Sound Brewing Systems, Inc

General Notes on Brewery Projects

 

            If there is a single theme that keeps repeating  itself in the craft brewery industry, it is that of undercapitalized start-ups.   Each week we receive calls asking us to evaluate (and hopefully validate) start-up ideas  that are hopelessly undersized and/or under-financed.    These include such proposals as two-barrel production breweries, brewpub start-ups with capital of less than $100,000, and even commercial breweries located in residences.   The usual idea for the latter scenario is "I just want to start out brewing on weekends, and then when the business has grown enough I'll quit my regular job...."  

            The principals in these would-be ventures want to believe that they have discovered some unexploited market niche that will give them the edge over established competitors, that they can luck onto the proverbial used brewing system for one-fourth of its market value, or that "All I have to do is make good beer and it will sell itself."   This is simply not a realistic view in today’s marketplace.   Returning now to reality,  here are some basic rules of thumb for start-ups which should guide your planning.

 

Production  Breweries

            A production brewery should in most cases choose a brewhouse size of at least  fifteen barrels.    Smaller systems will generally require too much labor per barrel to be more than marginally profitable, and will tend to run out of capacity before turning a decent profit, necessitating replacement of equipment within three years of opening. That said, a number of breweries have started with smaller systems and up sized within one to two years after opening (the “bootstrap method”), and many of these are still operating.  The present climate would not seem too friendly to this style of start-up.  A production brewery should ideally open its doors with a minimum of 1,500 barrels of annual capacity, and a minimum of two to three primary fermenters for an ale facility.  As for lager beer, increase all size and cost requirements compared to ale breweries by a factor of 1.5-2.0.  Lager is extremely capital intensive to make in a small production brewery and may only be profitable at volumes in excess of 10,000-20,000 barrels per year.

            The typical budget for production brewery utilizing start-up used equipment is in the range of $150,000-$200,000.  Up to a third of that may be needed for building improvements alone.  A more realistic range for mature markets is $250,000-$350,000 for a draft only operation and  a minimum of $500,000 for a brewery with high speed bottling capability.   Again, there are small operations that have been launched for much less utilizing owners’ sweat equity and scavenged equipment, but this is surely the riskiest and most difficult way to do a brewery start-up.  A key fact to keep in mind when assembling your financing is this:   Debt kills small breweries.  Equity is much safer, even if you have to give up part of your own to raised the capital.                             

 

Brewpubs

The usual minimum rational size for brewpub start-up systems is a seven barrel system.   This will suffice for small to medium sized, retail only brewpubs (up to 125 seats).   In certain instances, very small, limited operations may call for three to five barrel systems. Any brewpub that is larger than 125 seats or one that plans to wholesale any product to other outlets will likely need at least a ten barrel system.    A 7 barrel  brewery system will occupy 750-1000 square feet, and larger ones up to 1700.  Total space for even a small operation should not be less than 2500 square feet, and 4000-5000 is much better.   If the brewery will also produce beer for sale to other establishments, considerably more space will be needed to store, wash and fill  kegs and/or bottles.

 

Budget-wise, for most operations the minimum capital required is $250,000-$300,000.  There have been exceptions to this, in instances where the premises was already a bar or restaurant and the only added improvements needed are to the brewery space.  The average brewpub investment is around $500,000 (for brewery equipment and leasehold improvements), with elaborate restaurant and showpiece operations ranging up to $2 million or more.                                    

 

Time-lines

            The most realistic time-line for completing a brewery project is the most generous one.   Generally, one year is an average minimum for most projects.   If funding is being sought from private investors or an SBA loan (as opposed to conventional institutional loan),  it is not unrealistic to add four to six months to the time-line.  From the date all funds and needed building permits are in hand, allowing a six to nine month time period  for building and commissioning is a good place to start planning.

            Assembling and commissioning a brewery is an immensely complicated  endeavor.   It is inevitably dovetailed with a significant amount of construction work, and the nature of construction is--let's face it--delays.   If the contractor says it will take sixty days, figure ninety and you may be safe, but 120 is safer.   Permitting processes today often take months as well, and construction usually cant even begin until permits are issued.  Construction delays are far and away the most common reason for late brewery openings, and late brewery openings are the most common reason breweries run out of capital.

            Furthermore, in spite of the best intentions of tank fabricators and secondary vendors of various components (such as mills, grain transport equipment, chillers, pumps, packaging machines and so on) there will inevitably be pieces which are delivered later than they're supposed to be.   Due to economics, modern manufacturing has shifted away from inventoried components to built-to order components.    If the widget manufacturer can't get components he needs on time from the gizmo manufacturer he buys them from, shipment of your widget is delayed, plain and simple.   Other problems occur--parts may be damaged in shipment and have to be replaced, while at other times the incorrect parts are shipped.  It's a rare project that doesn't have one or even several of these sorts of delays.   It does little good to scream at suppliers caught in this position--they're often as powerless as you are. For projects employing used equipment, if you can buy a fairly complete package it may save considerable time.  Keep in mind that you rarely find exactly the list and configuration you are seeking, and additional items may need to be found new or used.

            The lesson is to allow enough extra time to cover a reasonable amount of delay, and enough capital so that you don't run out of cash waiting to brew your first batch.   Take your best educated guess of the time required, based on what suppliers and contractors tell you is realistic, and add 30-40% to be safe.   It's better to go into the project prepared and ready for it than to take it out on your nerves and fingernails.    Lastly, don't make the mistake of bringing non-key staff members on the payroll too early in anticipation of the opening.  Payroll is the biggest outlay you have--delay all non-critical staff expenditures until near opening time, while allowing enough time for needed staff training.