06 Jan 2010 @ 8:01 AM 
 

Startup: Starting small – the nanobrewery concept.

 

I keep running across references to nanobreweries, but up  until now I never gave them much thought. My mind kept going back to this old article on MSN last year, “Something’s Brewing Close to Home” in which they note (or quote actually):

The nanobrewer isn’t going to quit his day job. They are brewing because they love the process and want to share the results with the people in their neighborhoods…

That sounds crazy to me, so I wrote it off. But I keep seeing the concept pop up, so I started doing a little research, and I think I just didn’t get the correct characterization off of said MSN article (an MSN article being unclear? Shocking!). It just kinda ends after introducing the concept. From what it looks like, you homebrew, and then you drop the thousands upon thousands of dollars you need for the necessary permits and licenses to sell your product, and then for some bizarre reason you keep your day job.

See? It is crazy. Totally batshit insane.

But! There are other operating nanobreweries around. The Hess Brewing Odyssey, a nanobrewery in San Diego, recently compiled a list of operating nanobreweries in the U.S., some of which are making the step up to being small craft breweries, though in reality a small craft brewery is all a nanobrewery really is. Sorta.

Curve Street Brewing

There’s no good definition, but what seems to be settled upon is that you’re making an amount of beer, per batch, that is considerably less than one would expect from a production brewery: half-barrel or one-barrel systems are common and sometimes even less. If you think about it, in that respect, Dogfish Head can be said to have started as a nanobrewery.

There are only a handful in the country, but it’s been enough for the TTB to put together some guidelines. They are basically a reminder of what constitutes the amount of beer that you can legally make in your home every year and that if you sell it, you need a license.

Michael, the person behind the Hess Brewing Odyssey, has compiled an absolute wealth of good documentation about how to open a brewery, nano or not. He covers all of the forms and hoops you have to jump through quite well (in fact, I’ve already bookmarked it to use as a reference), but the associated cost is still there.

So, I ask: If you don’t have a sizable bankroll at your disposal (Hi, I’m looking for investors, interested? Let’s talk!), is starting a nanobrewery financially feasible as a startup option? In other words, if this isn’t going to be a hobby – you’re not going to keep your day job – is that type of investment worth making 1 – 2 kegs at a time? A 7bbl brewday isn’t going to be much different in time vs. a 1bbl brewday, but at the end of it all you have 14 kegs to sell instead of 2 in return for your 8 hours of janitorial work. Will a 7bbl brewery cost more? Certainly. At least the brew system. Any sort of packaging and packaging system will cost exactly the same, and you’re going to use it a lot more frequently. If you’re making a go at starting a business,and you start that small, I feel like you’re going to be spending all of your time making your product, rather than selling it, and the latter is really important if you want to make a profit.

On the other hand, I’m a proponent of slow growth in the craft beer industry. Every single book I read about startup businesses in craft beer, every single time I hear an industry veteran talk about their startup experience, the number one thing I hear (though mostly in subtext) is, “We grew too fast, and had a hard time keeping up with production demands, so we went into a ton of debt.” I mean, I hear about companies that are now successful quote things like 7 – 10 years to cash-flow positive. I’m not convinced it has to be like that. Maybe starting super small and selling deep into a market is a way to avoid that. The path to cash-flow-positive growth is to not grow until/unless you can afford it and bust your ass in the meantime. It’s a theory.

I just can’t get by the fact that you have to brew 5 days a week to sell a half-barrel keg to 10 accounts. That’s a lot of time – and it’s a lot of fermentation space! I have a hard time imagining it.

Maybe the purveyor of a fine nanobrewery will stop by here and set me straight. They’ll let me know that, actually, they put together their operation with $5,000 and a box of coat hangers and they only brew on weekends, but I’m going to guess that’s not the case. I’m going to guess that they all meet at least one of the following conditions:

– they are rich
– they are in an enormous amount of debt
– they are making a go and hoping against odds that this venture doesn’t make them bankrupt
– they are still employed at a full-time job elsewhere
– they have an anonymous benefactor
– they are homeless and sleep under their lauter tun
– they have a really-well-employed spouse or partner
– they employ magical elves to make beer while we sleep
– they are, in fact, wizards

What do you think? Starting that small is an undeniably cool (and even romantic) concept, but I wonder at how sustainable the businesses are. It’s great to see that some of the ones listed in the link above are making a step up in growth, but how many will successfully make that step, and how many will make that step at all? Are these merely extended hobbyists or is this a viable entrance strategy to the craft beer industry?

I’d love to hear from others.

Tags Tags: , , ,
Categories: industry, startup
Posted By: erik
Last Edit: 06 Jan 2010 @ 09 02 AM

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Responses to this post » (87 Total)

 
  1. Beer2011 says:

    I do not know how many sites I have been on and every single time I see nano-brewery ideas shot down for reasons they are/should not be created for. Right off the bat and even here it is always started with, “A 10 gallon system, how will you do keg/bottle distribution and make it work?” Simple, you don’t, the money is 100% in the tap room and that should be the business model of anyone under the 7-10bbl range. Why sell a keg to a store for $100 when you can easily get 4 to 10 times that in a tap room setting. Breweries simply make the bulk of their money off the tap room setting, nano-breweries will and do work. Simple fact, thinking “distribution” will be what kills the brewery, sell in house and nothing more. Tap room: $4 pints on a 5 gallon keg is $160 then do the math from that on how big you want to be. 1/2 bbl in a store ranges $80 to $150, in house at $4 a pint comes to $496. Again, why do people use “distribution” as an attack on nano-breweries, that simply is not the business plan. Where I live there is only 1 brewery within a 6 hour drive that does distribution and the rest are all 100% in house sales.

    These do work, I am in a town where I was told no, no, no no, and guess what someone opened 1 bbl system 1 day a week and in 6 months they have exploded on the local scene often selling to the last drop every weekend (open 4 days now) and start all over the following weekend and living it up in their hobby. Looks like I was the dumb one and let all the “No” people hold me back and someone else moved on it. I say come up with a game plan that fits your money ideas and give it a shot, if you have a day job and you find this doesn’t work then you are out no more than if you just upgraded your system in the first place. Just don’t let someone say you have to have a 7bbl system to sell and make money in beer, that is simply a lie. Be smart, find a comfort zone, and go for it and as long as youre not banking your house on it and you have the chance don’t let the “No” stop you as it did me. “Distribution” is a mythical beast that is used to create fear and it just should not be your goal if you are starting up, in house, in house, in house is where the money is stashed.

  2. A large part of the revenue of any small brewery is the tap room. You won’t make anything off a 10 gallon system. I have a 1 bbl brewhouse and 4 2bbl conicals and 2 1bbl conicals, I’m brewing 3-4 times a week because my distributor sells all of my stock every week. Finding the right distributor is key. My first distributor took way too long to sell my beer, it took him 3 months to sell 7 cases. I got rid of him and took on a new distributor, now I’m in 40+ locations with an average sale of 15 cases per week, then there’s my county which I pretty much self distribute in, that’s another 10 or so cases. A sixtel keg at the brewery can bring in about $300+. Currently we do not keg for distribution, and being as small as we are, we are looking into contracting that out, but even that is damn expensive to get started.

  3. Beer2011 says:

    You are doing it full time, the original poster was looking into it to off set homebrewing costs. Many people that start these have regular jobs and this as a weekend project, you brew at the level you brew because you choose to and are trying to live off of it. A 10 gallon system can make money depending on what your goal is, if you want to have a tap room couple hours a weekend and sell 50 gallons or so and make tops a grand a weekend that would not be a bad thing if you already make a nice wage Mon-Fri.

    Still with your model bottling is not a way I would choose, why sell local when you make them come to you and pay 4 times as much. Look at most local brewhouses and they do not sell bottles or food, straight up beer in house and grow from there. The ones that do bottle are quite large and did not start out that way, plus where you say you distribute yourself locally, most states do not allow that.

    With all that said, towards the original post that got this rolling his plan could work as long as his location costs fit his plans. If you are looking to make millions or even a living that is quite different than having some side cash on the weekends.

    • Jim Thurman says:

      Hello my name is jim thurman. I build malt mills for small start up breweries and home brew shops. My mills are affordable and are extreamly efficiant. They are a big help to start ups. I am looking for ways to tell folks about my mills. I have a website. maltmills.com . I sell a 6″ mill that puts 18# a minute through and a 12″ mill that runs 35# a minute.
      thanks
      Jim

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  4. It’s true, selling wholesale to a distributor doesn’t make as much as in house, but, it does get your product out there and exposes your brand. If you plan on selling to the public, and plan on making more than 300 gallons a year, you’ll have to do the paperwork, and that is oh so fun, no to mention all the fun requirements. A tap house might get noticed by uncle Sam. It may take them 90 days to process a form, but it takes the 30 seconds to come down on you if they don’t get their money. Local governments can be whiny little (insert explative here), so if you run a small tap house and plan on charging money, make sure your covered or are able to do it under the radar.

  5. Beer2011 says:

    I don’t think we are on the same page here, I am talking about being 100% state and fed legal here. I have been to 50 breweries many of which are nothing more than a tap room and they do extremely well. You do not have to sell bottles and/or kegs to make it in the market, thinking you have to sell in the store market to make money is the false rumor and you actually loose profit margin. If you have a good location, good product, a good following, with good word to mouth and online information you will be exactly what you want to be. If your goal is to be out there and compete with bud for floor space that is all fine and dandy as well, nothing wrong with that outside of the fact it is a losing battle, but telling people that they can’t do it because they have to bottle and keg and this and that to get in the market is false. A person with a size brewery you have with a good tap room in a town with a nice sample size of people can and will be popular. I would not have a goal to be a huge brewery that is popular 6 counties over, just be popular in my home town. Again, it comes down to what you want, if you can make 50k a year salary and that works for you then that is fine, but if you want to make millions you are not in the correct field. Hess Brewing, Soo Brewing, Blackrocks Brewing are just a few out there to look at for opening up, but “what works” and “doesn’t work” could go on and on where my main point is “if you don’t try” you won’t make anything. 65 Nano-breweries open/49 in planning and those are the ones they know about: http://hessbrewing.blogspot.com/2009/11/nanobreweries-in-usa.html

  6. Michael says:

    I love this idea of selling from the brewery a day or two a month and that is exactly what I plan on doing. The main thing holding me back is the space. Being so small (1BBL brewery), how can a nanobrewery afford to rent or own a commercially-zoned space? I wouldn’t need much space, but the cost of rent alone almost makes the nano size unfeasible. How have the operating nano’s worked around this issue?

  7. @Beer2011 – I understand the profit margin is higher selling from a bar only, but that is technically a brew pub and not a nano or micro brewery. You would have to serve food, check with your local government, the TTB may also have a thing or two to say. I sell my beer wholesale to distributors at around $30 a case for 12 bombers. Most retail places sell the bottles for $5-$6 a bottle, that’s inexpensive in my area. My cost per case is probably around $9, this includes ingredients, packaging and time. So it is a decent margin. When we do tastings and special events, we charge $5 a pint, we fill cornies for brewery consumption, and figuring 5 gallons fills around 30-40 pints, and the cost is next to nothing, a decent margin is made there. We can sell a limited amount of beer without selling food, but if you are talking about just serving on premise, you will have to look into the food side of things. Overhead is a lot higher for a brew pub. I checked into this when I first started. It is not a false rumor that you have to sell to stores, you do make money, just not as much. This is more for marketing and getting the word out which is important if you want to stay afloat. Having multiple streams of revenue is the key, you really have to do both in order to make money. We are just now breaking even after a year, which in itself is pretty lucky.

    @Michael – I started out as a 2 bbl brewery, I was able to afford rent if I sold 15 cases a week. In the beginning it was rough, but with the right distributor you can easily do that and more. Some people think they can start a brewery out of their basement, speaking from experience, this is not an option, the TTB (Federal Government) won’t allow this. Depending on what state you’re in, you can sell directly to people who come to visit. As Beer2011 said earlier, the profit margin is higher. Under my MD Class 5 license, I am allowed to sell up to 288 oz per person. Special events I can pay a $25 fee to sell more than that.

  8. Beer2011 says:

    @ Micheal: this place opened in January and was open 11 hours a week and now are open 3 to 4 nights a week as of last month. 1bbl system in a converted house, http://www.blackrocksbrewery.com/ Also, Paul is 100% correct, you cannot just brew in a basement and call it even as there are tons of laws against that including being 500 feet of a church or school, that could be a state law as well. I did come across a brewery out west that the guy has a 20 gallon system and turned a pole barn on his lot into a cool little weekend pub for the neighborhood. Wish I remembered where it was as I would like to know his update, it was pretty sweet.

    @ Paul: A brewpub sells food and beer for sale in house only as well as can have items like pool tables, dart boards, bar type items. Microbrewery (which a nano is considered) sells beer in house/to go and is license to sell through a disturber, but is not licensed to sell food or have items that are part of a bar like pool tables. The link I gave Micheal is a brewery that does not sell bottles, Right Brain Brewery does not sell bottles nor does Soo Brewing, Liberty Street Brewery, Hess Brewing, Cheboygan Brewing Company along with so many others. These places are all over except in states that have loose Distribution laws such as Wisconsin where just about anyone can brew and sell directly to bars and stores one 6 pack at a time, but that will even change in Wisconsin as the law is looking to go to a tier system like Michigan, Florida, etc. where it is much harder to get beer into stores without a middle man ripping you off. Orlando Brewing Company is dealing with that now as they cut back from being 3 counties to only 2 at this point and that is a huge brewery. The majority of the breweries I have been to did not bottle the first several years they were in business and the ones that did had plans and budgets to do so on a mass level. Bombers here are about $6 and 6 packs are around $9-10 from breweries that do bottle with tap beer being $3 to $6 a pint depending on the city. Sounds like you are doing well and that is always a good thing and as we can see there are several avenues to take based on location, budgets, and time.

  9. Brew-on says:

    I am looking into starting a nana brewery whith a 2 maybe 3 bbl system. This will be on my property in a detached garage. I would need a public hearing and have to jump through a few hoops but unless someone outright opposes it at the public hearing there is a good chance that this will be approved. I would not be able to sell directly to consumers with this set up as the added traffic on and off the 3 acres I own whould not be permitted. I can however self distribute here. With the low over head of brewing on my own land and not paying a distributor I see myself doing ok. I will not be quiting my day job right away and will brew once a week. I don;t plan on getting rich this way just getting my name out there. Then I can move up to brewing more days a week and hire others at a point whene it is nessisary to do so. I also have a large 40×100 barn I could convert as more space is needed. There are lots of winerys going into VL (valley rural) zoned areas like mine. If your area alows the exception to put in a Brewery under the same zoning it is definatly feasable to have a Nano Brewery that is profitable. Start out small and grow from there. Someday I hope to have a Craft Brewery with a tap room and resterant. But if I can make it as a Nano Brewery and never make it any farther thats OK too.

  10. […] some other cities in China, Beijing in particular, are developing some small microbreweries, almost nano-breweries. Do you find that encouraging in terms of the idea of possibly expanding into other cities, or do […]

  11. Michael Long says:

    Are there federal or state requirements for the size of the fermantation tanks I must have to get a federal lice…5 – 10-20 barrel tanks….can not fimnd this info anywhere.

  12. Beljica says:

    For me a nano brewery was the best option to go with. In three weeks I will begin to brew on my 3bbl system that is made from repurposed dairy tanks. The brewery is rent free and I have no personal cost other then food and water.

    This sort of ventures has a lot going against it but it also comes with some unique bonuses such as no debt, no rent, and I can learn about the market and afford to make mistakes. Sure I can only make 48 cases of beer at a time but I’m a young childless debt free guy. I do plan on expanding but in a debt free stress free sort of way, so that when I say I own a brewery I can say I own a brewery not the bank.

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  18. james quigley says:

    This is a good website, I think creating a mass market for nanu brewerys is a good thing especially in your market communitys. This llows people to create better products and come out with interesting ideas. I see a nanu brewing society being created and will make local communitys prosper. Starting small is a gd thing remember when there was goliath there was david. Could anyone introduce me to a successful start up nanu brewery

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