Monday, 4 January 2016

So you wanna open a brewery? Part I

Back in August of last year, I finally bit the bullet and decided quit my job to focus on opening Elusive Brewing. As I wrote back then, the decision was partly driven by being at breaking point with my job but deep down I knew that unless I took this positive step, it was too easy to keep putting things off and watch the weeks trickle past. 

Since leaving that job in September, I've been doing many things including relentlessly chasing and ultimately having to give up (again) on the premises we were so close to securing in Basingstoke, finding and agreeing terms on new premises in Finchampstead, visiting as many breweries as possible to gather ideas and learn from others' experiences of starting a brewery, gaining further work experience at Weird Beard, brewing three collaboration beers, completing a BrewLab training course at Wimbledon Brewery, developing and honing recipes to work within the parameters of the ingredients we can access, developing a marketing strategy (of sorts) and finally, setting up the business side of the limited company we'll operate under including planning budgets, drawing up cashflow forecasts and sorting out business banking and the various registrations.

Over the past year or two, I've taken on board lots of advice from those whose footsteps I'm following in, from the very big to the very small. I've also learned a few things along the way but consider myself very much still at the bottom of the learning curve when it comes to owning and operating a brewery or indeed any small business. This series of blog posts really has three aims:

  1. Document Elusive Brewing from inception through to (hopefully!) the first pint being pulled in a pub
  2. Share lessons learned along the way, both directly and indirectly
  3. Provide a means by which I can solicit advice and input on particular subjects as we progress towards launch
This first post is going to cover three areas: Investment (and budgeting more generally), Premises (identifying) and Products & Branding. 

Investment

A brewery is a very capital-heavy business in the first year. That is, you'll need lots of cash to reach the start line. A lot of this expenditure can be written down (accounted for) over a long period but that doesn't help you pay for it in the first place. One of the first things I did was make a list of everything I'd need in order to get the first brew out of the door. I'm pretty sure it's still not complete and I'll be cursing all the little things I've forgotten as we progress but the bigger ticket items include:

  • Brewing vessels - CLT, HLT, Mash Tun, Kettle and Fermenters plus chillers
  • Casks, kegs and bottles and the means by which to clean, fill and ship them
  • Storage (cold room, shelving, ladders, pallet truck/lifter)
  • Office items including any IT you'll need (at least desk, laptop and printer)
  • Ingredients and chemicals
  • Cleaning equipment (pressure wash, wet vac, squeegees, brushes, sundries etc.)

The highest cost above is probably going to be the brewery itself but the rest of it will soon add up. Without revealing my (and more specifically my suppliers') hand(s) fully, I've actually budgeted 3x the cost of the brewery as a total startup budget. This budget includes the work required on the premises and, well, everything else. That figure wasn't plucked out of thin air by the way - it's what I've worked out I'll need with a reasonable buffer added in. Others I've since discussed this with had done it for (in some cases much) less and of course there were breweries who'd spent more. 

The first challenge, of course, is to raise those funds. The brewing equipment manufacturer will likely require a deposit up front and the rest on shipment. The rest of the spend will come later but it won't be particularly spread out either, so be prepared for it.

Elusive will be tiny initially, with a maximum throughput of 5BBL or 800L per week (that's 18x9G casks, 26x30L KeyKegs or 2400x330ml bottles). That hard-limits potential revenue and therefore fixed costs need to be kept in check in order to attain cashflow positivity within a reasonable period and, more importantly, maintain it. Actually, that's kind of a balance and one I pondered for a while. The main fixed costs are rent (plus any associated maintenance/service fees) and business rates - oh, and wages of course! Other costs are variable based on throughput and can be turned down if sales are slow but the bottom line is some large costs are fixed and you'll need to pay them no matter how little or much you're selling. The balance, or maybe 'trick' is a better word, is to maximise potential throughput (and therefore revenue) for the fixed cost but a third dimension is labour capacity, because it's all well and good being able to double brewing capacity within your current space but you'll need more man hours to do it and Elusive will be starting as a one-man operation - although I'll have some part-time support from friends and family, thankfully!

So with a view of your fixed costs, variable costs and brewing throughput (potential revenue) you should start to model cash flow for various levels of sales. What happens if sales are only half of what's forecasted? Can you still meet your fixed costs? Certainly, if you're looking to take on external investment or loans, you'll need to have that modelled carefully and be prepared to talk through it in great detail. Conversely, this model will also drive pricing (and to an extent, vice-versa) but that's something I'll cover in a future post. 

Premises

This is something I feel I could write a book on already and yet, at time of writing, I still don't have keys to an industrial unit. For most breweries I've visited, premises was the single biggest headache in getting started and it'll take at least double the length of time you thought it would. It's a crucial aspect to get right, of course. Size, cost, location, ease of access and suitable utility connections are all very important. The first concern, however, should be the use class. This governs what the premises can and can't be used for. A small brewery would generally fall under B2 (industrial) but may also be covered under B1c (light industrial) depending on the local authority. Before putting an offer on any premises, it's imperative to check the current use class and consult with the local authority to confirm this covers your use. They may ask some questions about what you'll be up to and there's a good chance they won't know anything about brewing, so be prepared for that. Use classes can be changed but that usually requires going through the local authority's planning process and can be very time consuming.

The next considerations are rent and rates. A private landlord or local authority will likely want to enter into a fixed-term lease - 3 years is typical although you'd be wise to negotiate a break clause so you can get out if things go really well or indeed, if they don't! They'll have a rental price in mind they want to achieve over that period and you'll need to find out what that is by negotiating. They'll also want a deposit (3 months is typical) and most likely, the first quarter's rent in advance, although everything is negotiable of course. Ask if they'll be charging you VAT too. The advice I got was that this can sometimes be hard to claim back depending on the rental structure, so bear that in mind. Rates are set by the local authority and you can check the VOA website to see the rateable value of any premises you're considering and based on that, what you'll be paying to the council and when.

Finally, you'll need to instruct a solicitor to act on your behalf during the lease process. They may advise you to conduct land searches etc. which will add to their labour costs. You may also be liable for the legal fees of your landlord and their agency fees - be sure to ask about all of this when negotiating!

I'll cover premises build-out in a future post. Unless you're taking occupation of a former brewery site, you'll likely have a good amount of work to complete before the equipment can be moved into place.

Products (beer!) and Branding

Brewing is very much a growth sector in the UK at the moment with the number of breweries having grown significantly over the past 2-3 years. Conversely, the number of pubs is decreasing, so more breweries are competing for fewer overall customers. As a small brewery, your costs per barrel will be significantly higher than the big brewery in the area (and especially the regionals/nationals) so you'll certainly have to work hard to establish a customer base. Of course, demand for 'artisanal' products with more flavour and a story behind them is partly what's driven the 'craft' brewing boom in the UK, so it's not all bad news. The best advice I got here was to absolutely focus on making the beer the best it can be. If your product is going to be more expensive than the brewery down the road it needs to be simply better, or more interesting, or have a local connection - something to make pubs want to buy it and drinkers want to drink it. If quality isn't great, you might sell the first few batches but you can be certain those customers won't come back for more.

This is something I've been very conscious of when setting up Elusive. Frankly, the thought of getting it wrong it terrifies me. During the recent boom I've come across many breweries who've learned at their customer's expense - shipping beer that wasn't quite right, apologising (or not) and working to improve things with the next batch. Some have certainly improved and gone on to succeed but in an increasingly crowded market, if anyone's going to be squeezed it'll be a brewery shipping bad beer. Any successful small business needs a good product to build a market with and a brewery is no different. There's no longer 'build it and they will come' route to market for small breweries.

A secondary consideration for me is that with Elusive, I'll be aiming at two markets and they're a bit different. The first is the local cask market and the second is a wider 'craft' keg and bottle market. With that in mind, I've been putting a lot of thought into which beers might work best in each of those markets, especially the local one. One thing I did was brew prototypes and circulate them locally for feedback - some was positive and some less so, but it was all valuable input. The main point here is I'm making no assumptions as I can't afford to just make something and hope it works. Yes, I'm doing this to brew beers I want to brew but ultimately if I want a local market, I need to find something that works for me and my potential customers. 

On branding, from the outset I've wanted something fun and vibrant. I think we've got that aspect of it right but again, I won't be afraid to take feedback on board if it we find bits of it don't work in practice. The beers I hope to sell locally will have a local connection in the name and pump clips but we don't want to the brand to be the limiting factor to wider appeal, so balance is required. 

I'll end Part I of this series with a question for existing small breweries (input from all welcome, of course!):

  • Have you had to take into account addressing different markets and did you produce different beers for each or find something that works in both/all? 'Market' here could mean cask versus keg/bottle or anything you like, really - I'm curious to know if other breweries used similar approaches or just put beer out and went with the flow!


In Part II, I'll cover our premises build-out, layout, pricing and sales. I might even include some photos of our progress to help break the monotony of my rambling!

EDIT: To read Part II, click here



20 comments:

  1. Really great stuff, thanks!

    One thing that I find really interesting in new breweries and would love to hear your thoughts on is the range of approaches to building a range of beers - like, do you have a single flagship beer or a core range, and if so what beers? How often do you bring out new beers and how often do you bring back previous ones? How broad or narrow is your range of styles? Do you stick to extreme stuff or to very approachable stuff or do both? Do you have a particular shtick like "seasonal ingredients" or "twists on traditional German styles" or do you just try to produce good beer? How does all this tie in with branding etc?

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    1. Thanks Dave - glad you found it interesting.

      That's a good question and a subject I've thought a lot about as I have many different things I'd like to brew. Our launch 'range' (quotes because it's not set in stone) will include two cask-only ales for the local market - a mild and a pale, a more hoppy ale that might work for both of our markets but is, perhaps, at the top end of the ABV for a regular selling cask ale, and finally 2-3 beers that will be in keg/bottle only including a couple I've brewed commercially before. I'll only have two FVs so see those as broadly being one for cask ales and one for the keg/bottle stuff but of course it depends how sales go.

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  2. Hey Andy, great read indeed, echoing a lot of what we went through too in setting up Cloudwater.
    With regards to your question we most certainly spent some time thinking about different markets before we launched. Predominantly, our cask range is designed to stray from reliable and approachable to bold yet drinkable. With keg/bottle gyles we look to overlap with lower strength, highly drinkable beers, through to quite adventurous, strong, experimental, and assertively bold beers. In this sense, we cover both regional cask pubs (that love our Pale and buy other casks because it's reliable), and rather more modern leaning speciality bars too.
    We made our peace early on that our Pale on cask (for example) wouldn't knock anyone's socks off, in part because we've always got other beers in our range at any one time designed to showcase our love of rich and flavourful beer. But we're still proud of it because it's reliable, and that matters a lot to most publicans.
    When it comes down to it, I think you have to make the beer you really want to make right at the start. If the markets you sell to support your position you'll feel really great! If, for some reason, any suggest tweaks or changes, you can certainly look to accommodate and change to make more saleable beer, or you can reframe your targets a little and shift sales focus to markets that support the route you want to take.
    I figure we only get a couple of shots at doing what we want – one right at the start when expectation hasn't formed yet, and once again if we make a lot of money (enough to be able to afford the leap from one customer base to another). From our position right now, it looks like there's some middle ground to be found with a good proportion of export beer (keg/bottle, almost always at the more adventurous end of the range), that seems to allow some breweries to be more choosy about what they do with the rest of their range. I guess from your starting position and size you could swap 'export' for 'national distribution'?
    Sorry for such a long winded reply! Pretty sure the guys at Wylam would be great to talk to – they balance production of a rather trad range that's much loved and long known up in Northumbria, and a progressive/modern range that they make for the rest of the country. They might have some better words of advice than what I've cobbled together here!

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    1. Hi Paul, thanks for the great insight in to the process you went through in selecting your range. I think you've hit the nail on the head about making the beer you want to make, otherwise, being blunt, what's the point? The two 'local' beers I've been developing are certainly beers I'd like to drink and ones I'll enjoy brewing too, and that's important to me. Certainly, I might enjoy brewing our more 'extreme' things more but I'm happy with both of our potential worlds. The other point you've made is around adaptability and that's certainly something I'll be conscious of whether that's in the product itself or the target markets.

      There are a few more breweries I'd like to annoy with questions, so I'll add Wylam to the list. Really appreciate you taking time to comment so thoroughly. Thanks again!

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  3. Hi
    I totally agree with Paul's comments about working out your range of beers. Make a decision but be open to feedback. The benefits of being small are to react to feedback and to the change in consumer tastes.

    My contribution here I suppose is about production. Having a very low budget start up myself I cannot emphasise the benefits of tanks. FV'S or CT's or DPV's. The more of them you have the more you can make your small kit count. A brew kit at a small level is fairly standard, but the FV's are your limiting factor and therefore your revenue threshold. Don't limit your output through your own labour. Once you get on your feet invest in growth through your tanks. You can brew twice a day 7 times a week if needed. You mentioned reliability of good beer - which Paul emphasised with workhorse beers, but reliability of supply is the follow on priority. On a small kit that means tanks and labour. Brew, rack, distribute. Repeat. That's the slog that isn't sexy or artisan at all! But always have that slog in your mind. Develop a great recipe then brew the pants off it to meet your customers needs! Cloud water are a brilliant example of a technically advanced brewery, but I imagine they work just as hard as a very manual brewery like ours. Brewing is hard and repetitive. That's why only maniacs do it! It is a special and wonderful thing though!

    Become the co-ordinator of your brewing as quickly as possible, not the chief bottle washer. The more tanks you have the more staff you need but the more beer you will make - be a leader and facilitator on that front. A small brewery with lots of tanks has the benefit of being able to keep a broad range of products going in lots of packaging options and that is a strength.

    So that's my two pence!

    Great blog I'm sure lots of people will benefit from reading.

    Terry -Liverpool Craft Beer

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    1. Hi Terry,

      Many thanks for the detailed comment and great insight around how you grew LCB. FVs are certainly a limiting factor - by my calculations 3-4 is the most I could manage by myself (brewing 1-2 times per week) on top of other stuff such as racking/packaging, sales, delivery and the endless admin. It the small unit we're taking on, space will be a limit before that however. I think I can squeeze a 3rd and maybe a 4th FV in, after which we'd be looking at external storage (which we may need any way) for packaged beer. The plus side it my fixed costs will be very low from day one, which makes my risk averse side happy.

      I will be looking to take staff on once cashflow allows but have no desire to grow too quickly either, so I think establishing a small set of accounts whom I can supply reliably will be important for us.

      Thanks also for highlighting the fact that brewing is far from glamorous with a lot of manual and very hard work. It's something I learned early on but I'm sure others reading this and thinking of starting up this will benefit from your words!

      Cheers,

      Andy.

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  4. This comment has been removed by a blog administrator.

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    1. Terry's comment posted twice so I removed the second one.

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  5. As someone looking to take the leap into commercial brewing at some point in the near future I'm finding this blog incredibly helpful.

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    1. Thanks for the feedback Steve and good luck!

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  6. Just wrote a big response and then deleted by mistake so I'm keeping this shorter!

    Great blog and will be a great resource for anyone setting up a new brewery.

    Totally agree with Paul and Terry.

    From our point of view. When we set up we made the beers we wanted and sold them to places that wanted that type of beer. I suspect the market has moved on a bit since then...

    Best things I have learned so far are;

    - Know your limitations (people, kit and cash flow),

    - Be clear what you want to achieve,

    - Make the best and most consistent beer you can (you need to decide what 'best' is),

    - Get a hop contract (We used to be able to get what we wanted, when we wanted it but now it is crazy!)

    - Enjoy it, as it is the best industry in the world

    Look forward to reading part two!

    Cheers

    Eddie (Harbour)

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    1. Hi Eddie,

      Sorry you lost your first comment - appreciate this isn't the best interface for typing long replies. Thanks for persisting as this is very helpful.

      You're right on all counts, of course, but the one that resonated with me was being clear on what I want to achieve. With limited initial capacity, maybe it's too ambitious to try to address both of the markets I've described - time (and initial sales) will tell and hopefully help shape how best to take things forward.

      Hops are certainly a worry! I've secured enough to get me through the first few months but it's a bit chicken and egg with regards to a contract because I really want a view of what's going to work for us recipe-wise. It'll certainly be high on my list of priorities to address. In the mean time, having such a small brew-length will hopefully help - picking up the odd 5Kg here and there as we go will hopefully see us through even if we need to get a bit creative what what we brew. Thankfully a few years of home brewing has provided a good bank of recipes.

      Thanks again for taking time to add to the discussion above. It's certainly helpful to me and, as you say, will hopefully help others too.

      Andy.

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  7. Hi Andy, and Paul. I agree with what paul has said and with far more eloquence than I could muster. Absolutely you need to start with the beers you want to brew and be passionate about. As you are in the same locale as us our main problem from the start was that our core range starts at 4.5, and was always seen as a problem, however this is changing. If you want local to be a part of your market maybe keep something 3.8-4.2 as the magic number. I have just now read everyone else's replies, you have some good feedback there. Can't wait to see you up and running

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    1. Hi Darron,

      Thanks for commenting and for your continued support in this venture - it has been and is very much appreciated! I do have a couple of beers in that range than I'm planning to offer in cask only. I'm happy with the prototypes and really hope they'll appeal to our local market. Will find out soon enough I guess! As you note, I'm sure we'll see a shift in the local market and more openness towards the more adventurous stuff, but that'll take time to develop.

      Cheers,

      Andy.

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  8. Cash Heavy Investment in the first year...You're not wrong!! Its taken me a year to get to the point were I get the keys to premises on the 18th and I can start fitting out. Keeping on to for HMRC is also 'challenging' at times, so be mindful. All the best for 2016. Alan, The Old Prentonian Brewing Co.

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    1. Thank Alan - we've got the HMRC process to 'look forward' to *ahem*. Best of luck with everything!

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  9. Have only just got round to reading this post. It's going to be great if you're able to document the entire process on your blog (I really enjoyed seeing what Cloudwater did in terms of sharing stuff with the public as they were getting started too). I'm sure it will be beneficial for others (and yourself). I recall a US brewery (might have been The Bruery) who recently revisited their original mission statement/blog post (or something like that) some years later - fascinating to reflect on how things are vs. how you expected things to be.

    I look forward to continuing to read/hear/see (hopefully!) your continued progress and as always wish you the best of luck with your ventures.

    Emma

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    1. Thanks very much, Emma. I've had the luxury of time these past few weeks which I suspect I'll no longer have very soon but it is my intention to document as much as possible. I'm going into it with eyes wide open, so it will certainly be interesting to see how reality compares with expectation both now and in future.

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  10. Great blog, Andy!

    Cashflow is the killer, from my experience. Keeping enough money coming in to pay the rent and rates, and wages, is the big imperative.

    As part of that, don't pay your beer duty until you hit "constructive removal". I was ill-advised, and paid the duty when I packaged - then I was short of the money, and hadn't yet sold the beer. Also some wholesalers want to buy beer in duty suspension, and if they're in the UK you can't have the duty back after you've paid it!

    Good luck! Get in touch if you need anything done.

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    1. Thanks Mike and hope you're well. Yes, one thing I have worked hard at is keeping fixed costs down with a manageable rent and low rates - hoping that'll help with the cashflow situation for the first six months. It has come at the cost of having very little space, however. Swings and roundabouts! Good tip about duty too, thanks.

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