machines available, but the cost is high. Some breweries set up “growler exchange” programs, where customers bring in their used growlers and swap out for a brewery-cleaned, sanitized and counter-pressure filled growler.
There are also mobile bottling and canning companies that will come to your site and package your beer for you.
If you are planning to sell your beer at retail through a taproom or pub, location becomes more important. The cheapest rent is often in industrial parks, but these do not make the best retail destinations. Downtown spaces offer more foot traffic, but the cost per square foot is higher.
Adding a taproom or pub also brings an increased labor cost. You will want to take this cost into consideration when calculating your potential profit on beer sold at retail.
All of these factors – plus your materials costs, brewing labor and taxes – must be considered when you determine the price you charge for pints, pitchers and growlers.
Some brewers decide to forgo the additional profit – and expense – of a taproom and simply sell their beer to local retailers or a wholesaler. You will have to decide for yourself which route makes sense for your situation.
If you decide to sell at wholesale, you should check your state’s laws on self-distribution. Laws vary on the size of brewery and the type of brewery that can self-distribute. Some states place a cap a on the number of barrels a brewery can self-distribute, That should not be a concern for nano brewers, but is something to note if your plans are to grow beyond nano status.
Self-distribution will allow you to make more per keg because you will, in effect, get the distributor’s 24 to 28 percent markup on your kegs and packaged beer. You won’t receive the full retail markup, but you won’t have to build and staff a taproom or pub.
If you go the self-distribution route, you must be prepared to become a salesman for your beer in an already crowded market. Just because your friends all loved your beer when it was free, doesn’t mean publicans and bottle shop buyers are going to love it more than the many other beers they have offered to them on a daily basis. Be prepared for some rejection and, perhaps, some helpful – and less than helpful – suggestions. Make sure you budget for the samples you will have to give to retailers in order to get placements. If possible, counter-pressure fill bottles and make a simple label for each style that lists pertinent information such as alcohol content, sizes and prices of kegs and contact information.
You are likely, at first, to get mainly placements on rotating handles, which carry no commitment of future sales. But, if your beer sells well, you may work your way into the regular lineup. If that happens make sure your production can meet the demand of any regular handles you may land. The first time a pub runs out of one of your beers and you have nothing to replace it with, you are likely to lose that handle.
Try to make yourself available for brewers nights and beer festivals that will increase your exposure in your distribution area. Consider having inexpensive point of sale materials and merchandise, such as hats, shirts, stickers and pint glasses that can drive brand awareness.
The time may come, however, when you can no longer spend the time needed to sell and deliver your beer to outside accounts. That is when it will become necessary to partner with a distributor. Most nanobrewers are too small to attract the attention of a major wholesaler. But there are a number of smaller distributorships opening across the country that are eager for new and promising brands.
Choosing the right distributor is a very important task, especially in states with franchise laws that make severing ties with a distributor harder and more expensive than a divorce. You will want to make sure the distributor you choose is willing to give your brand an appropriate amount of attention or “share of mind” as it is often referred to in the beer distribution world. Check out their current portfolio of brands and see how well you will fit. Make sure they will be able to handle any growth you have planned. Talk to the retailers you have developed a relationship with and get their impressions of potential distribution partners.
Once you have chosen a distributor, you must realize that their effectiveness will be directly related to the relationship you maintain with them. Make sure you share with them any information about your brewery and your beers that will help them tell your story to prospective retailers. Be honest about the amount of beer you will be able to provide them with.
When you sell your beer wholesale – either self-distribution or through a distributor – you do not set the price of the beer at the tap. Wholesalers and retailers each have their own profit margins they maintain. Wholesalers generally work on a gross margin of 30-35 percent on craft beer. For retailers a 30-50 percent markup is typical. If you price your beer too high to the distributor, the harder it will be for the distributor to find placements and the harder it will be for the retailer to sell your beer if it is more expensive than other, more established brands.
One way for a small brewer to get more placements and more exposure is by packaging in smaller sixth-barrel kegs. This size keg, also known as a sixtel, has grown in popularity as many bars with limited cooler space have expanded the number of taps they offer. These smaller kegs come with added expenses – increased cooperage needs, added labor for cleaning and filling – but they often a higher price-per-gallon than larger kegs.
Many brewers will choose to do both a taproom and limited distribution. With limited production space and time, the trick here is to make sure you can keep your taproom taps flowing while still meeting the commitments to your wholesale accounts. If you are constantly running low on beer,that may just be the market’s way of telling you that it is time to join the ranks of former nanobrewers who have outgrown that label.