Distribution 101: Everything You Need to Know to Start Your Own Brewery

Passion is one of the ingredients needed for a successful business, and there are few businesses that represent passion the way that an American craft brewery does. Generally, individuals who start their own business in this industry do so as enthusiasts or through an apprenticeship. Regardless, these entrepreneurs are passionate about the product and produce some of the best beer available.

Craft brewers represent history by interpreting historic styles in using fresh hops and malted grains while also being innovative in creating new surprises. These types of businesses are usually small and independent, where they produce less than three percent of annual sales and less than a quarter of the breweries are owned by a large company. Those with an obsession for high-quality and great-tasting beer can learn some important information about the industry and start their own brewery.

First Some History and Culture

When Congress approved the reduction of a $9 federal excise tax on beer by $2 a barrel in 1976, they were specifically sending a message to enthusiasts and entrepreneurs to continue the tradition of small breweries while also protecting the few that remained. This message was even louder when, in 1991, Congress doubled the tax to $18  per barrel but did not modify the rate for the first 60,000 barrels. These actions suggested that the American government was adamant about protecting the craft beer industry. Such incentives make the industry attractive to those that want to start a business.

The craft beer industry is one of camaraderie and cooperation.  This sector reaches out to one another not only to improve the product but to help the industry survive. The collaborative nature is built into the culture. One of the reasons is that those that work in the field enjoy and love it. Therefore, the goal is for the entire industry to prosper and enthusiasts genuinely believe that the market has room for many successful players. This approach combined with the incentives by Congress grew craft breweries from 18 to more than 500 in 11 years, between 1984 and 1995. Many of these successful small organizations have grown to become staples in the industry, such as Boston Beer with the Sam Adams product, New Belgium Brewing Company with Fat Tire, and Sierra Nevada Brewing Company, among others.

Understand the Market

Although the tax laws favor small breweries, rising competition will make it harder for small businesses to survive. This is the case in the small business arena for practically any industry. Marketing, distribution, and sales require financing that is sometimes hard to come across, thus negatively impacting organizations without enough capital. As competition in the craft market expands, reaching a larger market share becomes more difficult. However, craft beer companies do benefit from the marketing efforts of large organizations such as Anheuser-Busch. The reason is that big beer companies invest large sums of money on mass-marketing efforts, including Super Bowl commercials, which make beer relevant. The growth in interest trickles down to small craft beers, thus helping all players in the industry.

Those who are considering joining the beer sector should understand that growth may slow down. Even with such easing, the increased market acceptance and interest for non-standard brands will help artisan producers increase sales. It is important for future business owners to reach out to other businesses and create their distribution channels. Small craft beer companies can leverage the power and interest of the artisan product and look for stores and distributors locally and nationally. Start locally and direct. Look for neighborhood stores that stock craft beers such as liquor store Lawrenceville, NJ. Afterward, expand nationally. For example, the Pacific Northwest has great companies that sell great selections such as kent beer and beverage distributor. Once distribution channels are clear, look toward the cost of the equipment.

Equipment and Costs

The size of the brewery will be the main factor in determining the total investment value of the equipment. Such brewing equipment can range from small capacity items that handle 1 barrel to high-capacity machinery that can produce 30 barrels. The prices will vary based on the condition of the equipment and said capacity and can cost less than 100,000 dollars or more than one million dollars. The business will also need boilers, kegs, kettles, cooling and refrigeration mechanisms, tanks for storage, fermentation tanks, filtering systems, and labeling machines. Individuals that are starting their brewery need to consider the capacity of the business and understand the demand for the product. The reason is that miscalculating the equipment needed can prove costly both in missed opportunity and growth as capacity is hard to scale. Most of the time, the items will need to be replaced with larger capacity equipment. Additionally, someone will need to move barrels and product, which will most likely require a forklift among other machines. Look for a quality forklift dealer in New Jersey that can meet these needs.

A brewery will also need space to operate. The size and location will determine the cost of rent, and new business owners will need to factor these costs into the business’ budget. Furthermore, electricity and water play a major role in operations, and the costs of these items also vary depending on the location of the organization. However, determining the right size is difficult, and mistakes can also be costly. Selecting too small a size can limit growth and potential and can produce added expenses when the business decides to expand. For example, breaking a lease to move to a bigger location can create an expensive scenario. However, overbuilding or selecting a location that is too big will add unnecessary costs. Therefore, new business owners need to develop a budget and a plan and align these figures with the calculation of growth and demand.

Other Requirements

As with all businesses, the organization will require a set of permits. However, because of the type of product, craft companies also need to apply for a federal brewing permit that is controlled by the Alcohol and Tobacco Tax and Trade Bureau. The process may be as long as four months but does not cost anything. The problematic aspect of the process is that a permit cannot be issued until all equipment is installed. Therefore, the investment may sit idle for months before sales begin to take place. Additional to the federal requirements are the state laws that vary depending on where the brewery is located. Each state handles their own liquor licenses and may take a couple of months to process. Furthermore, as with all other organizational, the local city government may require additional permits and licenses.

If beer companies want to create marketing campaigns, the government also has a set of laws that they must abide by. Failure to comply can cause a suspension of their liquor license and their product being pulled from retail shelves, such as what happened to Anheuser-Busch in Ohio and several other breweries. These regulations include misleading statements, mandatory statements, inconsistencies with labeling, health statements, information on the strength of the alcohol, among others. Advertisers must provide clear information about the origin of the product and must be legible. Therefore, if craft companies seek to obtain market share through traditional means of advertising, they must understand the laws and regulations of such campaigns.