Nanobrew concept: would this work?

I'm hoping to get some feedback on a nanobrew concept. I've been doing some recreational reading (like I'm sure many of you have), and had this idea. What do you think?

A typical nanobrew invests in their brewing and serving capacity, then tries to recoop those costs through beer sales. It's a very risky venture (one I'm definatley not willing to take!)

Some nanobreweries will rent production time from an exisiting brewer, but still try to build their own brand via a tap room or selling to distributors (many examples of this). Still risky.

But, the number of people who are brewing great beer and are interested in great beer far exceeds the number of people willing to go open their own business. So, what if the traditional model were inverted?

Could a nanobrew derrive MOST of it's income from the rental of their brewing capacity? I am imagining a licensed tap room with brewing capacity whose PRIMARY business is to lease their equipment to craft brewers for limited productions, and then offer those craft brewers the opportunity to sell that product in the tap room with a revenue sharing formula.

In this model, initial funding would be raised by selling and scheduling production and sales time to craft brewers who want to utilize the brewing equipment and the tap room.

I see this as a win for ownership (securing funding ahead of time, less risk) and for craft brewers who want to experience selling their product commercially without any expense or committment beyond the batches that they brew.

Ok, there's the idea. Can I clarify anything? Criticism and feedback are welcome.

There's a place around here that does this. They have their own brewery and taproom, but in the same facility contract brew for 4 or 5 other small breweries.

I am no pro brewer, but the first question I would have to ask is where are you going to located. Is there enough people in your area to sustain such a endeavor?

Also what kind of scheduling were you having in mind? Like 10 different brews a month? 20 Brews?

tally350z said:

I am no pro brewer, but the first question I would have to ask is where are you going to located. Is there enough people in your area to sustain such a endeavor?

Also what kind of scheduling were you having in mind? Like 10 different brews a month? 20 Brews?

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Tally, good questions - I'm in Northern Colorado outside of Fort Collins. We are a big beer community. We actually have at least four homebrew stores that I know of in a 15 mile radius, a hops farm, a number of clubs, and I've lost count of the taprooms and breweries we have. The number of hobby craft brewers must be strong to support the market already in place.

As far as the number of brews a month, I haven't run any financials, but I would think having between 5 and 7 on tap at a time would probably be enough for a typical visitor to the tap room, especially if you want to give your craft brewer an opportunity to recoup their batch expenses. More than that, and I think that would put your craft brewer at a disadvantage.

I could imagine, however, that if a craft brew is well received in the tap room that you could renew it for another run, and maybe even strengthen the opportunity for the craft brewer. Or, if that craft brewer is well received, then s/he could produce something else at another date with their name attached to it.

Does that help?

BigBeer - yes, I've seen those models too. I'm suggesting that that 4-5 rental contracts become the primary business as opposed to secondary, and that you give those contracts access to your taproom for sales. Is that the same as what is in your area?

It sounds good in theory. That's a lot of capital you want to raise ahead of time though and I just don't see it happening. You would have to charge a lot for brewing time and that would probably scare off most people right there. If brewing time is too expensive, the customer won't make much profit on their beer. On the other side of the coin, if brewing time is economical enough to make it worth while, you won't get enough capital up front to fund the project (and that's if you even find some people that are interested). Even if you keep the brewing set up simple and cheap and find a cheap place to lease, you still need fermenters, kegs, cooling equipment and refridgeration. The customers (and yourself) will need somewhere to ferment and store their beer in the interim and that's where most of your capital will be spent. Personally, I think you would need a viable nano first and foremost and then lease brewing time on the side if production allows in order to make some extra money while your equipment sits idle. Just my $0.02. I'd love to start a nano myself. I have a one bbl set up already, but the rest of the stuff you need is just way out of my budget.

BBL - You're thinking along the same lines as me. That entry-point price to the brewer is really the key. Rather than them trying to make a profit, I think the bigger issue is them breaking even on their upfront costs through sales in the tap-room.

I don't think I would take the big plunge into my own nano until I was either retired or independently wealthy!

Since your in a location with alot of nanos, and micros, how are you going to differentiate yourself from the others. I am sure that some of them around that area do this on the side so you are going to have to be cheaper than them which may not be economical for you. Like BBL said it is going to take a good number of fermenters which will take up space and your potential to sell your commercial beer.

What size system are you considering? Will it be 5BBL? 7BBL? One thing you could look at is if you do have a large system I am sure you must have a pilot system to test the batches. Maybe you could get people from the community to produces there own beer on that system. Even if it is 1 BBL or maybe smaller.

People who are interested in doing this may look at producing 5 or 7BBL as a large feat and may be scared away from it. Remember you want to keep as wide of a market as possible.

Tally - in regards to size of system, I have no idea. The inverted concept as the primary business, however, is one that I haven't heard of before. I'm sure there are people who rent out their systems, but not who rent and also serve (as far as I am aware!)

The intention was really to target hobby and craft brewers who would never be able to brew and sell their beer, but would want to try at a manageable scale and controlled cost with a tap-room already set up for distribution. I do think people would "pay" to brew a batch or two of their beer commercially to see it in a taproom and enjoy the experience of people buying and commenting on their beer. And then, build a schedule of said brewers over a year.

The tap-room market becomes people who are interested in a continually rotating selection of beers, or who are fans of particular craft brewers (again, people who aren't even up to the nanobrew scale).

how would the legal stuff work? Who would have the license and be responsible for the tax payments? Could the brewery be separate legally from the brewer? I'm not sure how the tax and license folks will like that. They want to be sure that they get every last bit that they are owed.
The other thing, is who will pay the overhead on the taproom if several of the on-tap offerings are terrible at the same time?
It sounds like fun, but I don't see a business case that would get me to invest..there are too many uncontrolled variables.

Campings: I appreciate your response. I really don't know the answers, but for sake of conversation, I'll make an attempt:

1) I assume everything would be done under the brewery/tap room license and tax ID. Think of it more as a craft brewer paying to have their recipe brewed at the brewery, and then reimbursed based on sales. The tap room is really in control of everything.

2) Regarding taxes, I think they all belong to the brewery - an indivdual craft brewer would probably fall under the "hobby" sections of the tax code, which has specific provisions when they file. The brewery could probably provide an end of year statement for the craft brewers individual return. I do not think the brewery would be responsible for any witholdings on the craft brewers behalf. The craft brewer, if anything would probably have a "hobby loss" or net zero. Any income to the craft brewer would probably be so small that it wouldn't make a difference.

3) Regarding taproom overhead, here's my rationale (feel free to point out the flaws) - when a brewery makes a batch, they hope to sell the whole batch to recoup their production costs plus overhead. For easy math, let's say you typically get 240 pints out of a barrel, which you sell for $4 each. A 1 barrel batch has as a $960 income potential, and all overhead is paid from that income upon sale of the beer. (Am I totally off on that? Because tell me if I am). So, if you pre-sell that barrel to a hobby craft brewer (let's say for the same $960), then the majority of the brewery's overhead would be covered by that transaction with the craft brewer. Then, the majority (all?) of the income through the sale of the beer on tap would go to that particular craft brewer (really just offsetting their $960 investment). These numbers could be fudged to make them fair and workable (Maybe less up-front on behalf of the craft-brewer, but a different split of sales).

4) Regarding "poor tap offerings" - great point. Four thoughts: 1) from the brewery's perspective, income from that batch has been maximized (it was paid by the brewer beforehand), and so if it doesn't sell, the craft brewer wouldn't recoup their expense. 2) The biggest damage to the brewery there is reputation (customers not wanting to come back). 3) I think if there was an equipment malfunction, then either you brew again at the brewery's expsense or return the craft brewer's money. (Fair is fair). 4) How fun would it be to sample hobby brewers recipies and then invite good ones to brew one at this tap room?

Ryan,

With your concept are you looking to serve other licensed nanobrewers, hobby brewers or both?

thatjonguy said:

Ryan,

With your concept are you looking to serve other licensed nanobrewers, hobby brewers or both?

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ThatJonGuy - well, I think "primarily" hobby brewers who aren't interested in building their own brewery, or who want to have the experience before taking the plunge. In my head, I'm calling it an "Artisan's Brewery and Tap Room" so that a variety of crafters could have the opportunity to produce a beer and put it on tap.

Could another nano-brew use the equipment to then sell at their own facility? Sure, I guess that is possible too. How cool would it be if a craft brewer built up a reputation by brewing a few batches at the Artisan Brewery, then leveraged that reputation to go out on their own?! That could be a prime candidate to rent additional brewing capacity until they are ready to invest in their own system.

ryan_howard said:

ThatJonGuy - well, I think "primarily" hobby brewers who aren't interested in building their own brewery, or who want to have the experience before taking the plunge. In my head, I'm calling it an "Artisan's Brewery and Tap Room" so that a variety of crafters could have the opportunity to produce a beer and put it on tap.

Could another nano-brew use the equipment to then sell at their own facility? Sure, I guess that is possible too. How cool would it be if a craft brewer built up a reputation by brewing a few batches at the Artisan Brewery, then leveraged that reputation to go out on their own?! That could be a prime candidate to rent additional brewing capacity until they are ready to invest in their own system.

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I am not 100% certain, however I am pretty sure you can't be a BOP (brew on premise) and an alternating proprietorship (in which several licensed brewers use the equipment). Each entity in the alternating proprietorship needs to have their own separate legal paperwork, bonds and all the other fun stuff for running a brewery. You must be licensed to sell beer (as a brewery) so those hobby brewers would need to be licensed to sell it.

There are no special treatments for nanobrewers, they get treated the same way. I would suggest reading up at the TTB's website if you are halfway serious about this. That is where I started 2 years ago, reading all the laws and regs before I did anything else.

Jon - Thanks. I am sure both your points are true, but I am not sure that conflicts with my intended model.

Forgetting outside nanobrews for a minute, think of it this way: I own a licensed brewery. You (the Artisan brewer) pay me (the brewery owner) to brew your recipe. It is produced, supervised, and sold under my tax ID and operating license. For all intents and purposes, it is MY BEER. Then, if it sells, I'll cut you a check from the sales to help offset what you paid me.

You (the craft brewer) really haven't done anything other than pay me to make a recipe of your design, and if I can sell it in my tap room, I'll pay you accordingly. But, it was never really your beer, it was your recipe.

Of course, a lawyer could totally disagree!

Do you currently own a nano-brew? I'm really not all that serious in pursuing this. I have a good job that I don't want to quit, but I'm enjoying the intellectual conversation around this topic! (I'm weird like that!)

ryan_howard said:

Jon - Thanks. I am sure both your points are true, but I am not sure that conflicts with my intended model.

Forgetting outside nanobrews for a minute, think of it this way: I own a licensed brewery. You (the Artisan brewer) pay me (the brewery owner) to brew your recipe. It is produced, supervised, and sold under my tax ID and operating license. For all intents and purposes, it is MY BEER. Then, if it sells, I'll cut you a check from the sales to help offset what you paid me.

You (the craft brewer) really haven't done anything other than pay me to make a recipe of your design, and if I can sell it in my tap room, I'll pay you accordingly. But, it was never really your beer, it was your recipe.

Of course, a lawyer could totally disagree!

Do you currently own a nano-brew? I'm really not all that serious in pursuing this. I have a good job that I don't want to quit, but I'm enjoying the intellectual conversation around this topic! (I'm weird like that!)

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Now that sounds like a contract brewer set up. Pay someone else to produce beer for you. Still has to be licensed. I wouldn't go messing around with the TTB. PM me if you want more about this.

I do not own a nano, but I formed microbrew pub (we just aren't producing yet....building issues; they never end!)

ryan_howard said:

How cool would it be if a craft brewer built up a reputation by brewing a few batches at the Artisan Brewery, then leveraged that reputation to go out on their own?! That could be a prime candidate to rent additional brewing capacity until they are ready to invest in their own system.

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From a brewer perspective this sounds awesome. However from a business perspective you are basically creating competetion for yourself. What if someone had some good recipes, made great beer and was able to get the capital to start their own nano. Then they do the same thing you are doing.

Cool concept. I've thought of something similar. I'd start with looking at the laws for your state (and good luck with that ). That will at least dictate what you can and can't do from a business model standpoint.

People talk about how anyone can make a recipe but it's the brewer and the techniques that really form the final product. If I give someone a recipe and they cook it for a party, I wouldn't go nudge people and tell them that's my baby. Food for thought. Interesting idea!

I'd have to argue that the model is a bit self defeating for the following reason;
If you want to stress a model that allows for a number of home brewers to rotate on your taps you're simply going to need a lot of capacity in the form of fermentation tanks and bright tanks. The hardest part of starting a brewery is the up front capital (and licensing) which you've now only made more difficult. Once you're up and running the cash flow from potential brewers is a relatively minimal concern in the greater scope of things, especially when you could be doing the brewing for yourself anyway.

Add to that the legal BS you're likely to run into and I think you'd end up having to act as head brewer anyway with the home brewer acting as a guest in the brewing process.

What I will say is that I see far to little emphasis on including the likes of talented home brewers in the commercial brewing process. You'd think that at a certain point a brewery would say "we're going to have three or four rotating home brew taps where a home brewer with a winning recipe (home brew competition set up by the brewery) gets to see their beer on a commercial tap". This does happen, but it's really only a few times a year. Were there a place that really stressed the inclusion of the home brewing community I think I personally would frequent that brewery more often for both the beer, and to support their home brew program. Heck, I'd probably show up to brew just to see if I could get my own brew on tap.
I even think it would be neat to have a space set apart specifically for the home brewers to do their thing and have them leave about two gallons with the brewery for bottling and testing once the product is done. This gives the patrons the ability to see the process in action and makes for a nice competitive environment. The winner goes up on the board with a formal brew date (on the commercial system) and expected tap date for the public to enjoy.

Alright.. that's enough, I'm giving away my edge!

Cheers,

David

In fact the brewery could even do a setup where the winner gets a tap where pints are let's say $5 each and they keep a dollar in winnings and the runner up tap is $4 a pint where they simply get the honor of being served commercially. This would make it easier to keep the taps full too and provide a real incentive for home brewers to show up.

Essentially what you want to do is run a contract brewery, assuming the beer brewed can be distributed. If all the beer brewed stays "in-house" essentially all you have done is have "guest" brewers brew a one off batch. As has been mentioned there are some pretty big pitfalls. What happens when someone makes crappy beer BUT expects you to sell it in your taproom as per your contract? As a homebrewer I don't want to pay someone to make my recipe....I want to make it or at least help make it!!

I know nothing about starting a business (especially the legal/financial side of things), but here are my thoughts.

1) Would the brewers be chosen purely based on who walks in the door and is willing to pay whatever fees you charge? If so, there may be a greater chance of beers not turning out well. But if you put in place some sort of selection process based on a tasting of a homebrewed batch or something, that would obviously have an impact on the cash flow for the business you are trying to run.

2) Would the brewer's supply their own ingredients and just pay a fee to use the equipment and sell in the taproom? This might simplify your price structure for fees you charge the brewers. Or, would there be a fee that would cover use of equipment, selling in the taproom AND ingredients? Depending on the style of beer, you would either have to accept a varying revenue for your business or you would have to charge the brewer a varying fee based on the required ingredients. You could offer both of these as options, thereby staying open to a wider range of possible brewers/customers.

3) This seems like it would be a business that would benefit from a partnership with a homebrew club (or multiple clubs)? As a kick-off event for the business, you could organize a brew club beerfest or something that would allow for tasting samples from a wide range of brewers. This could also provide an organized structure for 'offering' the opportunity to brew on your professional system (even if it isn't huge) and sell their beer to the public. You could try to organize a large event with multiple brew clubs involved, or do a series of events for each club separately.

Or, in coordination with the senior members of the brew club, the brew club could issue passes/membership benefits to brewers of a certain public-ready brewing abilities. Then other brewers not a part of the brew clubs would have to submit beer for a tasting before being accepted.

Thanks to all for the great responses! I've enjoyed the conversation. Some replies:

Tally – I guess that is true in any business. I think the idea of “Artisan Beers” would be relatively unique, and if one of the artisans went out on there own, you would have to support that. From what I can tell, the brewing community seems to be fairly collaborative.

Verbhertz – I totally agree. I was just trying to simply the explanation in the context of licensure and tax. I would want the “Artisan Brewer” to be completely involved in the production of their batch. They are they craftsmen!

David – we are thinking much along the same lines. Instead of the occasional guest or award winner, I'm suggesting the majority of the beers on tap be supplied that way. I won't argue that my financial model might not work. The intent was to involve home and craft brewers from the beginning in a way to generate start-up capital. The question is – what would it be worth to a homebrewer to create a place where their brew could be on tap for a period of time, and could you leverage that to get your funding without going into debtz?

Phunhog – I think that would come down to the specifics of the contract. I'd would want to sample whatever the artisan intends to make before we sign the contract. If you've got a winning porter, let's try it before we sign on the dotted line. And, there would need to be a clause that if the batch isn't up to standard, then it doesn't get served. And I agree, the artisan should be involved in the process (I was simplifying the example for the sake of licensure and taxation purposes)

Signpost – The beers would need to be completely vetted by the brewery ownership before brewed on site. We would look for great beers and INVITE them! Great questions on the financial model, and I love the idea of working with brew clubs. There certainly are enough where I live!

Thanks all for the great discussion!

I think it would be cool to have my brew served on tap, but I wouldn't do it without either the expectation of turning a profit on pints OR a very serious interest in going pro myself. After all, this could be a good opportunity to gauge public interest. My interest also depends a lot on the financial end. I guess that's where my mind naturally gravitates. Put together some pricing models for fun and see if they are remotely viable. Could be fun.

Verbhertz - I appreciate that point. So you are saying that for you as a homebrewer, breaking even financially and having the experience wouldn't be enough. You would want some sort of profit to go with it.

Breaking even might be worth it. Even a slight financial loss could be acceptable for some people. I just read about nano breweries being hard to squeak a profit, then imagine you and the client splitting that.

Other potential problems, though they could be overcome, is that you can't just take an award winning homebrew recipe made on a homebrew system and transfer it to a commercial system. It takes a few batches to get it dialed in due to a variety of factors. So much of a great beer is the brewer's skill and to a lesser degree recipe formulation. Now I can make great beer on my system because I have it dialed in, but I seriously doubt I could make great beer on a much larger system at least initially. Now what I would like to see is a brewery/brewpub have a competition for a style of beer. The winning beer gets brewed as a seasonal.

If this model really worked that well, then every brewery that could would just lease the space next to them and build a guest brewery and taproom and lease it out. Some breweries do commit a lot of their production capacity to contract brewing but they have long term agreements. I can't see how you would have stable cash flow without at least one moderate-sized brewery having a long term agreement. However the problem you run into there is any large brewery is going to have stiff requirements about the quality of your equipment and that means your capital needs rise considerably.

The logistics, just from the licensing issues, are going to be a nightmare if you have random people trying to pass through making one or two batches of beer. If each operates as a separate brewery, each probably needs separate TTB and state approval for your location. If they are operating under your licenses then you are responsible for clearing the names of their beers, the recipes, etc. and any failure to meet regulatory requirements is on you, not them.

Your idea might work if you could find multiple small breweries looking to expand production or start ups looking for brewery space where you could put them all together on your site in some structure that either makes each brewery an alternating proprietor or contract brews through your brewery but I think long term agreements are key. There's still a lot of risk that some parties will back out, go bankrupt along the way, etc. but there's less risk of having long term agreements than assuming things will work out on a one or two batch basis.

Yeah, realistically I think this is the project of an altruistic brewer who has already made it financially speaking. I don't think the concept in general has the ability to do much more than break even just because of the time that would be spent investing in people and process rather than a consistent product.

On another note, and it's something that I think would be rather neat, is to leverage the equipment for more than one brewery under the same roof. Think of the concept of a food court/co-op in one. People utilize the equipment with limited downtime (like the airlines) to get the most out of it. They spread the financial burden up front, or the equipment owner rents it out to the other brewers after making the up front purchase. Then two or three breweries under the same roof, but distinctly different bars, would have the benefit of drawing in a larger crowd. I think the beer industry is one of the few that could pull this off in a very successful manner. Preferably this model would be executed in a larger city... perhaps eventually even including a couple of food venues. I've seen a few setups like this in Seattle with restaurants and think it's a great concept.

It's like going to Ft Collins or Denver and visiting a 3 breweries, except you don't have to leave and the breweries are thus different that you actually realize you've just walked 50ft to another establishment. Bonus!

Sorry, I feel like I'm hijacking your thread... not my intention! Cheers!

Dave that's a pretty good idea. I wonder if it could be a stand alone production company that primarily produced Is beers for others.

Are you in Colorado yourself? I'm outside of Fort Collins.