Failure to Launch a Brewery

HomeBrewTalk.com - Beer, Wine, Mead, & Cider Brewing Discussion Community.

Help Support Homebrew Talk:

So you’ve been brewing beer for a few years and love sharing your brews with your family, friends, neighbors, and plumber? You figure, why not share my hard work with the rest of the world, and make money while working my dream job? Many others have had the same idea. A lot of the craft breweries that you know and love today, started with a passion for home brewing. You may be familiar with some of the larger success stories (Sam Adams or Dogfish Head) but you never hear about the breweries that failed to succeed. This is my (much shortened) story of failing to launch a brewery in Toledo, OH in 2014.

Scratching the Itch to Start a Pro Brewery

Marriage is a beautiful thing isn’t it? Not when it takes you 16 hours to reach a small island off the coast of Belize. That’s where the planning of my brewery began. I had a jet lagged wife, and a lot of spare time. Besides the 2 planes, 2 taxis, and 2 ferries it took to get to this island, the wedding was pretty exhausting too. Did I mention this was my honeymoon? While my wife napped, I was curiously looking at the prices of commercial brewing systems to see it was feasible to build a brewery. They ranged from 1-7 bbl’s (barrels) and cost $10k-$90k depending on the design, aesthetics, and degree of automation. If you’re unfamiliar, 1bbl is 31 gallons. It only took a couple days for me to convince myself that I needed to open a small brewery. Besides worrying about the cost, I was also wondering where I would put all of this equipment.
Brewing on a small system would not yield very much beer for sale, so I would have to keep costs low for my brewery. I also wanted to keep my full time job as a Product Development Engineer (I like money), so I could only manage brewing about once a week. Finally, it would help if the brewery was close to my house to reduce travel. One place did meet all of those requirements and it’s all too obvious. I decided to build the brewery in the basement of my house. It was temperate all year round, spacious, and added no significant cost. Funny enough, I saw during my research that another person near Toledo was converting their home garage into a commercial brewery just a few miles away from my house. If they could do it, why couldn’t I? The next few months were daily struggles of trying to reach contractors, electricians, state/federal officials, brewing equipment companies, ingredient suppliers, distributors, and piecing together the puzzle known as starting a brewery. It is a puzzle. It was at that time that I also brought my friend Jon on board to help, despite the fact that he lived 2.5 hours away in Columbus, OH.

Logistics & My Brewery

In between work, my personal life, and planning my brewery build, I still needed to work out the logistics of my essentially one man company. I got lucky when my local homebrew shop, Titgemeier’s, was willing to give me discounts on all of my ingredients and equipment. They offered just to support Toledo’s growing craft beer scene! When I talked directly to grain, hops, and yeast suppliers about buying commercially, they were all willing but my small quantities made it too expensive. So a local shop that I could visit on a weekly basis for orders and pickups was perfect.
During my research phase, I visited about 12 restaurants and bars to see if they would be interested in buying beer from my soon to be local brewery. I was stunned when every single manager said yes. A few of them were even more excited than I was because the local beer selection was so limited. I remember one of the restaurants asked if they could pay a premium for same day deliveries. They consistently had empty taps and had to wait until their distributor dropped off weekly shipments. Empty taps don’t help anybody! Another restaurant happened to only serve beer in bottles, but asked us to figure out a way to integrate our kegs into their bar. Now that’s willingness.
After talking to a distributor, we both agreed that I was too small for either party to make money. So I planned on hand delivering all of the kegs to the bars by myself. Thankfully, the most requested keg size was a 1/6bbl. This was preferable so I could easily lift the small kegs into my car for deliveries. I had chosen kegs instead bottles for simplicity. Bottles are labor intensive. You have to keep ordering bottles, caps, labels, and boxes. Then you have to apply caps and labels to each bottle. If you choose to bottle condition then you have to store bottles in your limited brewery space and they take longer until they’re ready. Kegs seemed like the better option as they could be reused over and over.

Regulations & Red Tape

There are a ton of people you have to talk to when trying to open a brewery, and they all have different goals. Some examples are the Alcohol and Tobacco Tax and Trade Bureau, Department of Commerce, Department of Agriculture, and Health Department. Some of the early paperwork required a name for the brewery and Jon and I had trouble agreeing on a name. We decided that even a cool name could be made lame if the logo was corny. So we enlisted the help of a local graphic designer to help us create some logos for a short list of names. We finally agreed on the name and logo you see to the right.
However, after talking to those entities, I found that nobody had any major issues with me opening a brewery in my basement. They all requested certain things to meet their codes, but nothing was unreasonable. For instance, they wanted a 3 basin sink so I could clean, sanitize, and rinse equipment separately. Another request was to have all non-porous surfaces on the walls and floor by using paint or plastic boards. This was easy. Why was nobody else selling beer from their basement? Maybe I was just a pioneer. Then a seemingly reasonable request caused some problems. I was asked to separate the brewery portion of my basement from my personal home by putting up walls and having a door that locked from inside the brewery. That didn’t seem so bad, but the caveat was they wouldn’t allow the door between the brewery and my personal basement to be the main point of access. I would need to add an extra door to my basement which was completely underground. So I called out a contractor and got a quote for installing the extra door. It was going to be $6,000! Even worse, I was now starting to play with another $160k investment known as my home. Just to be clear, I hadn’t built or bought anything at this point. I was still in the planning stages so I was able to shift directions easily.
With the basement out of the question, I turned to my 2.5 car garage. The extra 0.5 was at the back of the garage and just held lawn equipment and tools. Although tiny, I did a quick layout and realized I could squeeze all of my equipment in there. Planning resumed and everything was going well. At the final stages of planning I was told to contact the local Building Department. After talking to them I realized I was not going to be (legally) brewing commercial beer out of my home at all. My neighborhood’s zoning did not allow for any type of retail business. No matter how small or quiet. The only exception would be if retail was an accessory to the main business. Such as a piano teacher who sells sheet music to their students. The main purpose of their business isn’t to sell sheet music, but it’s allowed since it’s an accessory to giving piano lessons. Either way, I needed to find another place to brew my beer.
I looked at several commercially zoned buildings but they all had the same problem. They cost money. The rental property would cancel out almost all of my profit since my operation was so small. The cheapest location was a 400 square feet suite, but it turned out that the zoning was still incorrect for a brewery. To afford a decent property, I would have to get a bigger system or brew more often. However, this would take more money and more time to distribute more beer. Brewing would have to become my full time job and I wasn’t ready to take a substantial pay cut to make that happen. I had one last idea, but wasn’t sure if it was even a reasonable thing to ask of a friend.

The Last Few Straws

My favorite local bar had a young, charismatic owner that had built a cult following of craft beer lovers since he took ownership. The bar was simply called The Local. After pitching my idea to convert his tiny unused kitchen into a craft brewery, he agreed as long as nothing would disrupt his bar. The best part was the bar was located in Holland, so I wouldn’t have to deal with the same officials that I had formed a grudge against in Toledo. They were just doing their jobs but they were killing my dream! Unfortunately, this attempt was short lived. The company that owned the building didn’t see an advantage to separating the bar from the kitchen as required by state regulation. Since two separate companies can’t live under one roof/address. I would have done the construction to seal off the one connecting doorway, but splitting the lease was too difficult for them. After all, paperwork is hard. There’s a computer and a printer and then somebody needs a pen. It’s a whole ordeal. We would also be violating what’s called the Tied House Act. You can read the description of this violation in the picture below. After six months of anxiously planning, my dream was dead.

Remember that other guy I mentioned that was converting his garage into a brewery? Even though he only lived a few miles from me, the regulations in his city were different. He was able to successfully launch his brewery that year. When I ran into him at our local homebrew shop a few months later, he said he could not keep up with demand and was already debating a larger setup and facility. After just 3 months of being in business! More recently I saw that he has signed a lease to move into a new location where he can continue to grow. Jealousy aside, I’m glad he was able to make his garage brewery a reality. It makes me feel a little less crazy for trying the same thing unsuccessfully. But what do you expect? When you’re passionate about something it tends to make you a little crazy. Toledo was slow to catch onto the craft beer scene, but since my failed attempt(s) 20 months ago, 3 new breweries have opened and 2 more are currently being built. All 5 of those breweries have stemmed (in one way or another) from the Toledo homebrew club known as the Glass City Mashers. The itch is obviously there, but who’s crazy enough to scratch it?
Mike Camera
Very interesting story. Thank you for sharing. Too bad it didn't work for you, but you were smart to know when to say when.
Rent, insurance, taxes, utilities, interest on borrowed money, those things all add up.
A low volume brewery selling kegs isn't going to produce the cash flow to pay the bills.
If you can't sell by the glass at least 4 nights a week, and make money selling some food items as well, you really can't run a small brewery. Now having said that, I know someone who started with a keggle type brewing system, sold growlers only out of a primitive tasting room for a couple of years, sold a few kegs to a very small number of accounts, and now has a brewpub. So it can be done, but not while holding down a full time professional job.
I always figured that the biggest headache in starting any business is all the rules and regulations they pile on business these days. Not to mention that if you are successful they will find a way to tax you to death....
Not fully committing to the brewery (i.e. retaining your FT job), being under-capitalized and starting too small have been the demise of many breweries. I agree with madscientist451 that at this size, you HAVE to sell out of your on-site taproom to even hope to run in the black. I think opening a commercial brewery is a glint in almost every homebrewer's eye (including my own!). If it is truly what we want, who knows what the future holds....
What? All of this in Holland and Toledo? Holland has a craft beer tavern?!?!?! Amazing what goes on in 12 years when one moves away.
It's always good to read other people's experiences. And I read a lot of common themes in your story as I've read in others: cart before the horse. Everyone immediately looks at what brewing equipment they want to buy, go talk to the guys at your favorite bars to see if they'll put your beer on tap, etc. The first place to start is property. If you want to brew in your house, which is almost never acceptable without the space being divorced from the living space and if suitable zoning, take ten minutes and go to your local township building and talk to the permitting guys. They'll tell you immediately if it's ok or not. They don't go in for much runaround like state and feds.
Then you investigate all of the physical requirements (three basin sink, etc) from health department, and state/feed agencies, etc.
Then you start working a budget plan to see if it's even feasible with equipment, utilities, rent, taxes, incorporation fees, etc.
If all that is falling into place, THEN, you worry about what bars will put your beer on tap and what your brewery logo looks like.
Otherwise, you've thrown hope and some face into the wind.
Stories like this drive me absolutely insane. My wife and I have had similar experiences. She is a chef with lots of baking and banquet/catering experience. She tried making a go of selling from home two years ago.
First off, she could only do baking, because of "health regulations" in our city/state...she could not cook real food in our home kitchen without it being certified, and it would never get certified because we have kids who have ready access to the kitchen. She can bake all day long, however. SO...she got the business license and started baking and advertising. We even talked to a few local places to see if they would be interested in buying cupcakes, cookies, etc. from us...we brought them samples, of course. Turns out, stores are not allowed to sell home-baked goods.
She could have even gone the catering route, if she had a kitchen available, and we know plenty of people and places that would have given her the business. She is allowed to go to another person's home and cook in their kitchen all day long (personal chef, basically), and she is allowed to use onsite kitchens if they are certified (she used the kitchen at church to cater a couple of events).
Government and red tape constantly get in the way of anyone doing anything useful for themselves and/or society. And what makes it worse, those people who are somehow able to make a go of it, the government officials in our area are no use and no help to anyone. They give you no instruction on anything...not even to help you understand their own government regulations and/or tax issues.
Over the last few years they've changed some of their requirements to make it easier to open a brewery. Still a lot of hoops, but it's nice to see them trying.
The finances didn't look great, but it was kind of a "foot in the door of the market" attempt. I was trying to pay for everything out of pocket to avoid loans... hence the really small (cheap) brewing system. But with my full time job, I couldn't even brew a lot of small batches to make up for volume. Let alone, manage a bar for 4 nights/week to sell by the glass.
The hardest part at first, was finding who you had to talk to. Every time I called a government agency, they would tell me to check with another department over another possible issue. The path kept spider-webbing further to more people/departments.
Luckily the tax on beer doesn't jump until after 60,000bbls in a calendar year which only applies to rather large breweries. Only 113 out of 4,981 US breweries in 2016, had to pay the higher $18/bbl tax once they produced over 60,000bbls. The other 4,868 (97.7%) breweries only had to pay $7/bbl since they are under 60,000bbls.
But you're right about being taxed to death! That is a HUGE tax increase, just for being successful and growing your company over 60,000bbls.
I'm still holding out for the right opportunity to get into the pro scene. It may not be soon, but as a wise man said, "who knows what the future holds...".
This was set 3 years ago, so I don't know if that craft beer tavern is still there. I know the owner has since moved too. But there are several more breweries in the Toledo area now and an active homebrewing/craft beer scene!
It was depressing to finally call it quits, but it's easier to see in hindsight or once you've read about it (the main reason I pitched this story to HBT). However, a lot of the planning has to be done simultaneously or it will take you years to open a brewery. My first goal was to see if I could generate profit. Otherwise, there's no reason to start a company. That would then help me set/allocate my overall budget for everything.
So I had to find the prices of my brewing equipment, consumables, licenses, etc. to figure out my debts. Then I needed to know how much income I could generate, so I had to talk to local businesses to see if there was demand in the market for craft beer (which had not really taken off in Toledo in 2014) and how much I could sell it for. Only once I saw I could actually make money, did I worry about physically trying to setup the brewery. A lot of good questions came up during the research I did for my finances, which helped guide me through my planning. Opening a brewery is not a simple A to B path. It's a spider web and you have to start somewhere. Any part of the web can contain a showstopper. Mine just happened to be the location of my neighborhood.
The guy I mentioned in my story that opened a brewery out of his garage, only lived a few miles away, but he was technically in a different city and didn't have the same zoning issues as me. He's been booming ever since and recently moved into a new building to open a taproom. Check him out, his brewery is called Black Frog Brewery.
Your last paragraph is what I was trying to stress for all readers... Whether you're trying to use a property that you own and live in our are looking at a rental space somewhere. The first step is to identify the desired property and go to the municipality and talk to their permitting people to see if the space could be used for a production brewery and/or public tasting/tap room.
Zoning can often be dealt with in towns and is probably the simplest obstacle to overcome in smaller municipalities - in my town of Maynard, MA, the town just approved a zoning change to allow farmer-brewer licensed taprooms downtown, without the requirement of food service (which was required for alcohol serving licenses). This was done at the behest of the guys behind Amory's Tomb Brewing, who want to set up for brewing and taproom service. The motion to amend the zoning passed the town meeting 199-2 on Monday thanks to some enthusiastic residents.
Check out Bear Island Brewery... its in a GARAGE!! Not sure how thats possible... but there it is I guess... would sure save on overhead and rent!
Great article!! I have friends all the time telling me to sell my beer even a friend saying "how much money do you need to take this to the next level?" (like some big time backer). I tell them all "It's not that easy man! There's a lot of red tape, licensing, legal, property and marketing involved. There's a reason why there are A LOT of home brewers who make great beer who all don't have breweries. I hope you still have the passion to brew occasionally and that's the way I like to keep it. I say that there is an elite group of people in Springfield who get to enjoy my beer and it's not a club that just anyone can be in.
Thanks for the story. So many people think it's easy to open a business let alone brewery. I have a family member who is always talking of opening a brewery because "they all make money" but it's not just about how much you sell. There are plenty of bills, taxes and expenses that come with it. Personally I like brewing when I want to, and I like my current (self employed) job.
Actually, that isn't entirely true. The typical breaking point for decent cash flow is a 7 bbl system. Anything below that doesn't do well unless they sell the majority of their product directly to the customer as in a tap room. A group of us studied the financials as part of a 12 week MBA project. The costs aren't that bad compared to other things and we had projections of turning profits after about 11 months. That was with a 70% wholesale, 30% direct sale ratio. The key is keeping costs (other than the ingredients) down to the minimum but also looking forward. If you are the only game in town and it's a sizeable drinking population. Try and start with a 10 bbl system or larger if you can afford it. Why? Well it costs less in the long run and you'll be looking at places that provide ample space instead of getting one for a smaller system then expanding in a year or less. The thing with brewing is - the time it takes to make a 10 bbl batch is almost the same time to make a 1 bbl batch - with some exceptions such as boiling time...etc. The question is - do you have the demand for it.
Give up the idea of brewing beer and go into distilling instead. It's the next boom and if you get established now, you'll be well ahead of the curve. It's a little more difficult than breweries regarding the government BUT you don't need tons of chilling capability, tanks...etc. You just need space for storage and barrels. IF I didn't have the job I do now and in my upper 40s, I would do it because the amount of space, help...etc. is much more easier to deal with. Having toured many distilleries, there is a minimal need for equipment unlike breweries. Plus less things to clean :)
Interesting and familiar :) I have been watching the development in deep south Texas and within a little over a year we have seen 3 "breweries" develop....and all 3 are different and within 10 miles of each other but all in a different city with different regulations. One I would classify as more of a professional homebrewer based on equipment and capacity while at the opposite end is a full blown brewpub with state of the art electric system, glycol fermenters, brite tanks, etc. And in between is the one still in process with professional grade fermentation/storage and "homebrew" brewing equipment. And the experience of each brewer is directly opposite of their level of investment/equipment! Each one has faced different obstacles but all persevered and we hope they achieve success. Others I know are in planning stages and it is stories like yours that I always share with them. Thanks for another dose of reality!
I talk about another brewery that's in a garage in my article lol. Definitely depends on the zoning of where your house is at. Townships and rural cities seem to have more relaxed regulations.
Glad you enjoyed it! All I ever read about is how quickly our 5,000 U.S. craft breweries are growing. Nobody ever hears about the people that have failed, and I'm sure there's a lot of them out there. On the same note, I haven't heard of any recent breweries that were open and have closed...
Great write up, enjoyed hearing about your process. Sorry it didn't work out but cheers for having the balls to give it a go!!!
That's great to hear they could overcome that. Toledo is the 4th largest city in Ohio, so it's not easy to get things overturned that could effect so many people. I talked to a few city officials and they said I could attempt to change the zoning of my 50 year old neighborhood, but that it was unlikely because that would set a precedent, and open the floodgates to all future neighborhood businesses.
Thanks! It feels like it crosses the mind of every homebrewer. This failure hasn't slowed me down. I still actively brew!
I now have a new found respect for all self owned/independent businesses. Oddly enough, you never see breweries that are closing. They must be making money! Brewing on your own time is definitely more relaxing.