Have you ever thought of running a full-fledged business of breweries? Or perhaps you are already into this brewing game, running your brewery and thinking if it’s going to pay your bills or not!
Well, you are not alone in your curiosity, as this topic keeps a lot of people up at night.
Keep this one thing in mind: making great beer is no doubt an art, but making a handsome profit out of it is a bit tricky and sort of a science. As in, it’s not just about the taste of the beer, it’s about running a successful brewing business.
So, if you’ve ever asked yourself: “Can I actually make a profit from these breweries?” then don’t worry; we are here to break it down for you in simple terms. Just give a full read to this blog post. By the end of this blogpost, you’ll be able to decide by yourself whether to go for the business of breweries or not. So, let’s see!
Is the Brewing Industry Really Profitable?
So, first, let’s have a brief overview of the profitability of the brewing industry. The average profit margin for craft breweries is approximately 14.7% in general. If we compare the business model of a brewery with those of restaurants or bars, then it is more profitable than the latter two. According to Brewery Trade Network, a brewery typically aims for a “healthy” profit margin of approximately 25% or more. So, if we compare this brewery profit thing to restaurants or other business models, you’d think brewery owners are playing with the gold, right? Well, not exactly.
How these businesses are being set up is actually the key to earning a good profit. Breweries need loads of money to be invested for their stuff and staff, way more than your usual restaurant. And the upkeep costs? It’s a totally different league. A restaurant might need to replace a dishwasher, but for a brewery, it could be a giant tank that costs $30,000 to replace.
Even when breweries make a profit, they usually can’t just pocket that cash right away. Nope, they have to put it back into the business year after year to keep growing and meeting demand. So, even though it looks like they’re making good money, a big chunk of it goes right back into the brewery.
Thus, having a high profit margin doesn’t always mean the owner gets to keep a lot of cash for themselves.
Factors You Should Consider Before Starting a Brewery
The profitability of breweries depends on various factors, including:
1. Production Costs
The initial costs of ingredients/raw materials, labor, equipment, etc., largely impact the profitability. You need to carefully manage the production costs in order to increase profitability.
2. Location of the Brewery
The location where you’re going to start your brewery is one of the major deciding factors of profitability. The area with high demand for craft beer and strong customer base might be more profitable than those with low demand.
3. Brewery Business Model
The choice of business model also plays a crucial role in profit margin. How well a brewery business model is designed and executed impacts the sales and, ultimately, the overall profit you’re gonna earn.
4. Brewery Equipment
Breweries need special equipment and machinery to make beer, and these things definitely cost you money. So, what type of brewery equipment you use impacts the overall costs of a brewery startup and hence directly influences the profitability.
5. Distribution Channels
The choice of distribution channels, such as self-distribution or working with wholesalers, can largely influence profitability. Wholesalers typically charge you some fee and take a portion of the profit, but in turn, they can help breweries reach a broader market.
6. Permits and Licenses
Licensing fees and other regulations, including taxes, can also impact the profitability of breweries. However, these regulations mostly vary from state to state.
7. Pricing Strategy
The way you price your beer also influences the profitability of your brewery business. You need to be smart and strategic in this aspect, too.
So, basically, all these factors directly or indirectly influence profitability. You must consider these few yet very important factors before starting your own brewery setup.
Profitability of Breweries in the US
Talking about the Craft Beer Production industry in the US, it had a market size of $7.9 billion in revenue for the year 2022, having a growth rate of 4.9% as compared to the previous year. However, over the past five years from 2017 to 2022, the industry experienced a slight decline of 0.4% per year on average. Looking ahead, the industry’s future trajectory remains uncertain, and it is advisable to refer to a comprehensive industry report for a detailed analysis of whether it will grow or decline in the next five years.
It’s worth noting that the Craft Beer Production industry faced challenges, with its market size declining faster than the overall economy and the Consumer Goods and Services sector in the US. High competition and a medium-high growth risk score were among the factors affecting industry growth. To understand and further explore the ongoing trends in the Craft Beer Production industry, must go through a comprehensive industry report with extensive data and analysis before investing here.
What is a Microbrewery?
A microbrewery, as the name suggests, produces beer on a small scale in limited quantities. These breweries are typically independent and locally owned businesses making tasty beers with interesting flavors. This type of brewery performs well when it’s close to its local community. They often begin by selling their beer through small distributors and local stores. The best places for this kind of business are areas with growing restaurants, beer shops, and college towns.
So, if you are thinking of starting a microbrewery, keep these things in mind.
Post-Pandemic Boom in Brewery
Research led by Northumbria University explores how the COVID-19 pandemic affected breweries in the UK specifically and highlights that location and innovation are really important for breweries to stay strong and grow in the future. Even though more than 200 UK breweries closed down since 2020 (due to the pandemic), some breweries used the pandemic to change and improve.
One study, published in the Regional Studies journal, examines the UK craft beer industry’s evolution from 2015 to 2022, using a mix of data and analysis of over 1,500 breweries to understand how they adapted to the pandemic and how location continues to influence their strategies in the post-pandemic world.
7 Things that Can Make Brewery Profitable
The listing below a few things you can do to make your brewery business profitable:
1. Make Use of Retail Sales
You can sell your beer directly to consumers through retail to increase your monthly income. Retail allows you to have more control over pricing, which can help improve profit margins.
2. Early Self-Distribution
In the initial stages of your brewery, focus on self-distributing your beer to local bars, restaurants, and retail shops. This approach typically offers higher profit margins compared to working with distributors.
3. Transitioning to Local Distributors
As your brewery grows, collaborating with local distributors can help you reach a wider audience. However, be prepared for increased costs as these distributors usually charge fees. While your profit margin percentage might decrease, your overall profit margin can still grow with higher sales volume, so don’t worry much!
4. Financial Monitoring
Keep a close eye on your financials and profit margins. In times of inflation, it’s crucial to ensure that your pricing keeps pace with rising costs to maintain profitability.
5. Negotiating Supplier Discounts
Try to negotiate bulk or early payment discounts with your suppliers. These discounts can contribute to improved profit margins.
6. Expert Guidance for Business Optimization
Consider seeking assistance from an experienced brewery accountant. They can analyze your business model and operations, helping you identify opportunities for optimization and increased profitability.
7. Effective Cash Flow Management
Due to the significant capital expenses and ongoing operating costs associated with breweries, effective cash flow management is very important (as told earlier). Consistency is important to prepare for unexpected expenses and emergencies. An experienced brewery accountant can provide you with some valuable insights and guidance in this regard.
So, in conclusion, if you are thinking of setting up a brewery from scratch, don’t expect much in the sense of making a profit, at least in the first year. There are a lot of startup costs to consider, due to which it is unlikely that you’ll make enough money to cover your costs and start making a profit in your first year.
Typically, it takes about three years for a new brewery to start making a profit. So, in the early years, it is recommended to focus more on building a growing, stable foundation instead of profitability. Even though it’s normal for breweries to report on-the-books losses, it’s important to keep your actual cash flow pretty stable. If you see any cash problems, it’s a good idea to get help from an experienced brewery accountant before your business runs into serious financial trouble.
I am a passionate beer connoisseur with a deep appreciation for the art and science of brewing. With years of experience tasting and evaluating various beers, I love to share my opinions and insights with others and I am always eager to engage in lively discussions about my favorite beverage.