16 Oct 2009 @ 9:23 AM 
 

Brewery Startup: Brewpub or Packaging Brewery?

 

The title of this post is one of the questions that keeps me awake at night.

I know this sounds like a really basically fundamental question that I should be well past as I’m working on a business plan. But I also don’t know where I’m going to be, and that has a lot to do with the answer to that question. Let me explain:

As I recently revealed in discussion over at THFB, my lovely wife is working on finishing an advanced degree. Said advanced degree is most likely going to get her a job teaching at a college or university… somewhere. Where? Well, like every other industry, it’s hard to find a job teaching college, right now. Could be anywhere. Her search currently covers something like 63 states. I bet you didn’t even know we had 63 states.

Every time she mentions a different state to me, I start writing a new section of my business plan in my head. It’s a conglomeration of: What does the craft beer scene look like in this state? What are the established breweries that I know something about? What kind of beer do they make? Will I be near them? Are they mostly brewpubs or packaging breweries? Can I co-exist without directly competing? What are the distribution laws like? Will I be able to self-distribute my own stuff?

The brewpub/packaging brewery question kills me. Deep, deep down, I don’t want to open a restaurant. I would really love to just have a little space by myself where I can make beer and give it to somebody else to serve, hopefully while I’m somewhere near by to talk about it. It’s almost definitely the more difficult way to go. Brewpubs outnumber packaging breweries almost 2-to-1. (962-to-456) and a part of me says: Hey! There’s a reason for that! Then the rest of me says, “Screw it. Do what makes you happy.” which is pretty much my mantra in life.

Here are a few of the considerations I take myself through:

Packaging Brewery Brewpub
I can go it alone for a while. Saves money on staff. Need other people involved at start; almost definitely saves on sanity.
Lower startup costs, brewing and kegging equipment can probably get me going. Serving tanks, barstools, napkins, silverware, table cloths, oh.. and food. Lots of food. Big ol’ initial investment.
Limited interaction with the consumer unless I’m really good with getting into public, long feedback loop. Immediate touch with customers and immediate feedback.
Nothing to drive customers away except crappy beer. People will come for the beer, but come back for the food. If the food isn’t awesome, people won’t drink my beer.
I want to make beer. I have no desire to make food for people.
Have to deal with some sort of distribution scheme or distributor right out of the gate. No need to distribute until your customer base is well established.
I will miss having people around and am likely to become some sort of crazy hermit before I relent and hire someone to help me. Some days people-in-general really, and I mean REALLY, piss me off.

In the end, unless I find somebody who is really excited to run the restaurant end of a brewpub that shares my vision of what a brewpub should be like, I will almost definitely start a packaging brewery. (Maybe down the road I’ll expand it to having some sort of bar or cafe.) But that doesn’t mean I don’t question: Is that the right decision?

I’d love to hear from others.

People who have started/are starting – what’s your plan? Brewpub? Packaging? Why? What’s driving your decision?

Beer drinkers: If you heard there was a new brewery opening locally would you be more excited to try it if it were a brewpub or a packaging brewery? Would you feel differently about one vs. the other?

Oh Wisdom of the Internet, pour into my discussion section!

Tags Categories: brewery, brewpub, startup Posted By: erik
Last Edit: 16 Oct 2009 @ 01 19 PM

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Responses to this post » (28 Total)

 
  1. Matt says:

    Here’s an idea that sort of goes along with your find someone to help you run all of the restaurant part of the business. Maybe you could find a well established pub wherever you happen to end up that might be interested in expanding to brewpubbery. You could brew beer and sell it from this pub (depending on the laws you may have to make it on premises) while also possibly pursuing the packaging brewery?

  2. erik says:

    I’ve always thought that attaching to a pre-established business seemed kind of strange, but it is definitely a possibility. You’d have to find the right type of person who’s willing to open up their business to a partner after they’re already established.

    I suppose the other thing that I should have noted up there in my considerations is that I have a really strong aversion to working for other people. I do it (like.. now, for instance), but I really, really dislike it.

  3. Matt says:

    In that case, I’d say go for the packaging brewery. Of course don’t just take my opinion, I haven’t done either of these things (yet) so I have no idea how easy or difficult they are. However in your list it seems like there are a bunch of cons for you opening a brewpub and only one real con for the packaging brewery. I also don’t see why your packaging brewery couldn’t have some sort of tasting room right off the bat?

  4. Ron says:

    I don’t know that you can really make this decision until you know where you’re going, and what other factors need to be taken into account. Besides the possibility that the place where you end up may be better suited to one venture or the other, as you elude to above, the laws that regulate what activities are and are not allowed in each place vary widely from state to state. In some places, there’s little difference, as production breweries are allowed to operate tasting rooms with full food and beverage menus on site, and brewpubs are allowed to offer their beer for broad-market distribution, off site. If you end up in a state where this is the case, the question becomes mostly of which way you’d rather start out, as sooner or later, the two paths are rather likely to converge.

    Other states, however, allow little or no overlap between the activities of breweries and brewpubs. Texas, where I now live, following circumstances quite similar to yours, is one of those states. Here, brewpubs are not allowed to distribute their beer off site, so, by going that route, you’re committing to never having your beer served anywhere other than your own pub. Microbreweries, on the other hand, aren’t allowed to operate restaurants or to sell beer directly to consumers. The only thing they can do is charge customers for tours or glassware, and give away a certain amount of beer along with those purchases. Either way, not only are you locked in; you’re also barred from ever having any ownership interest in whichever category you did not choose.

  5. erik says:

    Texas beer laws scare me, and I will happily say that none of the 63 states that my wife is looking at is Texas, even though there are job openings there for her. I’d like to think that she’s making that decision just for me.

    You have a fair point, in many – if not most – places, these paths are likely to converge at some point. I’m having a difficult time looking out past, say, a 5-year plan in a business plan sense, because beyond that it seems too unpredictable to be able to commit something to paper. Even 5 years seems like a long way into a business to be able to accurately plan.

    • Ron says:

      When my girlfriend started her job search, we’d also ruled out TX, for similar reasons. Unfortunately, the number of available tenure-track positions in her field were somewhat limited, and this was the one that ended up being the right fit. Having said that, Wisconsin, where we were living before, recently passed similar, albeit perhaps somewhat less stringent laws separating the activities of microbreweries and brewpubs.

      • Matt says:

        Definitely don’t move to Wisconsin either, right now they’re considering increasing the tax on beer from $1/barrel to $10! This when we’re already in the top 5 of states for highest beer taxes

        • erik says:

          See? Now Wisconsin is on the list and I’ve been watching that tax really closely because it also scares the bejeezus out of me.

          I’m not scared of trying to change existing laws in a state to make it more favorable for breweries, but it’d be a hell of a lot easier if those laws were 50 to 60 years old than, say, 1.

          • Narcisin says:

            Hey Steve! Yeah, not the best experience, but I’ve come to ecxpet it at Backcountry. Problem is…it’s so easy to stop there right off I-70 when coming down from the High Country. Had you tried the Dillon Dam Brewery? I’m headed there next… haven’t been since well before I went GF. Talk to you soon!Cheers, Pete

  6. erik says:

    @Matt – you know it occurs to me that a lot of the cons I have listed up there for me opening a brewpub are probably colored by the fact that I really don’t want to open a brewpub.

  7. Simply Beer says:

    I’ve been planning, contemplating, mapping, discussing and debating whether I should open a brew pub. And the same con as yours keeps coming up, I don’t know how to make for for people on scale. Beer I can handle that part, but the serving hot food… ahhh nope not me. In talking with people in the restaurant/bar biz, a suggestion that keep resurfacing was to merge into an existing bar or restaurant. It has advantages of existing food quality expectations, staff, and restaurant stuff. Problem is you still need a significant capitol investment (for brewing equipment and/or space) to be able to monetarily realize your work for the beer. Which is what is keeping me on the sidelines for the time being.

  8. Scott says:

    I think it really depend on where you end up, but if that wasn’t a consideration then packaging brewery. Running a restaurant is tough enough, its like doubling your work. OTOH, if it becomes a popular eatery it could offset or supplement the income from the brewery, expose more locals to it etc… Hmmm. That is a tough one!

  9. christopher says:

    I agree with your fears – you want no part of running a restaurant. They are brutal, with long hours, low success rates, difficult to manage, and myriad other problems. If beer is the love don’t try to do food. Is there another model that allows you to directly sell beer on site without having to deal with cooked food? Ultimately you become a businessman and not a brewer though don’t you? That has always been my fear with turning passions into businesses. If you are successful you must leave your love behind.

    Nobody is a bigger pain than paying customers.

  10. erik says:

    That has always been my fear with turning passions into businesses. If you are successful you must leave your love behind.

    Yeah. It’s a good point. On the other hand, as this blog might be testament to, I also really enjoy the business of beer, as well. I find it really fascinating from in a startup subculture kind of way (as in, the subculture is still in startup – it is!) and am really excited to be involved with it on a personal level.

  11. Russ Carr says:

    Packaging brewery with a tasting room. Serve pretzels, peanuts and gingersnaps. Set a couple-of-times-a-week happy hour, where you can pour beers and interact with people. Concentrate on building connections (esp. if you’re no longer in familiar territory) and getting your beer into local bars/restaurants. Concentrate on the restaurateurs and chefs using locally sourced products.

    Schlafly started off relatively small — they did have a restaurant, albeit a small one, with an easy menu — but grew quickly on the strength of getting their beers in lots of local places. That strong foundation has allowed them to expand significantly through the years.

  12. DavidtheBrewer says:

    Don’t underestimate the amount of effort needed to promote and market your beer. If you decide to go the the packaging brewery route you’ll want to consider the ratio of keg/bottles. This will depend much on location, but if one of your main adversions to starting a brew-pub is it’s anti-hermit features you will want to be well aware of the amount of effort it takes to get your beer to market. Ultimately you want the beer to speak for itself but it will take lots of hand-shaking and talking to convince bars and restaurants to sell it. Sadly, convincing the aforementioned to put you on a line usually takes more than having great beer. I wouldn’t call this a strike against the packaging brewery but something to be aware of.

    • erik says:

      Hey David,

      Thanks – I actually count on only being in my brewery one or two days a week for the first couple of years because I will almost definitely be spending my time out and about being my own sales staff.

      So, you’re right. Maybe I inflate the hermit properties a little too much. In the grand scheme of things, it may actually be easier to be a hermit in a brewpub since you’ve got waitstaff selling the beer for you.

  13. Billy Broas says:

    It’s comes through crystal clear in your post that your passion is in brewing, not in serving food. Even if the facts are against you I’d put my money on passion any day of the week.

    Here’s a third option to lose sleep over: how about a combination packaging brewery & brew on premise? A brew on premise is something that in my experience is a great idea that hasn’t been executed quite right. Through the BOP you can brew your own beer and get a higher return on your assets by selling the opportunity for people to brew their own beer at your brewery. You also get the face-to-face contact and feedback that you would get a restaurant without the food nonsense. Besides charging people to brew their own beer you also get:
    – Word of mouth marketing that would benefit your retail sales: “I brewed my own beer at Erik’s and he’s great, let’s buy his beer”
    – Great market research – get paid to do R&D on new recipes
    – The benefits of being an authority. “He’s a professional brewer, of course I trust him to help me make beer”

    I think the answer to your problem, like all business decisions, comes down to “what’s in it for the customer?” Don’t start the food business just so the beer can tag along for the ride. You’re a brewer. Teach people brewing and make a great product and you can’t lose.

    • erik says:

      Y’know.. I’ve seen a few BOP operations, but I’ve never been quite sure how it all works as a business model.

      Have you been to one? I’d love to hear what you think.

      The only thing that really scares me about them is on the liability end of things. Not that I think anybody would get poisoned, so much as that there’s a lot of cleaning material and boiling wort around.

      Hrm. This is an interesting thing you’ve brought up.

      • Billy Broas says:

        There is one about 30 min away from me that is pretty popular, despite being a rinky-dink place. I’ve been there for music but not to brew, although my co-workers go all the time and love it. They describe it like going out to eat vs. cooking. They can get the benefits of brewing their own beer without dealing with equipment, cleanup, storage, etc. It seems like they make it a fun experience. My boss even has his kids form an assembly line to help bottle.

        They way they do it is you first make an appointment to brew. They give you a big recipe list to choose from which are based on their in-house brews that they sell locally. All of the brews are extract based, which they buy in bulk and even sell to local homebrewers, along with other ingredients. You brew for a couple hours and they stick your carboy in a big fridge until you come back a couple weeks later to bottle and take your beer home. I think they do 15 gal batches, which is alot.

        The place isn’t exactly thriving, but it’s hanging in there. As I mentioned in my 1st comment it doesn’t seem like a well run operation. I know for a fact their biggest expense is heating the water. They could really help that by installing solar water heaters.

        I often think about how much better they would do if they were in my town, which is a college town. You could rent out the place for a day to frats and make a killing. I do think the location is key. This pace is in an older, rural town when it could probably be doing much better in a younger, wealthier area.

        Anyways just something to think about. Here’s that brewery’s website if you want to check em out.
        http://www.queencitybrewing.com/

        • erik says:

          There are just a ton of “Queen” cities, aren’t there?

          This sounds a lot like like the ones I’m familiar with. I wonder why they’re all extract-based? Weird.

          It’s an interesting idea, I think. And I could see myself, say, contract brewing to homebrew clubs, or having events where I have a homebrew club brewing with me on my system. But something about BOP seems to really cheapen the process to me. Not sure how to explain that.

        • Jim says:

          I have been to a BOP in West Michigan.

          Saugatuck Brewing Company.

          I brewed a batch there and it launched me into home brewing immediately. It was a great experience for me and the guys I went with. With that said, I am the only one of the four of us that began to brew after going to SBC. We chose a Brown and they provided the recipe. They actually let us tweak it a bit, which was cool.

          The owner and head brewer were both there for the 4 hours that we brewed and seemed to really enjoy it. Lets be honest…for guys that are willing to pony up the cash to do BOP, the people in the business are people that we really look up to.

          It was win-win as far as I can tell. The establishment gets loyal customers…the customers get one on one time with the brewer, etc. You get great beer after you go back in and bottle. We walked away with upwards of 70 22oz. bottles to split. It was great.

          The drawback was that they did use LME in the batch and we did not get to do anything other than brew and bottle…but really…not much goes into the fermentation process other than waiting.

          I don’t think it cheapens anything for the people at the brewery. SBC is wildly successful, and they have no need to keep BOP as a part of their business. They continue to offer BOP to educate and speak with beer lovers that come in to do it.

          Just my two cents from my personal experience…

  14. BK says:

    I’m currently in the process of planning a brewery over a brewpub. The startup costs are so incredibly high for a brewpub it’s simply out of my range/ability to raise money. Some of that has to do with location (cost and length of leases), and some of it has to do with the fact that though I can brew my ass off at home, I don’t have practical experience working in a brewery – therefore I have to include a Brew Master in my business plan and startup costs. But I also don’t plan on quitting my dayjob until the brewery becomes so demanding that it requires 100% of my days.

    In my area (North Carolina), the startup costs of a brewpub (from my calculations) is at or over $1.5 million higher than a distribution brewery. Of course money can be saved in some instances where an experienced brewer or engineer can cut corners.

    One common theme I’ve seen in comments above holds true – either way, the direction you go starts out with location. But with a brewpub it’s ALL about location. It’s harder to open a brewpub in the sticks because the demographics may not be there to support your food or beer prices. Do your research, but make sure the demographics will support it. Even in a state like NC where microbreweries & brewpubs are opening up left and right, there are places that just cannot afford to support it/or said another way – you won’t make enough money to stay in business.

  15. Russ Carr says:

    There was a BOP over near my parents’ old neighborhood here, and I wandered in one day, thinking it was more like a package brewery. The concept was cool, but at the time I didn’t have the finances. I must not have been the only one, because the place wasn’t open even a year. I think the people who take up brewing-as-hobby are more apt to buy a crapload of equipment so they can do it in their basement, and either give up on the whole thing after producing their first batch of 10w30… or they’re diehard enough to embrace it and baby their brews.

    Either way, I don’t see there being enough people to sustain a BOP for very long.

    Now…if a reasonably successful microbrewer held a one week “Brewing Camp” — that would rock.

  16. erik says:

    Now…if a reasonably successful microbrewer held a one week “Brewing Camp” — that would rock.

    Sierra Nevada did that for National Homebrew Competition winners this year, I believe. It is a great idea, but you would most definitely need their kind of resources to pull it off.

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