Commercial Brewing: drink on premise or distribute locally?

A question for the commercial brewers out there, big and small. Is it easier to start a brewery that only serves on premise in a brewpub format, or to only sell your brew to stores and distributers in bottles/cans/kegs?

I've been thinking about going commercial in a while (a long while...) and I've been thinking about which method is the easiest to do. I figure I'll probably have to keep a day job for the most part unless it gets going big...on the one hand I like the idea of a brewpub where everything is drunk on premise, on the other I would think selling to stores directly would be a little more forgiving and laid back.

Also what sort of proft is needed just to break even after paying the government their share and buying all the equipment? Is it possible to be a 'weekend brewer' that can legally sell to the public? Or is it really a full time job?

I've been mulling over the same thing, although I'm a little farther out of actually doing something about it. One thing you may want to look at is your states laws. Some may favor brewpubs, while others might favor breweries.

Brewpub Pros - you don't have to worry about the 3 tier distribution chain. Its really a pain in the ass and set up to favor the big guy. Smaller batches. You control exactly how the beer is served.

Brewpub cons - you have to have a good restaurant. This is my biggest reason not to open a brewpub. I just don't want to have to deal with running a restaurant and staff to run said restaurant. IMO, a brewpub needs to have good food to draw in customers, unless you set your model up like a more traditional English Pub with counter service only.

Brewery Pros - brew, focus on promoting your brand, brew, clean (ok maybe no a pro). Don't have to deal with a "brick and mortar" storefront like a brewpub does. Potentially larger market.

Brewery Cons - 3 tier distribution, packaging, getting the beer to your customer how you intended it, more overhead in larger equipment and ingredients.

This is stuff I kind of came up off the top of my head. I'm really hoping to go down this path one day, but just not now. I'd really like to open a new brewery in SC. Right now, the laws don't really favor breweries in SC, so everyone is flocking to NC. Just look at Asheville and Raleigh. IMO, Greenville and Charleston should be the beer capitols of the Southeast.

A brewpub will give you greater profit on your beer.

A distributing brewery will get you greater income potential at less profit.

What works for you?

How good of a salesman are you?

How much are you willing to spend on promotion?

I have run brewpub breweries that packaged and those that did not. These are questions that only you can decide.

It really doesn't cost that much more to double the size of brewing equipment. The labor is the largest expense of any brewery. If you can double the production volume for only materials cost, you make more money. The big hitch is selling the extra production volume, consistently.

With a brewpub, you have no packaging costs. You have no distributor fees. You can put beer in a pint glass for a materials cost of $0.25 for a low gravity wheat beer. Sell that for $4.00 and you are doing good. Of course you have the pub build out expenses. Labor for brewer, GM, Chef, bartenders, waitstaff, bussers, etc. Insurance can be very expensive.

With packaging you need a fair amount of cheap space. You need to store quite a goodly amount of glass, cans and kegs. If you keg, you will also need a very good cleaning system and labor to run it. Bottle lines and can lines are not cheap and not small. You will also need some space to store cold post production product and some good sized materials handling gear. At the minimum pallet jacks and more than likely fork lifts. You will have to pay for label design, labels, crowns, six pack carriers, cases, etc. There are rather large minimums to get all that stuff printed.

You will also have to do a LOT of promotion to get someone to buy your beer. If you do not know how to sell, you will have to hire someone who does. Additional costs.

For a brewpub, I would say a 7-10 barrel system works out best. I have brewed on 7-15 barrel gear. Depending on the size of the restaurant, 100-200 seats is about right. You might be able to make a go of it with a 3 barrel and 50 seats. It all depends on your market and how much you want to take out of it. If you run numbers, you will see lots of discounts at larger raw material purchases.

To make beer professionally, it takes a hell of a lot more than brewing skills. It takes sales and marketing skills. It takes the ability to realize it is not about what you want to sell, it is about what your customer wants to buy.

Joeywhat said:

I've been thinking about going commercial in a while

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I think that is about half the people's dream on here.

There are a lot of books out there that are really helpful. I've been trying to burn through as many as i can before i throw all my money away. Right now i'm reading trump's book, "Think Big Kick Ass", and "Brewing up a Business". These are really helping me critique my business plan.

It depends on your local regulations. Oregon makes both approaches difficult. A brewpub has to serve full meals here. That means a good brewer AND an experienced restauranter.

If you are very serious about starting your own place, go over the beertown.org and order two books: The Brewers Association Guide to Starting Your Own Brewery by Ray Daniels and The Brewers Resource Directory.

I would also suggest you join the Brewers Association and plan to attend the Craft Brewers Conference in Chicago in April http://www.craftbrewersconference.com/

Sam from Dogfish Head started a brewpub with only a 10g sytem but he was brewing like crazy. I would do what Sam did and open a brewpub then branch out from there while you are perfecting your business skills like sales, marketing, etc. Do you have any family members or good friends that can help run the business like a chef or a general manager or an accountant?

I have no first hand knowledge of either, but my gut feeling is that you'll go broke faster running a brewpub than you would merely distributing packaged beer. The likelihood is that you'll go broke with either of course, but few people are ever successful unless they're willing to risk failure.

Unless you're living in some beer-crazy area, the brewpub will succeed or fail on the strength of the restaurant, not the beer. Have you ever run a restaurant? A privately owned restaurant without the strength of a franchise behind it? Tough gig, even without the brewing aspect.

I'm too much of a wuss to ever take on such a thing (plus my beer sucks) but I think the easiest entry would be to try and get an existing (locally owned) restaurant or two to put your brews on tap. No running your own place. No trying to distribute bottled product. If it sells then you can evaluate to idea of expanding in some way. If they don't sell...well, there's your answer.

I'm currently looking into both NJ and NY (City) regs for a small brewery with a taproom for growler fills and "tastings". It seems like the best of both scenarios...

It costs quite a lot of money to have a license to sell alcohol in NJ. There are laws on the books that limit the numbers of licenses that can be sold.

Here is an interesting article from last year about the prices that were paid for an on premise license:

http://www.nj.com/news/index.ssf/2009/12/recession_causes_liquor_licens.html

A good friend of mine is a very good chef and I'd try and get him on board if/when I do this. But like I said, this is many years down the road - I'm just thinking out loud and planning for the future. I always wanted to be a recording engineer (music) until I found out there's about zero job prospects in the industry...so no sense planning for something that is just too hard to get up and running.

I say go for IT!! Plus you live in Mighigan which has a thriving beer culture. I could sell for you on the side, I'm in sales currently. Plus I love beer more than cars any day. Go for your dream. Only thing I would reccomend is a good location.

A little "light" reading for you -> Michigan LCC