Author Topic: Brewery Financing for someone with no wealth/collateral  (Read 5237 times)

Offline nateo

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #120 on: August 22, 2011, 07:38:46 AM »
On a 5 or 10 gallon system the beer was always worth way more to me to drink or share with friends than to sell. You put In hours and hours of hard work just to turn around and sell and barely break even and if you count the time and labor you'd actually lose money.

The more I think about this, the more sense it makes. Beer is a high volume, low value item. What's the most someone will pay for a bottle or glass? I don't think I've spent more than $x on a 12oz or $xx for a 22oz, ever, and very rarely at that. So even if you make the best beer in the world, there is a pretty low cap to the maximum price of your product, and a relatively small difference between the low end cost of "craft" beer (maybe $x/six pack) and the normal high end (maybe $xx/six pack), not counting the one-off or unusual or aged beers, which sell for more but cost a lot more to produce.

Hand crafted products seem to make more sense on low volume, high value items. A handmade bicycle frame usually costs between $2-4k, and may have 100 hours of work put into it. Material cost is about 1/4 of that price, so on a $2k frame you're making $1500 profit, or $15/hr. Even at that margin, no frame builders are getting rich. They may have $20k invested in machining and welding equipment, but that's a fraction of a brewing system.

I'd run the same numbers for a nanobrewer, but don't want to get in trouble with the mods. I might be wrong, but I'd be amazed if nanobrewers, or even most microbrewers, approached $15/hr, or even half that.

Mod edit:  We CANNOT mention beer prices in the ProThreads.
« Last Edit: August 22, 2011, 07:41:42 AM by bonjour »
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Offline bonjour

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #121 on: August 22, 2011, 07:48:31 AM »
This is not against anyone posting in the Going Pro threads.

We CANNOT post anything about beer prices in these threads.  This is because we are a part of the Brewers Association, and a National organization cannot come across as setting prices, (can you say price fixing).  For this reason we have been asked to not allow pricing information to be discussed on these threads.  

thank you for following the rules, and in particular, this rule on these boards.

the Mods
« Last Edit: August 22, 2011, 08:49:23 AM by bonjour »
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Everything under 1.100 is a 'session' beer ;)

Offline hopfenundmalz

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #122 on: August 22, 2011, 07:51:55 AM »
Thanks Jeff - I have been envious of your brewing on the Sierra Nevada pilot system. Was that beer camp?

<snip>

Brewery work is about as blue collar work as you can get. If you don't picture yourself as a laborer don't take up brewery work. It's not ditch digging, but it is hard work and long days.

Keith - It was Beer Camp #13, the same one that Gordon Strong was at, and writes of in his book.  If you ever get a chance to go, drop everything and go.

There is not much difference in Victorian era brewing technology in the smaller systems, and not much difference in the backbreaking labor involved.

Larger production breweries are automated to the point where the brewers weigh out the hops and dump them in.  Everything else is just about done (with some exceptions) from a computer terminal with a mouse click.  How else could a shift brewer knock out 200 barrels (or two 200 barrel batches on some systems) in 8 hours?
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Offline morticaixavier

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #123 on: August 22, 2011, 07:52:52 AM »
On a 5 or 10 gallon system the beer was always worth way more to me to drink or share with friends than to sell. You put In hours and hours of hard work just to turn around and sell and barely break even and if you count the time and labor you'd actually lose money.

The more I think about this, the more sense it makes. Beer is a high volume, low value item. What's the most someone will pay for a bottle or glass? I don't think I've spent more than $x on a 12oz or $xx for a 22oz, ever, and very rarely at that. So even if you make the best beer in the world, there is a pretty low cap to the maximum price of your product, and a relatively small difference between the low end cost of "craft" beer (maybe $x/six pack) and the normal high end (maybe $xx/six pack), not counting the one-off or unusual or aged beers, which sell for more but cost a lot more to produce.

Hand crafted products seem to make more sense on low volume, high value items. A handmade bicycle frame usually costs between $2-4k, and may have 100 hours of work put into it. Material cost is about 1/4 of that price, so on a $2k frame you're making $1500 profit, or $15/hr. Even at that margin, no frame builders are getting rich. They may have $20k invested in machining and welding equipment, but that's a fraction of a brewing system.

I'd run the same numbers for a nanobrewer, but don't want to get in trouble with the mods. I might be wrong, but I'd be amazed if nanobrewers, or even most microbrewers, approached $15/hr, or even half that.

Mod edit:  We CANNOT mention beer prices in the ProThreads.

I hope I am not breaking the rules here and if I am please remove this comment but I can't help but think about the prices charged for fine wines and how they are orders of magnitude greater than that for beer. Is this not to some extent an issue of consumer education and market development? you mention the higher prices paid for aged and some specialty beers and it seems to me that is the begining of a trend.

(To the Mods, I again apologize if this is crossing a line I am not trying to cause trouble for the AHA or the BA, both laudible organizations as far as I can tell!)
"Creativity is the residue of wasted time" - A. Einstein

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Offline bonjour

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #124 on: August 22, 2011, 08:06:14 AM »
I hope I am not breaking the rules here and if I am please remove this comment but I can't help but think about the prices charged for fine wines and how they are orders of magnitude greater than that for beer. Is this not to some extent an issue of consumer education and market development? you mention the higher prices paid for aged and some specialty beers and it seems to me that is the beginning of a trend.

(To the Mods, I again apologize if this is crossing a line I am not trying to cause trouble for the AHA or the BA, both laudible organizations as far as I can tell!)
There is no dispute of the fact the price point of the beer that you produce is a critical, or it should be, portion of your business plan.  You can say that You know the price of beer in your area, and you know the cost of your materials, facility, labor, etc., do the math.  Different beers have different price points, and as you indicated, frequently (not always) those that require extra handling, care, time, and ingredients often have a higher price point. 

The forming of this topic was discussed, and we determined there was a need.  We asked for an opinion on any needed restrictions, and the only one that really came out was from the legal staff and was to not discuss pricing, as stated in the Going Pro Rules.
Fred Bonjour
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AHA Governing Committee; AHA Conference, Club Support & Web Subcommittees



Everything under 1.100 is a 'session' beer ;)

Offline nateo

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #125 on: August 22, 2011, 08:47:21 AM »
I read the rules, but not well enough apparently. I thought the concern was discussing secret wholesale pricing in a public forum, not discussing street prices, which are advertised on many sites and readily available to anyone who would care to look.

Without posting any numbers, the issue I was getting at is price elasticity. Something like Coke and Pepsi are relatively elastic. If Coke started charging double, everyone would buy Pepsi. Marketing can help change the elasticity situation. Good marketing can convince people to pay more for what is essentially the same product. Coke's elasticity in 2003 was -3.8, Mtn Dew's was -4.4.

If a good is relatively inelastic, you can raise the price by more than the demand drops. So increasing the price may reduce per-unit sales, but increase total sale income. A perfectly inelastic item would have a score of 0. If it's perfectly elastic, you could increase the price by any amount and not have any drop in demand.

The info I've found on alcohol elasticity gives beer a range of -0.7-0.9, wine at -1.0, and spirits at -1.5. So average beer is actually more elastic than average wine, by the numbers I found. I couldn't find any info on elasticity of super high-end wine, but I would guess at that end the marketing could further reduce elasticity.
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Offline Tim McManus

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #126 on: August 22, 2011, 09:04:23 AM »
The forming of this topic was discussed, and we determined there was a need.  We asked for an opinion on any needed restrictions, and the only one that really came out was from the legal staff and was to not discuss pricing, as stated in the Going Pro Rules.

I'm not going to question the legality of discussing pricing and it's unfortunate that this restriction is unique because of the organizations hosting these forums.  However, it does significantly impair the discussion.

One of the most nebulous parts of writing a business plan is figuring out the financial aspect of it.  Determining the cost of goods sold and margins all while maintaining competitive pricing is daunting to anyone with financial experience and to those without it seems like an insurmountable task.

I am interested to understand how the BA can publish Ray Daniels, "The Brewers Association's Guide to Starting Your Own Brewery" which contains sections specifically outlining pricing and pricing methodologies, and it contains a complete brewery business plan, yet discussing it on these forums is an issue?
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Offline morticaixavier

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #127 on: August 22, 2011, 09:37:53 AM »
I hope I am not breaking the rules here and if I am please remove this comment but I can't help but think about the prices charged for fine wines and how they are orders of magnitude greater than that for beer. Is this not to some extent an issue of consumer education and market development? you mention the higher prices paid for aged and some specialty beers and it seems to me that is the beginning of a trend.

(To the Mods, I again apologize if this is crossing a line I am not trying to cause trouble for the AHA or the BA, both laudible organizations as far as I can tell!)
There is no dispute of the fact the price point of the beer that you produce is a critical, or it should be, portion of your business plan.  You can say that You know the price of beer in your area, and you know the cost of your materials, facility, labor, etc., do the math.  Different beers have different price points, and as you indicated, frequently (not always) those that require extra handling, care, time, and ingredients often have a higher price point. 

The forming of this topic was discussed, and we determined there was a need.  We asked for an opinion on any needed restrictions, and the only one that really came out was from the legal staff and was to not discuss pricing, as stated in the Going Pro Rules.

I also read the rules and apparently misconstrued them. I was under the imression that the restriction was in discussing specific real world pricing of goods. i.e. for majorvices to discuss how much he charges for his product. I would not think that generalized discussion of price points and margins would be of any legal concern. However I am not a lawyer.
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Offline bluesman

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #128 on: August 22, 2011, 09:44:18 AM »
Just for clarification. Here are the rules posted as a "sticky" at the top of the "Going Pro" section.

1.   The “Going Pro” Board is dedicated to discussion related to starting a new commercial brewery and/or becoming a professional brewer.
2.   The “Going Pro”  Board is not intended for discussion of existing brewery operations, such topics are more appropriate for the Brewers Association Forum http://www.brewersassociation.org.
3.   Any discussion of pricing of supplies, product, etc. on the “Going Pro” Board are strictly banned to avoid infraction of anti-competitive laws. Posts violating this ban will be removed immediately.
4.   Solicitation of funds is NOT allowed.  Asking how to get funds is acceptable.
5.   All rules applying to the general AHA Forum also apply to the "Going Pro" Board.
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Offline bonjour

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #129 on: August 22, 2011, 10:04:47 AM »
That fine of detail is better discussed on the "Pro" forums.
Quote
Any discussion of pricing of supplies, product, etc.

What was altered was the specific reference of the price of beer.  Pricing of bikes, Coke and Pepsi were left untouched.  

This is still a homebrewers forum.  But many of us have had people tell us your beer is good, why don't you open your own brewery.  We want to bridge a gap a bit.  This is not where you want to be getting the the nitty gritty of doing it.  High level, look at this, think about that, etc. and so on.


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Everything under 1.100 is a 'session' beer ;)

Offline denny

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #130 on: August 22, 2011, 10:30:22 AM »
Also, what's the deal with bopils water?
People ask what kind of water they should use to brew BoPils.
All they want to hear back is that it should be very soft.
If you tell them, that it can be from soft to moderate they ignore you.

Truth is that Bo Pils is brewed in the whole Czech and Slovak republic.
This is pretty large geographical area and water do very.

The same thing goes with size of brew system.
This discussion shows that people want to hear that brew on 1 BBL system is enough.
Truth is that there is only so many 100 hour weeks till your body said enough.

I made that transition.
Now I brew on 5 BBL system to 10 BBL fermenters and I still do not make enough.
I wish to have weekend off.

Wise words based on real life experience.
Life begins at 60.....1.060, that is!

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Offline denny

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #131 on: August 22, 2011, 10:34:51 AM »
Keith - It was Beer Camp #13, the same one that Gordon Strong was at, and writes of in his book.  If you ever get a chance to go, drop everything and go.

That's great to hear!  I'm going in Nov.!
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Offline hopfenundmalz

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #132 on: August 22, 2011, 10:42:29 AM »
Keith - It was Beer Camp #13, the same one that Gordon Strong was at, and writes of in his book.  If you ever get a chance to go, drop everything and go.

That's great to hear!  I'm going in Nov.!

You are in for a treat Denny.  Say hello to Steve, Terence and Scott for me.  Good folks at beer camp.
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Offline Thirsty_Monk

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #133 on: August 23, 2011, 12:54:02 PM »
Keith and Leos have my respect for doing this and making a go of it.
Thank you Jeff.
It has been interesting ride so far.
I work much more then what I wished for.
People like our beers and each month I am brewing more.
Now the double brews are name of the game.

I/we have chosen a different route then Keith. We started this as a family business.
We are also in the state that we can self distribute our product.
Self distribution is a major cornerstone of our business plan.
Without it I would not open a brewery.
Another piece is that we took price of packaging out of the price of beer.
We bottle in non traditional format and ask deposit for the bottle.

A few (rough) statistics for brewery with distributor.
1,000 BBL a year = break even point.
3,000 BBL a year = doing O.K.
there is one employee for 1,000 BBL
If you self distribute cut the number of BBL in half.

Now make that on 1 BBL system.
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Offline wiley

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #134 on: October 29, 2011, 12:08:58 AM »
Well...  nobody HAS to use Facebook, but it's great for marketing.
I think it just really depends.  I have an account, but I don't use facebook for anything.  You can't market to people with facebook if they aren't using it.  If your customers are not the facebook type, then there is no sense in going that route.  Also, in Keith's case, if you are already selling all of the beer you can make why bother doing much marketing?

Keith -- I'm surprised to read that you elected not to use Facebook, despite your marketing experience. Here's a couple of reasons that you might want to reconsider (and some thoughts for the other current / prospective brewery owners in forum-land):

1) If you don't create a Facebook page, Twitter account, etc. for your brewery, someone else CAN and likely WILL. At that point, your brand, as it relates to the various mediums of social media, is in the hands of someone else and the value of the brand in those mediums can be diminished at that person's will. Think of it as brand identity theft -- and there's little to nothing you can do about it. While you can change your bank account, credit cards, even social security number (if need be), you'll probably be up a certain brown creek without a paddle if you have to re-brand your entire brewery / business. The investment in creating a Facebook page for no other reason than to protect your brand in the marketplace pales in comparison to the investment you've already made in stainless. The craft world and social media are both exploding. The last thing you want in the future is to have no control over your participation in either.

2) This may come off as offensive (which I mean no ill will), but if you're actively electing to limit the mediums through which your customers gain exposure to your brand, you're being short-sided. I get the "prestige" and "mysteriousness" of projecting limited visibility AT FIRST and if you're in a secluded area without much competition. But once you're open and your distribution area expands, so does the level of competition and that marketing strategy can only take you so far. Word of mouth marketing is great and you should certainly strive to maximize it, but I think you're selling yourself and your brewery short if that's all you're using (caveat: I'm certain that it's not all you're using). Social media as a marketing tool is cheap, effective and only serves as one additional outlet through which your customers can connect with your brand when they're not drinking your beer. I would encourage you to strike up a conversation with your customers and ask them if they're on Facebook. I don't know your brewery or your customers, but of the over 800 million people on FB, I'm pretty certain that a few of your current and future customers are checking out the FB pages of other breweries. Of the numerous breweries that have opened in the last six months in the beautiful state of Colorado, I'm 99% certain that all of them had a FB page before opening. Not saying that we should all be lemmings, but there's a reason that there are FB pages for so many other breweries.


Sorry for the rant -- that's just the sound of my two pennies getting rubbed together. Maybe a touch of Left Hand's Nitro Milk Stout, too... ;D