If you are reading this article, chances are that you want to start a brewery. You are probably even thinking it is a great idea to open one. If you have the skills to make great beer then you know what it costs to produce it so you should be able to print money, right? If all you are counting is input costs such as grain, hops, water and yeast, then yes there is a lot of money to be made, especially if you can sell at retail. There are several expenses that many people overlook and I want to show you some costs to start a brewery.
In essence, a profitable brewery business model is more or less a fast food restaurant. Making money is all about volume. There is a huge upfront capital outlay, and then you have primary operating costs such as rent, salary, marketing and ingredients. Due to the low per unit prices without volume it is hard to offset the high fixed costs.
The first scenario for figuring your breakeven costs, let’s look at a common scenario which you are probably familiar with – brewing at home, to get us started at looking at a commercial value.
Figuring a batch of five gallons, you have:
Ingredient Costs: Assuming non-specialty and non-bulk grains, hops, extract, fermentabels, yeast and caps a good estimate is $35
Energy Costs: There is water and energy costs to brew the batch, chill the wort and control the fermentation temperatures (just because you make it at home doesn’t mean there isn’t a cost for electric). Estimate $2.00
Bottles: There is an upfront cost but since you are home brewing you aren’t buying new bottles each time. For this example to look at a retail cost though you are looking at $30 for 2 cases of bottles.
Then the cost very few compute is the cost of your labor. Sure at this point you are doing it as a hobby but we are talking about starting a business and your time is valuable. Without you there is no beer so even at the hobby level your hours may include:
- 1 hour to purchase ingredients and plan the recipe
- 6 hours to brew
- 1 hour to rack
- 2 hours to bottle
10 hours for a 5 gallon batch (you can see here why very small microbreweries have a tough time since the labor doesn’t go up much with the volume when using bigger equipment.
What is your labor worth? Even figuring on the low scale of $10 per hour your labor costs alone would be $100 for a 5 gallon batch or $20/gallon.
Adding up all of the costs you are talking about up to $167 for a 5 gallon batch or two cases of beer that retail at $35 each or $70. This doesn’t even include the packaging or distribution costs, nor does it amortize the equipment.
Before I get the haters I know as a home brewer you probably did not get into the hobby to save money, but again this exercise is to look at the commercial feasibility of opening a brewery.
But it does show that it is hard to make money brewing in small batches.
Now let’s look at going to a commercial scale as surely there is good money to be made since the bigger the system, the more efficiently the beer is produced. While nobody can just answer exactly what will it cost to start a brewery without doing lots of research as it will vary depending on your needs and geography, this list is here to give you some rough ideas to think about. Let’s look at a common twenty barrel wholesale brewery that can run an average of 3,000 barrels of beer a year, which is a good amount for a starting brewery to sell without a name.
Equipment: At this scale and figuring on buying everything new expect to spend $100k + for your equipment. On top of that you will probably be taking out a loan, so factor in another 6-10% interest.
Location: Lease costs vary greatly depending on geography but figure on $1-$6 per sqf depending on whether you go strictly wholesale or need better visibility with a brewpub. Costs can go up here too if you decide to buy.
Ingredient Costs: Cost for your ingredients will go down on a per unit cost since you can buy in bulk.
Electric: Costs go up dramatically here so expect to be spending $1,000 + per month.
Taxes: Excise taxes will cost in the neighborhood of $7 per barrel Federal, $4-8 State and sales tax if selling at retail.
Labor Costs: Depending on whether you go wholesale or retail there are salaries for production, wholesale, bartenders, waitstaff, management, bookkeeper, janitor, cooks, etc. If you are figuring on starting a brewery business, don’t omit your salary. If you want a successful business, every position needs to have a cost associated with it as any successful business owner will tell you. You can’t work in the business forever at no salary and make it work.
Then there are the miscellaneous costs: Marketing, packaging, delivery, insurance, payroll taxes, accounting, and the list goes on.
The point here is that it is extremely difficult to make a profit in this industry. Consider this – why are there less than 1,500 microbreweries and brewpubs in the U.S.? I demonstrate this not to discourage you from starting a brewery but to do your homework before investing a considerable amount of time and money into a business that is difficult. Many people dream and lose fortunes in starting so do your own research and find the actual costs to start a brewery and see if there is potential for you to succeed.
Consider the free resources through your local Small Business Development Center to help you work through the profit analysis and evaluating the costs to start a brewery.