How to Start a Microbrewery

Part 1 - How to start a Microbrewery business - Background

A microbrewery is a business that grows along with its community. This is because many brewers start off by by using small distributors to sell to local retailers who then sell to customers. Good markets for this business include areas in which restaurants and beer retailers are growing as well as markets near colleges and universities. This is because the average microbrew consumer is more educated than a standard beer drinker and these environments also have Millennial populations that favor experiences (such as exotic local beer) over regular products (standard brands of beer).

Our guide is in 3 parts:

• Part 1 - How to start a Microbrewery business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a microbrewery?

It can cost upwards of $500,000 to open a microbrewery. The major cost contributors include renting space for 12 months (typically over $50,000) the operational costs for the first three months (approximately $60,000), and the microbrewery equipment itself, which costs approximately $18,000. Start-up inventory can cost over $16,000, while equipment costs for counter areas, serving areas, and store equipment can $26,000 or more. Meanwhile, legal costs—including obtaining proper licenses and permits, hiring a consultant, and purchasing required insurance—is likely to cost approximately $7,500.

For those who want to get into this kind of business at a much lower cost, a nanobrewery is a better idea than a full-scale microbrewery. Because a nanobrewery typically produces fewer than 20 barrels per year, your equipment is smaller in scale and you need less of it and fewer annual materials. Needing less space means also means you can get away rent a much smaller office space than a microbrewery would require. In fact, many people convert their home garages into a nanobrewery.

What are the ongoing expenses for a microbrewery?

Many of the ongoing costs of this business are variable depending on region, business size, and fluctuating markets. The primary expenses will be paying for the materials required to brew (such as malt, yeast, hops), ongoing utilities costs (such as electricity, gas, sewage) and the ongoing costs to clean and repair equipment, including regularly purchasing cleaning equipment. Beyond this, ongoing expenses include paying monthly rent for the business and paying salary for any employees.

Who is the target market?

Brewers don’t usually deal with customers directly. Rather, their clients are the beer distributors. One way to find distributors is to seek out the local major distributors that specialize in selling brands like Coors, Miller, and Anheuser-Busch. They may not be interested in selling your local flavor, but their deep history and network can likely point you towards local distributors specializing in imports (a good option for small brewing businesses) or those who specialize in handcrafted beers (an ideal option for a small brewing business).

How does a microbrewery make money?

A microbrewery typically operates on a three-tier system to make money. Under a three-tier system, the brewer uses a distributor to sell alcohol to local bars, grocery stores, liquor stores, etc. These customer facing establishments then sell to the consumers. Microbrews are sold consistently throughout the year and many brewers create unique seasonal offerings. Therefore, it is important to note that even though beer is sold regardless of the season, sales peak during the summer and winter seasons, but they experience dips going into fall and spring. 

Brewers who are just starting out may consider self-distribution: while this is not allowed in every state, it enables the brewer to cut out the distribution middleman and sell beer directly to their local areas. In doing so, breadth of distribution will be limited, however reduced overhead means operational costs and beer costs can be lowered.

How much can you charge customers?

The final end-customer price of your microbrew to customers is usually a minimum of $10 for a six-pack. Depending your beer’s popularity and brand qualities, you may be able to support pricing upwards of $15 per sixpack.

While these are standard prices in the industry, it’s critical that all ongoing costs are recovered in the pricing with a reasonable profit margin. Ongoing costs include brewing, bottling and packaging beer while also factoring in an average distributor margin of 21 percent and an average retailer margin of 31 percent, as well as relevant state, federal, and sales taxes.

How much profit can a microbrewery make?

In general, a microbrewery can turn a profit—microbreweries had a 9.1 percent profit margin in the Unites States in 2014. It’s important to keep in mind that it may take over a year for a new microbrewery business to regularly turn profit, though, and that fluctuations in the cost of things like grain can cut into that profit margin. Finally, there is a constant need to reinvest some of the profit into growing the business to reach more customers and stand out from the competition.

How can you make your business more profitable?

• Find a distributor willing to sell these craft beers to a larger demographic.

• Start one of the sideline businesses mentioned in this article; open a taproom and/or a restaurant.

• The steadiest path to increased profit is increased production: the ability to generate more barrels per year is directly tied to the amount of profit you can earn, which may eventually mean upgrading equipment in order to generate more business.

Day-to-Day and Growth

What happens during a typical day at a microbrewery?

Operating a microbrewery business involves lots of cleaning. It takes a variety of vessels to ferment and package your product, all of which results in a variety of dirty tanks, tools, floors, etc. When the often-wet equipment ends up breaking during a time-sensitive fermenting process, the brewer will need to know how to fix many of these things. Finally, the actual act of fermenting requires a patience for repetitive tasks and a meticulous attention to detail and record-keeping.

What are some skills and experiences that will help you build a successful microbrewery?

• The best experience one can have prior to opening a microbrewery is to have worked as an assistant brewer, providing the necessary skills and background.

• Aspiring brewers without lots of background can gain or increase brewing skills by taking certification or diploma programs from institutions such as the American Brewers Guild, the Beer Judge Certification Program, the Cicerone Program, and the Siebel Institute of Technology.

• Previous experience brewing at home or running a smaller nanobrewery can also be a major advantage.

What is the growth potential for a microbrewery?

Brewing can be done at very small scales, including having a nanobrewery. A nanobrewery is a smaller operation that produces fewer beers—typically no more than three barrels of beer per batch. A nanobrewery can be the first step towards opening a larger microbrewery, which usually produces fewer than 15,000 beer barrels a year. Expanding the business beyond that point usually depends on finding larger distributors willing to distribute to larger regions, which may eventually result in a national brand.

A microbrewery business can also grow by pursuing sideline business opportunities such as selling beer on site by opening a taproom or even running a full-scale restaurant at the brewery (though this requires an additional brewpub license).

How and when to build a team

With a microbrewery business, you’ll generally need to hire more employees as the business grows. For instance, it is possible for a nanobrewery to handle everything without help, provided he/she can perform general handyman repairs as needed. A microbrewery will typically need an assistant brewer to assist with labor, and possibly a sales manager as the business grows. As the microbrewery produces more barrels per year and/or pursues sideline opportunities such as opening a taproom, more employees will be necessary to play roles such as server, manager, and assistant brewer.

Assistant brewer salaries average $34,000 and restaurant manager salaries typically range from $38,000 to $42,000.

Read our microbrewery hiring guide to learn about the different roles a microbrewery typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.

Part 2 - Is a Microbrewery business the right fit for you?

Part 3 - Action plan to launch your Microbrewery business in 90 days