Part one of three
and running a small brewery
is the only way to
Written by: Mike Coulter, P.Eng.
LTD. - Copyright 1987
So you want to build
and operate a brewpub or microbrewery, huh? This article is intended as
a brief reference and summary of the steps to building a brewing operation
from start to finish.
You have been reading "The New Brewer"
for a couple of years, maybe even right back to the premier issue in November,
1983. You have become an enthusiastic homebrewer producing an excellent
beer in your basement. You have sampled a number of speciality and imported
beers. You have seen a proliferation of microbrewers suddenly appear in
the market place and you believe that now is the time to stop thinking
and talking about it and to do something about it since you see a great
potential in an exciting new industry that has all kinds of possibilities
for growth, profit, and fun.
Your problem at the moment is that you
still have a few unanswered questions on how to go about it. And a lot
of answers about brewing and the brewing industry about which you are not
sure what the question is.
You have already determined the following
facts and have arrived at the following conclusions:
Out of the above known facts, you are left
with the primary question - How do I go about building a microbrewery the
right way to minimize risk and maximize the chance of success? From all
your reading of the articles in The New Brewer and other national magazines
aimed at the brewing industry such as Modern Brewery Age, Brewer's Digest,
the Master Brewer's "Technical Quarterly" and other periodicals; from the
many textbooks on brewing technology; from conferences, exhibitions, beer
tasting competitions, you have acquired a wealth of information on the
subject. In fact, you have too much information on some subjects, some
of it even conflicting and contradictory, and not enough information, data,
or hard facts on other topics.
Imported and specialty beer sales in the U.S.
have been growing at 8-10% every year in the 1980's to a market share of
over 20,000,000 Bbls., while the total beer market in the country has remained
The new microbreweries and pub breweries are
competing in the specialty and imported beer market and are able to command
a premium price for their products.
Pub breweries are illegal in some states (and
you know the status in your state).
Licensing and distribution laws are different
from state to state and in some cases not clearly defined or are in a state
of flux (You know where you stand in your state).
It is going to take a lot more money than
you originally thought to get into the brewing business in the right way.
Mankind has been brewing beer for 5,000 years
so it can't be that complicated a process. After all, over 90 new breweries
have sprung up in the U.S. and Canada in the 1980's, mostly successful
(and naturally a few failures amongst people who didn't do it right).
What you have probably found is that you
are still not quite sure how to boil down all this information to suit
your particular circumstances so that you can devise a good, sound business
plan. In saying this to yourself, you have just recognized the most important
point to remember which is that, unlike homebrewing, building and operating
a microbrewery or brewpub is a business, a commercial venture, that must
be profitable to survive, not just a hobby. Just because an enthusiastic
homebrewer can produce an excellent beer in his basement which his friends
and acquaintances applaud and encourage him to branch out and commercialize,
does not guarantee that he can successfully own, operate and sell his great
And even if you build the brewery right,
you must remember that you have identified and have decided to enter the
speciality and imported beer segment of the market which represents less
than 5% of the total beer market. The major distinction between your beer
and that of the top 10 is that yours will definitely be different.
TYPES OF BEER
A good beer is one that customers buy.
The top 10 Brewers had 95% of the beer sales market in 1986 because they
marketed products that people wanted to buy. By this definition then, they
make good beer. A better beer is one that customers will pay a premium
price for. By this definition then, you hope to produce and sell a "better"
beer. The simple definition of a bad beer is one that customers
don't buy. You have no guarantee that the products you finally produce
and market will fall into the "better" or "bad" category. These are the
only two choices that you have since there is no point in trying to duplicate
an A-B or Miller or Stroh beer as they do an excellent job at producing
and selling this type of beer.
The primary objective of any commercial
venture is to make a profit. However, in order to make a profit, you must
resolve a myriad of problems covering all facets of marketing, financing,
engineering design, construction, administration and operation of a commercial
enterprise. What you must know before you even begin building a microbrewery
is how to start a business. If you have never been in business for yourself
before, the first thing you will have to learn is how to create and develop
a successful business, the fundamentals of which apply to any business
not just a microbrewery. That is a subject all on its' own. For the sake
of space in this article we are going to assume that you understand the
basic principles in starting and successfully managing your own business.
FUNCTIONS OF A NEW CAPITAL PROJECT
If you are going to build a brewing operation
from scratch, what you are considering is a capital project that can be
broken down into nine basic functions. Each function must be managed properly,
from conceptualization to start-up. Whatever the type,
form, style of brewing operation that you are contemplating, whether it
be called a boutique brewery, craft brewery, cottage brewery, brewpub,
microbrewery, etc., there are many questions, not just a few, that you
will need to obtain the answers for as they apply to your situation. You
may already know the answers to some of the questions but others you will
have to research. To assist you in organizing the answers that you have
obtained to date and to identify some important questions which you may
not have considered, the following is a list of nine function steps that
you must systematically and professionally proceed to do. Important questions
that you need to ask yourself and find the answers for are listed in point
form for your reference as a checklist of topics, problems, etc. to be
covered under each function. The only difference between the answers for
the brewpub as compared to the mini-brewery will be the depth and detail
of the answers, but the questions are common to all new brewery ventures.
The answers may be quick to find, or may involve a lot of time and money
to ensure getting the best answers. Before you start, you need to have
"seed" money available to pay for various studies, deposits, legal fees,
etc. which should figure you may never recover.
STEP-BY-STEP FUNCTIONS OF A BREWERY
1. Conceptual Examination
2. Market Examination
reasons/objectives for entering brewing business
brewpub or microbrewery
solo or partners or corporation
what products, how packaged
distribution system; direct, brokers, agents,
financial resources; who, how much, when
malt extract or whole grain
resources; lawyer, accountant, engineer, brewer
where to find missing skills
what answers are missing?
3. Feasibility Examination
products; types, qualities, containers, volumes
structure and size of target marget
significance of size of target market to size
localization of demand for specialty beers,
consumer local area income elasticities, price
size of investment proposed
distributive trade practices, restrictions,
regulatory requirements, licencing, product
marketing strategy and sales program
estimates of sales revenue, costs of sales,
who does the Market Study? why?
4. Project Justification
define company, resources, skills, deficiencies
reasons for selected marketing strategy, detail
reasons for selected technology and equipment,
market and plant capacity, location and site,
drawings/schematics; site plan, building layout,
capital cost estimates
alternatives, options, variables
operating cost estimates
construction cash flow projections
proforma financials, profit & loss, balance
sheets, sensitivity analysis, working capital, debt service
return on investment, tax considerations
schedule, bar chart
management identified, qualifications
who does the Feasibility Study?
At this point, you will know if it is worth
proceeding, The assumptions in the Feasibility Study can be tested and
formalized to enable a final investment decision to be made.
6. Project Planning
market study, feasibility study - done!
site secured (option, lease, own - and zoned
manpower requirements, payroll, taxes
consultants; legal, engineering, accounting,
risk capital; shareholders, partners, co-op,
debt available; mortgage, SBA loan, lease
financing, tax exempt bonds, operating line, interim construction financing
use known technology
technical and operations management; qualifications,
secure project funds
work breakdowns - who does what?
master schedule, milestones
critical path planning
detailed engineering, working drawings
develop suppliers lists
contract & procurement strategy
procurement commercial terms and conditions,
liability insurance; during construction,
definitive cost control estimates
cash flow forecasts, establish contingency
major equipment firm priced
minor equipment factored
project control philosophies established
8. Final Inspection/Testing
CPM/PERT network, detailed schedules
progress monitoring procedures established
reports; types, frequency, scope, for who
order major equipment and long delivery items
foundations and steel
specifications and technical bid documents
call tenders and subcontracts
review Vendors' drawings, program details,
construction management systems and procedures;
temporary facilities; requirements, design,
licence/ legal requirements
invoice processing and payments
9. Operational Management
equipment inspections; ex factory, on-site
mechanical acceptance tests
manuals; installation, operation, and maintenance
state and local authorities approvals, tests
UL, AGA, National Board approvals
material testing, reports
Commissioning and Startup
Commissioning plan and start-up procedures
manuals; design, operating
operators and staff: hiring and training
performance and acceptance testing
trial brews, product testing, formulating
performance evaluation and report
Now You're in Business!
implement sales and marketing plan
trouble shooting, corrections for sustained
operation of plant and process; production
inventory and production control
In the next couple of articles we will
discuss some of the key questions in each function and offer some suggestions
of possible answers.
Reprinted from The New Brewer, Vol.
4, No. 4