Don't Distribute Your Beer

Here me now, or believe me later

I think over the past posts I’ve made it clear that I’m not fan of production breweries. I should know, I’ve owned one. Actually I’ve owned seven breweries with one of them being a 20BBL production brewery. I sold that one a long time ago and it is still in business and doing well. Good for them. I’m glad it’s not me.

It was something I wanted to try after selling out of my company IL Vicino where at the time we had three brewpubs. It was my ego. I wanted to see a beer I produced out on a shelf. I don’t know of a brewer who hasn’t had those same impulses.

But here’s the thing: You don’t make any money as a production brewery until you get really big. I mean REALLY big. And even then, it’s a lot of work for not much return.

The bedrock of why we want to own a brewery is we like brewing beer. We also like brewing different styles of beer and enjoy the creative process. In order to keep brewing beer, our breweries must be profitable. What can be better than making a living doing what you love? Let me break this down.

Production and Distribution

First off, to hit any kind of economy of scale, you need at a minimum a 15 BBL system with 30 and 60 BBL fermenters. Expensive! You also need (or should have) either DE or plate and frame, or both, filters to make your product shelf-stable. Also a lab is a good idea. You need a canning or bottling line. You need to inventory all those cans and bottles. You need a forklift. Also a large warehouse space with a lot of refrigeration. You need a delivery vehicle if self-distributing. Then you need delivery people with plenty of extra insurance.

For the money, if you are self-distributing, you are selling your beer to the retailer at 70% of what the beer will retail for. Let’s say your six-packs will retail for $10.75. You need to sell that six-pack to the retailer for $7.52. Four six-packs per case means you sell a case of beer for $30.10. And that’s a good price. The big breweries will be selling their popular brands to the retailer for a lot less and get premium shelf placement.

Back to the money. Let’s say instead of self distribution you go through a distributer - if you can find one. You have to give them 30% off too. So now you are wholesaling your beer at 40% of retail. This means you are selling that same beer to the distributer for $21.07 a case.

It doesn’t stop there. All the retailers will want swag. They want neon signs and posters, coasters and glassware. They want you to kiss their ass so to speak for the privilege of providing a crappy shelf space for your beer. On top of that, they might not even do a good job of storing your beer. It could sit unrefrigerated for example.

And finally, all this beer goes out in the world and you have to wait 30 to 45 days to get paid for it.

Just to keep it simple I won’t even go into the drawbacks of keg accounts.

Tasting Room Brewery or Brewpub

First, you can get away with smaller equipment, depending on your location. I don’t like nano because of the amount of work involved, but it can be a way to get started without spending a lot of money. I think 7 BBL is perfect on most cases. You don’t need to filter your beer as it’s not going out into the market - you can keep an eye on it. You don’t need any packaging equipment. You don’t need a delivery vehicle. Your personal car or truck can be stuffed with beer for a beer festival you might want to attend. There is no delivery or sales staff to contend with either.

You are not making the same beers week after week that go to a retail store. You can have you popular brands you keep brewing, and brew all kinds of special beers as well. This keeps you and your customers interested.

Here’s the kicker though: Your beer goes from the tank to the tap to a glass. The beer is paid for right away and the money goes into the bank the next day. Now for some math.

Let’s say you sell your beer for $6 a pint. A case of 12 ounce beers is 24. That becomes 18 if you are selling pints. So compare the best case scenario of self-distributing a case of beer with all that’s involved for $30.10 to an equivalent amount by the glass at your bar, which comes out to $108.00. That’s $108 into you bank account the next day. Do I really need to go any further?

Sell Beer By the Glass

I was just talking to a friend whose brewery does over 60,000 BBL’s per year. They are a packaging brewery. They would like to pull back their distribution and go to pubs where they can sell their beer by the glass. They are smart.

Another story I used to like to tell goes like this; I have two friends who have breweries - this is a true story - one has a large packaging brewery and sells beer over many states. The other has a brewpub in a small town of 10,000 people with a small college. Both brewery owners travel a lot. The first one going to meetings with distributors, retailers and equipment suppliers. He’s always going somewhere. The second is always going somewhere too - but on vacation. That’s because the second person nets $400,000 per year off his small brewpub. He doesn’t need to meet with anyone other than his staff.

Now granted, there is an argument for selling a keg to a local bar to get your name out there, or selling crowlers to a couple liquor stores. But realize, you are doing it for advertising purposes only. Not to make money.

There, I’ve had my say. I’d love to hear your thoughts.