3 Reasons Breweries Fail (And How to Manage Brewery Startup Cost So Yours Doesn’t)
When deciding to start your own beer business, efficiently managing brewery startup costs is essential to success.
According to Craft Brewery Finance, the number one reason breweries fail is a lack of funds. From equipment to building expenses, permits and insurance fees, the all-in brewery startup cost for your new craft beer establishment adds up quickly. Understanding best practices for managing these finances is key to operating a thriving, popular, and most importantly, stable operation customers will happily want to return to. Check out these three reasons breweries fail to make sure yours doesn’t.
As a beer enthusiast with an entrepreneur spirit, you likely already know it takes more than a passion for brews and business to run a successful brewery. Unique microbreweries, brewpubs, and taprooms continue to trend among consumers, and as the industry grows, new names pop up all the time.
With competition at an all-time high, it’s safe to say not every single one will survive. In fact, in an article by Brewing Industry Guide, Jack Hendler, founder and co-owner of Jack’s Abby Craft Lagers in Framingham, Massachusetts, said: “It seems unlikely, from general economic trends, that you can have an infinite number of breweries opening and have them all be successful.”
Your success as a beer master is dependent on your ability to manage brewery startup costs, so the cash keeps flowing. Understanding the top reasons breweries fail will help prepare you for what’s in store and hopefully, set your business up for immense success!
Three Reasons Why Brewery Startups Often Fail
1. Too Much Competition
The beer industry is among the most competitive in the food and beverage arena. According to USA Today, in 2018 alone, well over 7,000 different breweries were operating in the United States; another 1,000 new beer businesses are predicted to open in 2019. With competition higher than it’s ever been before, it’s so important to budget your business and plan accordingly that way brewery startup costs don’t get the best of you.
As reported by Brewbound, Bart Watson, chief economist for the Colorado-headquartered association, said, “It is a competitive marketplace, and I think we will see the brewery closure number continue to rise.” As a business owner, it is your responsibility to keep a close eye on the competition to better leverage what makes your establishment unique from others.
Financially, it’s crucial to factor in every element, from legal fees to social media advertising, equipment rental, and more, into your overall brewery startup cost budget to ensure your new business stays on the right track.
2. Lack of Brand Voice and Recognition
In addition to the competition aspect, a solid brand voice and strong brand recognition both play a significant role in the success of new brewery businesses. Your brewery startup cost may be precisely on target with your goals and what you’ve planned, but unless your brewpub catches the interest of craft beer enthusiasts and gets return customers in the door, nothing else really matters.
The Unfiltered beer blog wrote, “…in a market where differentiation isn’t measured in good versus bad but great versus also great, it’s increasingly important for breweries to put time, thought, and effort into the brands they’re building.” Conveying a deep understanding of your brewery’s brand values and mission will differentiate you from other new beer businesses and put you on top.
The fact of the matter is, a clear brewery brand story paired with attainable brewery startup costs will set you up for success and leverage you amongst the increased competition.
3. No Business Plan and No More Money
Let’s be honest, no business plan equals no organization, and no organization will likely lead to a complete lack of control until there’s no more cash left to build your business. The inability to fund your overall brewery startup cost will put a halt on production efforts and set your new business back.
In an industry like this, you already know cash is king. A detailed business plan will help you plan for all brewery startup costs and keep expectations for your new microbrewery in line with what you can actually afford. Moreover, a business plan for your beer business will assist you in how your establishment will make the shift to becoming profitable.
Entrepreneurs who spend too much money on frivolous things are the ones that end up failing in the end. Take the time to consult a financial professional or get advice from a fellow brewmaster you idolize to ensure your business plan is realistic and top-notch. A fool-proof business plan equals manageable brewery startup costs and an outstanding new business. Check-in with your budget before planning that brewery trivia night and only splurge on necessities your first year in operation.
So, How to Manage Your Brewery Startup Cost?
The craft beer industry is booming; according to incfile, 98 percent of total breweries operating in the United States are independently owned craft beer establishments, and volume numbers will only continue to grow at an estimated 5 percent each year. With competition high, there are many different ways to manage your brewery startup cost, so expenses don’t get the best of your new business.
The first thing you can do as a brewery owner is looking into used equipment. Brewery equipment can start to cost upwards of $100,000 which means anywhere you can save a few bucks will definitely come in handy; remember, every penny counts. From bottling lines to the cooling system, fermentation tanks, refrigeration equipment, and more, the list for required materials when opening a new brewery is never-ending. Spend smart and find cost-effective ways to purchase the essentials.
The next way to manage your brewery startup cost is to do your research regarding required permits and licensing. Do your homework ahead of time to ensure you don’t run into unexpected fines or costly tickets. A lawyer or local city professional is an excellent resource for making sure you cover all your bases, so all legal fees or permits are paid and account for right from the beginning. This handy tip is also helpful for ensuring you don’t overpay or acquire pricey permits you don’t really need.
Lastly, hold off on all the cool and quirky “stuff” until your business is profitable and making waves. What do we mean by stuff? All the fun décor, flashy entryways, expensive menu design… all these elements will only drain your brewery’s budget until you’re truly thriving and earning a profit. Sure, it’s tempting to get that super awesome piece of art to make your dining room pop or get that high tech oven your new chef will love, but remember, these things take time. Give your new business a chance and don’t drain your budget too early in the game. Lack of cash flow equals a lack of growth and success in this industry.
One more tip! Managing your brewery startup cost will set the tone for the rest of your brewery’s financial journey. Keep in mind, brewing beer is a 24/7 all hands on deck sort of process that takes a lot of care and close attention. This means employing trained, highly skilled staff members at all times is essential, and setting aside the money for their paychecks a must! You can’t do it all yourself, and you absolutely NEED the funds to establish a smart team of beer experts who will support the growth of your new brewery business.
In this billion-dollar industry, categorizing yourself as a beer aficionado is, unfortunately, not enough. There are a lot of logistics, details, and essential elements to consider when opening your own craft brewery business. From the elevated competition in this industry to a strong brand voice, a realistic business plan, and the means to properly manage brewery startup cost, this task is not for the faint of heart.
According to Chron, it’s vital to deeply know your craft, know your market, know your niche, and know the distribution process. With this in mind, take a step back before starting your own business and consider all the reasons more of these new establishments typically fail. Ask yourself these questions:
- What will you do differently to ensure failure is not an option?
- What have you observed at other breweries you enjoy that has worked? What has not?
- Do you have a clear business plan in place?
- Do I have the budget to make this happen?
- How can I efficiently manage my brewery startup cost to set my beer business up for success?
The craft beer industry is ever-changing and full of opportunity, but it’s up to you to find what works. Aim to operate differently than the craft breweries that have failed; manage your brewery startup cost to optimize cash flow, and before you know it, you’ll be the next craft beer king (or queen)!
For more ideas, tips, and best practices to help you manage your brewery, grow, and impress customers day in and day out, visit our blog.