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A microbrewery is a business that grows along with its community. This is because many brewers start off by by using small distributors to sell to local retailers who then sell to customers. Good markets for this business include areas in which restaurants and beer retailers are growing as well as markets near colleges and universities. This is because the average microbrew consumer is more educated than a standard beer drinker and these environments also have Millennial populations that favor experiences (such as exotic local beer) over regular products (standard brands of beer).
Who is this business right for?
This business is perfect for outgoing and creative entrepreneurs who enjoy creating something special and then sharing it with their local community. The nature of a microbrewery lends itself to somewhat flexible hours, though the brewer may often be fermenting at odd hours and will have to liaise with various distributors and managers and accommodate some of their schedule restrictions.
What happens during a typical day at a microbrewery?
Operating a microbrewery business involves lots of cleaning. It takes a variety of vessels to ferment and package your product, all of which results in a variety of dirty tanks, tools, floors, etc. When the often-wet equipment ends up breaking during a time-sensitive fermenting process, the brewer will need to know how to fix many of these things. Finally, the actual act of fermenting requires a patience for repetitive tasks and a meticulous attention to detail and record-keeping.
What is the target market?
Brewers don't usually deal with customers directly. Rather, their clients are the beer distributors. One way to find distributors is to seek out the local major distributors that specialize in selling brands like Coors, Miller, and Anheuser-Busch. They may not be interested in selling your local flavor, but their deep history and network can likely point you towards local distributors specializing in imports (a good option for small brewing businesses) or those who specialize in handcrafted beers (an ideal option for a small brewing business).
How does a microbrewery make money?
A microbrewery typically operates on a three-tier system to make money. Under a three-tier system, the brewer uses a distributor to sell alcohol to local bars, grocery stores, liquor stores, etc. These customer facing establishments then sell to the consumers. Microbrews are sold consistently throughout the year and many brewers create unique seasonal offerings. Therefore, it is important to note that even though beer is sold regardless of the season, sales peak during the summer and winter seasons, but they experience dips going into fall and spring.
Brewers who are just starting out may consider self-distribution: while this is not allowed in every state, it enables the brewer to cut out the distribution middleman and sell beer directly to their local areas. In doing so, breadth of distribution will be limited, however reduced overhead means operational costs and beer costs can be lowered.
What is the growth potential for a microbrewery?
Brewing can be done at very small scales, including having a nanobrewery. A nanobrewery is a smaller operation that produces fewer beers—typically no more than three barrels of beer per batch. A nanobrewery can be the first step towards opening a larger microbrewery, which usually produces fewer than 15,000 beer barrels a year. Expanding the business beyond that point usually depends on finding larger distributors willing to distribute to larger regions, which may eventually result in a national brand.
A microbrewery business can also grow by pursuing sideline business opportunities such as selling beer on site by opening a taproom or even running a full-scale restaurant at the brewery (though this requires an additional brewpub license).
What are some skills and experiences that will help you build a successful microbrewery?
- The best experience one can have prior to opening a microbrewery is to have worked as an assistant brewer, providing the necessary skills and background.
- Aspiring brewers without lots of background can gain or increase brewing skills by taking certification or diploma programs from institutions such as the American Brewers Guild, the Beer Judge Certification Program, the Cicerone Program, and the Siebel Institute of Technology.
- Previous experience brewing at home or running a smaller nanobrewery can also be a major advantage.
What are the costs involved in opening a microbrewery?
It can cost upwards of $500,000 to open a microbrewery. The major cost contributors include renting space for 12 months (typically over $50,000) the operational costs for the first three months (approximately $60,000), and the microbrewery equipment itself, which costs approximately $18,000. Start-up inventory can cost over $16,000, while equipment costs for counter areas, serving areas, and store equipment can $26,000 or more. Meanwhile, legal costs—including obtaining proper licenses and permits, hiring a consultant, and purchasing required insurance—is likely to cost approximately $7,500.
For those who want to get into this kind of business at a much lower cost, a nanobrewery is a better idea than a full-scale microbrewery. Because a nanobrewery typically produces fewer than 20 barrels per year, your equipment is smaller in scale and you need less of it and fewer annual materials. Needing less space means also means you can get away rent a much smaller office space than a microbrewery would require. In fact, many people convert their home garages into a nanobrewery.
What are the steps to start a microbrewery?
Once you're ready to start your microbrewery, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your microbrewery is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your microbrewery keeps your finances organized and makes your business appear more professional to your customers.
- Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
- Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers. Save 15% when you create a business website with Weebly.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I find a business mentor?
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
How to promote & market a microbrewery
Marketing a microbrewery starts by advertising through traditional channels, such as local TV and radio programs and via newspaper ads. It's important to have an engaging website and a social media presence that allows loyal customers to spread word of the brewery to their friends. It's possible to reach microbrew aficionados via guest blogging on craftbrew blogs. Finally, you can use email marketing strategies to reach both previous customers and interested parties who sign up for information via social media or the company website.
Increasing consumer interest and loyalty for your brand will not only help you drive more sales through existing distributors, but also create new distribution opportunities.
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How to keep customers coming back
There are many possible strategies for attracting new customers. Here are just a few ideas:
- If you do open a taproom, offer special beers that customers cannot buy elsewhere.
- Speak frequently with your customers and discover the types of beer they prefer; start incorporating their suggestions into your next creation.
- Hosting occasional events such as trivia nights and open mic nights can also boost community engagement.
- Create unique brews and ensure your distributor markets it to interested demographics.
How and when to build a team
With a microbrewery business, you’ll generally need to hire more employees as the business grows. For instance, it is possible for a nanobrewery to handle everything without help, provided he/she can perform general handyman repairs as needed. A microbrewery will typically need an assistant brewer to assist with labor, and possibly a sales manager as the business grows. As the microbrewery produces more barrels per year and/or pursues sideline opportunities such as opening a taproom, more employees will be necessary to play roles such as server, manager, and assistant brewer.
Assistant brewer salaries average $34,000 and restaurant manager salaries typically range from $38,000 to $42,000.
Read our microbrewery hiring guide to learn about the different roles a microbrewery typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.
State & Local Business Licensing Requirements
All breweries are required to obtain a Brewer’s Notice from the Alcohol and Tobacco Trade and Tax Bureau. To obtain this permit you will need to provide information about the packaging, labeling and environmental impact of your brewery operation.
- You can find more information about applying for a Brewer’s Notice here.
- **Note: it typically takes 6 or more months to obtain a Brewer’s Notice
In addition to obtaining a Brewer’s Notice, new breweries will typically also need to obtain an alcoholic beverage permit from the appropriate agency in their state.
In some states, including Indiana, new breweries are required to post a brewer’s bond when applying for their license, which can be upwards of $10,000.
- You can learn more about brewer’s bonds here.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
In addition, certain local licensing or regulatory requirements may apply. In particular, if you want to offer beer tastings in-house at a tap room or on-site restaurant, you would need to obtain an applicable Liquor Permit (e.g. taproom license, brewpub license), the specificities of which vary locally. For more information:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources
Maintain Personal Asset Protection
Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.
Two of the simplest steps that will protect your business, and yourself, are to:
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
Any employees involved in brewing or handling beer are legally required to be over 18. To minimize liability, many breweries only hire employees who are over 21.
Breweries need to register as a food facility with the FDA. Registration must be renewed every two years. Learn more here.
How much can you charge customers?
The final end-customer price of your microbrew to customers is usually a minimum of $10 for a six-pack. Depending your beer's popularity and brand qualities, you may be able to support pricing upwards of $15 per sixpack.
While these are standard prices in the industry, it’s critical that all ongoing costs are recovered in the pricing with a reasonable profit margin. Ongoing costs include brewing, bottling and packaging beer while also factoring in an average distributor margin of 21 percent and an average retailer margin of 31 percent, as well as relevant state, federal, and sales taxes.
What are the ongoing expenses for a microbrewery?
Many of the ongoing costs of this business are variable depending on region, business size, and fluctuating markets. The primary expenses will be paying for the materials required to brew (such as malt, yeast, hops), ongoing utilities costs (such as electricity, gas, sewage) and the ongoing costs to clean and repair equipment, including regularly purchasing cleaning equipment. Beyond this, ongoing expenses include paying monthly rent for the business and paying salary for any employees.
How much profit can a microbrewery make?
In general, a microbrewery can turn a profit—microbreweries had a 9.1 percent profit margin in the Unites States in 2014. It's important to keep in mind that it may take over a year for a new microbrewery business to regularly turn profit, though, and that fluctuations in the cost of things like grain can cut into that profit margin. Finally, there is a constant need to reinvest some of the profit into growing the business to reach more customers and stand out from the competition.
How can you make your business more profitable?
- Find a distributor willing to sell these craft beers to a larger demographic.
- Start one of the sideline businesses mentioned in this article; open a taproom and/or a restaurant.
- The steadiest path to increased profit is increased production: the ability to generate more barrels per year is directly tied to the amount of profit you can earn, which may eventually mean upgrading equipment in order to generate more business.