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:
- Document Elusive Brewing from inception through to (hopefully!) the first pint being pulled in a pub
- Share lessons learned along the way, both directly and indirectly
- 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.
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.
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
EDIT: To read Part II, click here