Loads of new small breweries. What will hang on and what won’t?

Here at Denver Off The Wagon, we have covered the opening of a bunch of new breweries. Odds are that some of these places are destined to win and unfortunately, some are probably going to lose. I am not going to break balls here and act like I know anything. There are so many new small breweries opening up in Denver and I am interested in what it takes to make one of them work. There are also a ton of new breweries on the horizon for various Denver neighborhoods. This is a pretty awesome thing. I know it is a complete dick move to compare Denver to Portland (Oregon), but in this case, it actually fits. Portland has a load of smaller breweries with tiny little systems that are generally catering to a small geographic area and take-out beer, from what I can tell, is growler sales. We are seeing a similar trend here in Denver and I like it.  To name a few, we have Denver Beer Co, Renegade, Strange, Upslope, many others. These guys are putting it out there and good on them.

I had originally started out this article trying to gauge sizes and compare homebrew systems to those found in some of these breweries. I began by looking around at some companies who provide small brewing systems to get some idea of what types of investment small brewers are staring at. Then I found the following stuff on a website for Sound Brewing Systems Inc. It totally shifted the focus of what I was looking at mainly due to the sort of confrontational approach in the print. I guess this post is more to elicit a conversation and to have you answer some of my questions. It is a bit long but stick with it. It is interesting and I would love to get your opinion on this attitude.

THE MINI-MICRO-, PICO- AND NANO- BREWING SYSTEMS PAGE

Please take the time to read this if you are considering buying a system smaller than 7 barrels for a start-up…..
Links below provide additional information.

This page is designed to inform buyers interested in what we’ll call Mini-Micro brewing systems, which for our purposes are those under 7 barrels in batch size. Most of the one seen on the used market fall between 3 and 4 barrels in size.  There are a few 1 to 2 barrel systems that show up from time to time, and a very few 5 barrel ones exist as well…5 barrels is actually the rarest of all sizes on the used market.

There are one or two applications we feel Mini-Micro plants are good for, and  quite a few more that they are not good for.   In a nutshell, here is what our long experience  in this industry has shown us:

1. In 24 years in this industry, we have seen NO evidence that a start-up microbrewery (meaning primarily wholesale sales, NOT a brewpub) is a viable business at less than 10 barrel size, and more realistically 15 barrel MINIMUM size.  A micro will not become consistently profitable until it produces some thousands of barrels per year…3,000 or so is a ballpark number.   You can’t get there with a 3 or 4 barrel system.   Do the math.

2. A start-up brewpub needs to be scaled to produce and sell 500+ barrels of beer in house to be successful.  We believe this requires a minimum 7 barrel system. While smaller systems can sometimes produce this much, the labor cost on a 3 or 4 barrel system is often too high to make a decent profit.  The cost of beer production on a 3 barrel system will approach the cost of buying wholesale microbrewed keg beer from a distributor. Given that, why go through all the licensing and regulatory headaches to make the same money?  Open an alehouse instead.

3. Tiny systems like 2 barrel plants are for the most part good only as pilot plants or hobbies (as in big home breweries).  They are not commercially viable for even a tiny brewpub.

4. A 3 or 4 barrel microbrewery (wholesale production) is doomed to either fail, or enslave its operator with interminable hours and little compensation until he can upgrade his equipment to a large enough system to become profitable on.  In many instances the venture self destructs and visits financial ruin upon the owner.

5.  Mini-Micro systems are useful for a multi-unit brewpub operator (brewpub chain) in some instances. These include opportunities to open satellite locations  which (A) do not need to make all their own beer on premises but (B) do need a brewery to get the license due to state laws.  In those states where this scenario applies, brewpubs are permitted to  transfer beer from one location to another. The Mini-Micro brewery becomes  more of a decorative piece that sees occasional use, and, of course, qualifies the establishment for a brewpub license.  Some of these establishments may brew as little as once a year to comply with the laws, others use them for experimental or exotic brews like Belgian styles.

6. Incrementally, a Mini-Micro system is the most costly to buy of any size and even more costly to operate.  A 7 barrel system of comparable quality is not twice the cost of a 3 barrel system but it has far more potential expansion capacity.  Buying a Mini-Micro system and replacing it later is very costly.

7. We have seen many times that adding a brewery to an existing  restaurant or bar usually does not work. A brewpub needs to be created from scratch, not added on to an existing establishment. It is axiomatic that adding a brewery will not “fix” an establishment that is “busted” (i.e. not successful), nor will it add meaningful value to one that IS successful.

MORE FACTS TO BE AWARE OF ABOUT SMALL SYSTEMS:

8. The amount of labor and time it takes to produce a small batch like 3 barrels is no less than the amount required to make much larger batches. Cost of production is therefore much higher on a per barrel basis in a small plant. Too high, in most cases, to make brewing on this scale profitable, whether in a brewpub or a wholesale microbrewery.

9. The cost of ingredients purchased in small quantities is significantly higher than in larger quantities. Shipping costs on small orders accentuate this disparity even more.

10. It is likely that the TRUE cost of brewing beer in less than 7 barrel size batches will equal or exceed the wholesale price of craft brewed beer bought from a distributor. If your cost of production is greater than wholesale, where is the profit?

11. On a dollar per barrel of capacity basis, small systems are by far the most expensive out there. Cost versus capacity drops precipitously as size increases.

12. Many microbreweries (meaning wholesale production breweries as opposed to brewpubs)  that start up with smaller than 10 barrel systems fail within 2 years. Those that don’t quickly run out of capacity and find they need to replace their equipment and/or build a new facility–an expensive proposition.

13. Most brewpubs that start up with smaller than 7 barrel systems find they either cannot meet their demand (and have to replace their equipment and upsize, a very expensive and disruptive process) or that they cannot offer enough variety or consistency to be successful, and then they simply close. 

14. The only applications we believe these small systems are appropriate for are:
(a) A regional brewpub chain that is opening a satellite store, AND has the ability to supply beer from other brewing locations, and therefore only needs the brewery in place to comply with licensing laws.   In that situation, where the brewery will be operated occasionally to make specialties and one-off brews, small systems are appropriate.
(b) Rarely, as a pilot plant for an established regional brewery.  This rarely works because the brewing capabilities of these systems are usually quite limited.

We can’t think of any other applications where they make sense, either financially or logically.

We have a love-hate relationship with small systems. This is because:

15.  They inherently generate more inquiries for us than all other sizes combined, but most of the shoppers don’t have the funds to buy a system. They consume  a lot of our time and energy for a very modest income they produce. The buyers who pursue small systems tend to be the least informed, the least business savvy, and the most likely to have problems with every stage of their project.

16. We resell the same small systems, over and over again, due to failures and the realization that they are too small to sustain a successful commercial operation. In that way, they are a form of job security for us, although one we would just as soon do without, for reasons already mentioned.  We have sold and re-sold certain 3  and 4 barrel systems a total of FOUR!! yes, FOUR!! TIMES!!

17. With a small system, you are damned if you succeed and damned if you fail. If you sell all the beer you can make you will (absolutely guaranteed) run out of capacity and have to start over.

We are willing to sell a buyer any size system that he wants, if we have it available.  But we see a lot of start-up brewers  buying systems that are hopelessly undersized for any kind of commercial success.  We’d much rather see our customers be successful than not.   Often, we end up selling the same systems multiple times because they were not part of a viable business plan and the business fails.

A lot of Mini-Micro systems were sold to restaurant operators during the big industry boom of the  late 1990s.  The fad mentality convinced many that they needed to add a brewery to their restaurant to stay on the “novelty curve.”  Most found that the brewery didn’t add anything to the bottom line and in many cases subtracted from it (especially when they lost seats to make space for the brewery).   A lot of them didn’t understand brewing at all and treated the brewing end as a gimmick, with predictably bad results.  News Flash! A prep cook is not a brewer.   Most of the Mini-Micro systems originally sold to restaurateurs have by now changed hands, some of them several times since they were new.   In our view, the manufacturers who sold these systems were simply practicing opportunism and did the industry a disservice by building and selling them at all.

OK, so you’ve read all this and you still want to set up a 3bbl or 4bbl brewery.   We will be pleased to sell you equipment we have available. We have done our duty and warned you of many of the pitfalls.   We don’t offer technical support or warranties on used systems–you are on  your own.  And we sincerely wish you good luck in spite of the minefield that awaits you. Please hang on to our contact info, we will be happy to assist you when it’s time to expand with bigger equipment and time to sell that little system that you can’t wait to replace.

Anyway. That is some talking. I get what they are saying and their experience would be a great place to draw, I am sure. In a certain sense though, it seems a bit bitter. I am also aware that there are quite a few folks here in Denver that have given the finger to that concept and went ahead anyway.

I guess my question goes out there: How small is too small if you are looking for a sustainable business? This also begs the question of what is a sustainable model? Say you want to be the next (insert successful microbrewery) how small should you start out? While a 7 bbl system is not a whole lot more money than a 3.5 and it shouldn’t take up a whole lot more space – but is that too much (on both counts) for your business plan and the space you are trying to fill effectively?

Considering how many small breweries are opening around here, I would like to hear what you think. Pass this around and see what you can come up with. How many 7bbl and smaller systems are floating around out there? I don’t want to make it seem like I am attacking the website where I found this, it just seems antithetical to many of the aspiring pros I am meeting nowadays. What if it was you? What would you do? Hell some of you are in the process of making this choice. Does this change your gut feeling at all?

About Chris Washenberger


What is my favorite drink? Huh... That is a tough one. What do you have? That is probably it.

  • brian

    I know Copper Kettle started on a 3, and purchased a 10 less than four months after opening. Wonder what kind of financial wallop that was

    • Chris (DHBC)

      That is the exact thing I am wondering about. Does success automatically force you into this “magic size” of 7bbl+?

  • Josh Rapp

    I am going to have to agree with them. If you are doing all the work to raise money get loans and real estate etc etc etc etc then it just makes sense to start with a bigger system. I would say 7 barrels at least. I know Charlie over at DBC was already talking about how he won’t be able to make his pilsner because he just doesn’t have the time and capacity with his 7 barrel!

  • http://www.twitter.com/sethotron Seth Gerard

    Yea, bitterness aside I think that makes a lot of sense. as a homebrewer, I can’t really ever imagine needing a 1-3 bbl system for my own use, even if my hobby drastically expanded… I bet though for a lot of folks it is a matter of happenstance, they come across a really great deal for a 3bbl system and take the plunge rather than starting out with a solid plan and making the investment in a 7+ system.

    Then again, I guess it really depends on what the goal of the brewery is too…are you doing it because you enjoy brewing and want to make beer and sell a bit on the side, or are you doing it because you want it to be a business and really grow.

    good article, and I wish the best to all our great local breweries!

  • http://www.denverhomebrewclub.com DenverHBC

    I think that the thing that set me back the most was the quote about being a slave to your system. If I were in the situation, I could say, have larger fermenters in a modular or variable setup with a smaller boil system but I guess it makes more sense to brew one batch and move on to the next rather than multiple boils to fill one fermenter.

    It is a thing I guess. On one hand I get the point of a smaller setup for a local joint but if you want to sell in volume, you probably should start with the capacity to do so. Again, I suppose it is where you see your success.

  • Chibigodzilla

    Put simply volume drives price down. The quote is generally concerned with wholesale keg pricing but many of the new breweries start out more focused on growler and pint sales.

    Let’s make the following assumptions:
    1: A pint at a brewery is $4 and 16oz
    2: A growler is 64oz and a refill costs $8
    3: For simple math I’m rounding keg sizes thus: 1/6 barrel is 5 us gal, 1/4 barrel (pony keg) is 7 us gal, 1/2 barrel (full size keg) is 15 us gal. Prices for kegs are (these are guesses based on my limited experience) 1/6 bbl for $70, 1/4 bbl for $85, and 1/2 bbl for 100.

    This means your revenue is:
    $32/us gal for pints
    $16/us gal for growlers
    $14/us gal for 1/6 bbl kegs
    $12.14/gal for pony kegs
    $6.67/gal for kegs

    Now, with that revenue for a 1/2 bbl keg, I think my keg prices my be off but lets put it another way, to get the pint revenue per gal, breweries would have to charge $160 for 1/6 bbl kegs, $224 for pony kegs, and $480(!) for a full sized keg.
    Even at growler revenues we’re looking at $80, $122, $240.

    Since one 3 bbl batch is 186 growler sales (as opposed to 6 keg sales) you can also stretch that batch a bit farther.

    Now, this volume phenomenon is also true of supplies, the more grain you buy at once the lower the per unit cost, but if you consider that as a homebrewer my materials for an extract beer rarely cost more than $50 for a 5 gal batch. That gives me a net income (not counting operating expenses like labor, rent, equipment, etc) of $6/gal or $93/bbl.

    Now of course a smaller setup will require more managed growth and much depends on what size of brewing operation you’re aiming for, what styles you’re creating, and what else you’re offering at your establishment. Similarly, relying on growler sales and word of mouth might work for a while, but if you really want to grow your business (which would require a larger system) you need to get your beer out to where the people already are rather than forcing them to come to you. Furthermore, upgrading to a larger system will likely cost you more money than just starting with the large system to start out with.

    In, all I think it’s safe to conclude that 3-4 bbl systems do have a place but your long term business plan should probably not rely on them as the backbone of your brewery. And that is really the takeaway as far as I’m concerned; you need plans and they are basically saying “If your plans include a 3-4 bbl system, we urge you to review those plans before you purchase that system.”

    • http://denverhbc.com Chris (DHBC)

      Wow. Thanks for that. It is an interesting perspective when broken down that way. I had never really thought about the price difference at that point. I need to find out what a wholesale price is for a 1/2bbl.

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