This article is part of our “Starting Business” series, an in-depth look at how to start a company in a particular niche or industry.
In today's alcoholic beverages market, something intriguing is happening: even though overall beer sales remain flat, the number of independent breweries and microbreweries is growing.
Average beer consumers are unhappy with the quality and taste of the average corporate-controlled product on the market, and while craft-brewed alcohol can be a bit pricier, aficionados are proving that they will shell out that little bit extra for quality, flavour and technique. Therefore, there's never been a better time to enter the brewing market.
How do you go about launching your own venture, though?
Starting a Microbrewery
Whether you have an incredible beer recipe in your arsenal, or you have noticed a market opportunity in your city, the first thing you need to do is commit to the process. The resources required are huge, the brewing itself is complex, and it will mean taking on industry titans and the corporate juggernauts; in short, it's not a niche for the faint-hearted.
However, if you have a passion for beverages and are determined to make things work, then why not brew up some competition. To help get you started, here is a step by step guide to setting up a microbrewery.
Step 1: Conduct Market Research
To determine how, when and where you should set up operations, it is crucial to assess your local marketplace. You should conduct in-depth local market research, although as a broad indicator, craft beer popularity is booming across North America and Europe.
In the US, for example, independent breweries rose 4% in 2018, accounting for about one-fifth of the overall beer market. They are responsible for producing around 26 million barrels of beer, which is a fraction of the 200-million-barrel annual total. However, despite representing a small part of the market, microbreweries possess a retail value of just under $28bn.
"Small and independent brewers continue to serve as job creators, strong economic contributors, and community beacons," said Bart Watson, chief economist at the Brewers Association, recently. "There are still pockets of opportunity both in terms of geography and business model, but brewers need to be vigilant about quality, differentiation, and customer service".
In the Eurozone, meanwhile, the number of active breweries blossomed by around 1,000 last year and more than 6,000 in the last decade. Output is up by about 5%, and demand is holding steady. At the same time, analysts say that it is becoming increasingly difficult for these businesses to balloon simultaneously because craft beer sales have somewhat levelled off.
Is the Global Microbrewery Market Sustainable?
A lot of local and international companies have been expanding their distribution network and continuing to diversify their flavours, tastes and recipes. These businesses have also been paying attention to a vital consumer preference: low alcohol by volume (ABV). This has contributed significantly to the growth of the global craft beer market.
Step 2: Conduct Company Research
When you are in the beginning stages of establishing your microbrewery business, it is imperative to ensure that your company can survive and thrive in a burgeoning market. It would be better to outline these elements before you officially open the doors to your company, rather than researching and verifying this data as you go along.
Here are several elements to consider:
Typically, microbreweries raise capital by borrowing from the bank, although there are numerous other options available, including self-funding, venture capital and even crowdfunding. Depending on your jurisdiction, you could also receive a windfall from the government. In the province of Ontario in Canada, for instance, the federal and provincial government has announced $562,000 in funding for companies to create local jobs and improve productivity. Therefore, it is always worth researching the possibility of receiving loans or grants from the state.
How Much Does It Cost to Start a Microbrewery?
The level of funding required to start and run a brewery can vary; some brewers insist that an investment of at least $1m is necessary so as not to compromise on quality and safety, while other microbreweries have achieved success with initial startup costs of around $250,000. If you can find used equipment and minimise your overhead costs, it is entirely possible to get your business off the ground at the lower end of the funding scale.
Many brewers talk about having passion for the beer that you are creating but, in reality, this alone isn't going to cut it. Unless you are hiring experts to manage and oversee the production, you need to have a comprehensive, in-depth understanding of how brewing works. This may involve studying a degree, while developing first-hand experience through small-scale brewing is also a good place to start.
If you build it, they will come? Yes and no. If you have relevant contacts in the hospitality and retail industry, such as independent (i.e. non-brewery-owned) public houses and bars, then it may be easier to convince owners and managers to trial your product.
You may even need a couple of small contracts to justify scaling and opening a microbrewery. This is the difference between starting with a three-barrel brewhouse and expanding to a 25-barrel system.
For a microbrewing business, there are three essentials: location, equipment and workforce. The location should fit within your budget and support your infrastructure, while your equipment should be sufficient to balance your production with demand and facilitate your quality objectives. Your staff should also have experience in brewing. This triumvirate is crucial to growing your brand's footprint in regional markets and, hopefully, the global marketplace.
Licensing / Legal
Licensing requirements will vary by jurisdiction, but what is certain is that you will have to jump through a wide variety of bureaucratic hoops. As well as quality assurance tests and trading licenses, there is a wealth of health and safety assessments you will need to conduct, and numerous forms of insurance that you will have to take out. Many of these processes can take a significant amount of time, too.
Step 3: Prepare Business Documentation
If you want to obtain external funding, then a business plan is critical. Considering the numerous investments and paperwork involved in opening a brewery, you will need this blueprint to map out all your endeavours correctly.
This is where you need to marry your passion and expertise for beer with a business mind. You need to break down, step by step, what your company goals are, how it is going to operate, and how you will turn a profit. This means understanding the technical aspects of starting and running a business, such as how you plan to manage cash flow, overhead costs and operational expenses.
Don't forget to include a mission statement and a vision statement in your plan, either. A mission statement focuses your company's objectives (as well as its approach to achieving these objectives), while a vision statement outlines the business's desired future position. For example, your mission might be to sell high-quality craft-brewed beer at a low price, while your vision may be to break into the top three sellers in your regional market within the next five years.
Step 4: Brand Your Company
One of the chief tenets of marketing is that your brand is your public identity, which might explain the incremental exodus from corporate beer to craft. Indeed, what makes microbreweries so appealing to customers is that these brands are unique and creative with their marketing strategies; this is an apparent trend in many industries, where new players can unseat established brands by offering something original and unique.
Of course, your brand strategy needs to rely on more than just being a new kid on the block, though. Pay careful consideration to your:
Name: In any industry, your company name is important; it has to be unique, and you will likely want to trademark it. In the alcoholic beverages industry, however, your name is doubly crucial to your brand. It has to be creative and intimate a backstory.
Website: In the 21st century, it's near impossible to grow and expose your band without some form of online presence. A business website can serve multiple purposes in this regard, from establishing your story and your brand to providing important information about your key people and your contact details. Ensure that the design of your site accurately reflects your brand in terms of aesthetics, too.
Aesthetics: The “look” and feel of your bottling, packaging and advertising should be consistent and representative of your brand. Consider the example of Guinness, for instance, who utilise the colour black heavily throughout their online presence, product casing and promotional materials. This reflects the iconic shade of their beer, ensuring consistency and setting the company apart from its competitors.
Social Media: Social media accounts are an invaluable way to expose your brand and provide updates on what your brewery is producing – especially if you are savvy with your approach.
Step 5: Cover the Legal Bits
If you want to trade legally beyond selling bottles out of your shed, then you need to register your company as a legal entity. Depending on the size of your operation and the level of liability you are willing to take on, you will need to select one of the following legal structures:
Other important legal considerations include vendor and employee agreements. The former lays out the terms and conditions of selling your craft beer through different retailers, while the latter protects your intellectual property (IP). This is particularly vital, as non-disclosure provisions prevent your staff from revealing recipes to competitors should they decide to leave. You should enlist professional legal expertise when structuring these documents.
"It can be difficult to anticipate the shifting regulatory landscape that is involved in opening a brewery," says Amy Cartwright of Independence Brewing. "While most businesses have to deal with some basic licensing, beer comes with a host of federal and state laws that can be difficult to navigate and are subject to change. Changes in a state's laws related to distribution, on-site sales, and marketing rules can be unpredictable and could result in a startup brewery having to quickly alter its business plan".
Step 6: Attract Customers
According to market research agency Nielsen, the makeup of a regular craft drinker looks like this: male, Caucasian, 21-34 and earning between $75,000 and $99,000 per year. So, does this mean that you should tailor your marketing campaign to this demographic? Not at all. In fact, according to the agency's 2019 study – presented at the fourth annual Craft Beer Insights Poll – an opportunity exists to reach a more diverse clientele.
For instance, the report found that 31% of women said they drink craft beer – up from 25% in 2015. It also discovered that 70% of women identified themselves to be craft beer consumers, which is slightly less than the 82% of male respondents who said they were craft shoppers. In some locations, such as Portland in the US, there are more female craft consumers than male ones.
The survey revealed some other interest facts about consumer preferences, too. One key takeaway is that brewery and tasting room experiences typically lead to increased purchasing of a particular brand; 34% of consumers reported buying 'a little more', while 15% said they purchased 'a lot more.' Another takeaway is that most craft drinkers are more interested in so-called 'third-space' drinking environments, including brewery tasting rooms and taprooms.
Overall, the industry is finding that branding is playing more of an important role than ever before. As consumers – serious or passive – become more acquainted with microbrewery products, they identify more with particular companies. This is an incredible opportunity to promote and expose your business, meaning that you should identify your demographic and target them accordingly. Key channels for this can include:
- Social media campaigns on relevant platforms, including Instagram, Facebook and Snapchat
- Local SEO marketing (including Google My Business and an active blog)
- Relevant offline platforms (including print, radio and even television advertising)
- Alternative engagement platforms, such as a YouTube channel or a podcast
Get out there and showcase your product, too; after all, the single most crucial selling point of any beer is how it tastes. Attend local trade fairs, public events and sporting events (ensuring beforehand that you are not infringing on any exclusivity agreements that other breweries may have). Negotiate with independent shops, off-licenses, bars and cafes to trial your product in-store, and don't be afraid to give out free samples to journalists and craft beer bloggers to gain publicity. Get in touch with subscription companies that send craft beer selections to their customers, as well.
MadTree Brewery is an excellent example of a successful nano-brewery startup. Just two years after leaving their corporate jobs and starting the venture, owners Brady Duncan and Kenny McNutt saw their business land in the top 5% of all regional craft breweries in the US by volume. This included attracting 15,000 people to their second facility in Cincinnati to sip beer, meet fellow craft aficionados and enjoy the atmosphere.
The overnight success of MadTree Brewery isn't necessarily a marker for all craft breweries, but the three key indicators behind their success should be: Duncan and McNutt claim that a quality product, progressive employee management and continuous participation in their local community has been responsible.
The microbrewery industry has been brewing a boom for the last few years now, and, as a result, the data suggests that things may be frothing over. That does not mean you cannot enter the industry and try to sell a delicious craft beer to a thirsty public, though; it just means that it might be harder to secure financing and compete in a crowded market.
Indeed, long-term, the signs are positive: microbreweries will continue to account for a more significant share of the beer market. Your brand can imbibe a percentage of this by taking the advice of MadTree Brewery: offer quality beer, treat your staff members well and be pillars in your area. If you can combine your passion for brewing with an entrepreneurial mindset, there is no limit on where your company can go.
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