Editor’s Note: Kelly KfM Meyer is an author and host of the How Not to Start a Damn Brewery podcast.
The beer industry is crowded. Distributor warehouses are swollen. Customers are overwhelmed and exhausted with the number of breweries and paralyzed by the amount of products on shelves.
But there are still ways to stand out.
The financials of running a brewery are constricting every day. Ingredients, supplies, payroll, shipping – just about anything you need to MAKE beer costs more today than it did two years ago. You know what doesn’t cost much more? The retail price of beer. The retailers that SELL beer push back on raising sales prices. And the people who BUY beer just aren’t having it.
But there are still ways to hold your margin.
News of brewery closures has become repetitive. Anchor Brewing is ending a run of more than 100 years. Some industry watchers believe Anchor has waved the white flag for the overall craft brewing industry. But I’m not quite ready to make that concession. Over the last month, seven breweries in the greater Portland, OR area announced that they’d had enough. The closure rate is rising from coast to coast. In the last decade we’ve lost more than 2,200 breweries, 14% of which shut down in the last year alone.
But there are still ways to save your brewery.
They say Step 1 is admitting that you have a problem. When I was a guest on the Brewbound Podcast in March 2022, Jess Infante remarked that craft beer appeared to have a toxic positivity problem. A year later, the truth of her observation has continued to bang around in my head.
So many brewery operators are feeling pressure to do whatever they can to stay open. They slow pay vendors. Sell more shares. Refinance debt. Downsize. And, of course, they don’t pay themselves. By not admitting the truth as an industry, we don’t leave space for these operators to admit the realities to themselves.
The truth many refuse to admit is most breweries in America are not profitable businesses. Most of them are losing money right now as they slowly come to terms with failure.
I talk to many of these struggling operators on their way out of business or soon thereafter. Believe me when I say almost all of them feel a sense of relief and happiness. Sure, they’re disappointed, downtrodden and, if we’re being honest, a little depressed. But they’re exhausted from fighting the fight so many thought no one else was fighting.
It’s much more embarrassing to fail alone. We need to be honest as an industry to allow these owners the opportunity to face the realities of their businesses and their emotions. It might just make them clear headed enough to find a pathway to profitability.
I owned a brewery for a decade. After my third major catastrophe that probably should have bankrupted the brewery, I wrote a book dissecting the missteps I had made that left my business in an unprofitable hole. A year later I started a podcast where I focus on interviewing the owners of failed breweries, distributors and retailers. I also talk to successful brewery owners, industry leaders and anyone my audience can learn from so they can become better brewery owners.
I definitely don’t know everything about running a brewery, but after 50 interviews and 10 years of front-line experience, here are some things you should consider (and quickly):
Find a model that makes you money
Joe Ploof from Hanging Hills Brewing in Connecticut told me a few stories about closing his brewery and moving to a contract model. Doing so allowed him to control costs and more accurately predict the future of his business. He’s happier, less stressed and has plans for future growth.
Kevin Abbott from Barrel of Monks, a Belgian brewery in Florida, merged with Odd Breed Wild Ales to create economies of scale, wider distribution and a more diverse product line.
Customers don’t care about “authenticity” anymore (if they ever did). The right model is the one that makes you money over the long term. You do not need a 30 BBL brewhouse for a business that sells 75% of its beer onsite. Liquidate the asset, reduce your footprint or transition that space to tasting room seating and lower your production costs. Get creative, take emotion out of the equation and find a way to operate at a profit now. In every industry, it’s the creative ones who last.
Your building may kill you
When I interviewed Jason Santamaria at Second Self in Atlanta, he told me that when he went to renew his lease, his rent had tripled. While there were certainly many factors for why he and Chris closed their brewery this year, the landlord asking for $50,000 each month was certainly a massive part of it.
Contrast that with Bob Sylvester of St. Somewhere and Philip Davis of Hawkins Farmhouse Ales, who bought their property, struggled and finally closed their breweries. But while picking up the pieces, they found out that the real estate was worth more than the cash they lost.
Rent and facility costs are going to be a huge problem in the next 24 months and likely the next four years. If you opened your brewery in 2010, the value of the building you make beer in is likely 3X what it was 13 years ago. If you own the real estate, you still have three times the taxes. If you rent it, you have three times the taxes AND a looming rent increase at your next renewal. Make a plan now to lock up a new lease, buy the building, move somewhere cheaper, downsize or sublease. Even if the price of commercial real estate comes down in the next year, it won’t be much in most places and it’ll come roaring back soon after.
Don’t make beers that don’t make money
Richard Hartogs from Rocket Frog Brewing in Virginia won a GABF award for his brown ale. It was a great beer. Rich, complex and smooth. It catapulted Rocket Frog into the spotlight in its local market. And it sold well for them, both in the tasting room and with their distributor. Eventually, when times got tough, Richard pulled out his spreadsheet and went hunting for where all his money was going. Unfortunately, it didn’t take long for Richard to figure out that because of the recipe formulation and the reliance on mobile canning, the brown ale wasn’t making the brewery any money.
I spend a lot of time in my book doing the math and explaining the different margins on various beers. The ingredients that go into them are only part of the equation.
If your fancy steel tanks are full of tiny-margin beer with a long turnaround time, then your production schedule is losing you money. Your brewery’s capacity dictates how much beer you can make and sell, but your business model dictates when and how much. Back when you brewed in your garage, you brewed for pleasure. Now that you brew in a brewery, you brew for profit.
If you canned a batch with a mobile canner that you could have sold in 1/6BBL kegs in your market or even out of the brite tank in your tasting room, then you have an opportunity cost problem.
You need to have a tight plan for where, why and how you sell your beer. And that plan needs to be based on profitability. Just because you’re “known” for a particular beer doesn’t mean you have to make it. Just because a retailer wants cans doesn’t mean you have to produce them.
I get it. You got into this to make cool art. I did, too. But the truth is that you have to stop running a brewery and start running a business. Sorry, kid, I don’t make the rules.
Buy a mirror
When I interviewed Dan Garrison outside in the Texas Hill Country sipping his beautiful whiskey, he told me he was hoping that 2022, his 17th year, would be profitable. It would be the first time. He was, and I’m sure still is, truly in love with what he does. He’s proud of what he’s built, and he should be. But he’s at peace with the fact that his distillery is more art than commerce. Maybe that’ll change, maybe it won’t. But I have to think he’ll still be rolling barrels and waxing bottles either way.
Do you have that same relationship with your business? If you aren’t making money and haven’t been for a while, someone should tell you that you aren’t likely to change that in the next few years.
So many breweries are vanity projects and there’s nothing inherently wrong with that. You can spend your money any way that you want. If you’re taking investor money, particularly grandma’s, that’s a different conversation. Talk to your family – if they’re OK with the time and money you spend away from them, then grab your paddle and mash away.
Hide your expansion plans in the freezer
When I talked to Eric Addison at Pathfinder Brewing, Dean Brundage at New Republic and Adam Metcalf at Aces & Ales they echoed the same sentiment: Retailers aren’t looking for another beer. Sure, bottle shops need the next great thing to put on Instagram so the same eight trolls can come out of their moms’ basements and drop $20 to get it.
When I talked to the Boudreaux brothers from Craft Beer Cellar New Orleans, they reminded me that those buyers only come out when there’s a clickbait beer and then they scurry right back. Retailers know they can’t create a business plan around “‘the next big thing,” so why on Earth would you?
If there are cool accounts you send beer to the next city over for, but you’re losing money self distributing to get your beer there, there really isn’t a conversation to be had. Old timers know that it isn’t the number of outlets, but the amount of beer you sell to the outlets that you do have. Go deep in the accounts you have, and if they don’t want it, well ….
I talked to Michael Amann from the late Adena Distributing in Ohio, and he was candid: “If I don’t call you looking for your brand, I don’t want it.” He doesn’t even open emails pitching new brands anymore.
Tighten up where you distribute by the only metric that should matter – profitability. Stay focused, stay close to home and stay on budget.
Make your tasting room the best bar in town
In Episode 32 of my podcast, Greg Taylor at Steam Whistle in Canada described the train roundabout he put his brewery in. Drinking Steam Whistle’s pilsner – which they’ve been making for more than 20 years – in that space is an experience. Truly a bucket list moment.
But Judd Belstock from Dos Luces, which is closing next month, built a “million dollar build-out” to showcase his traditional South American Pulque and Mexican Chicha and he still struggled to create enough traffic to keep the lights on.
Your tasting room CANNOT be about the beer or the seltzer or whatever else you make. If it’s just a place where people can come that’s next to your equipment, I don’t have good news for you.
To be fair, many of us that opened in the early 2010s had the misfortune of opening when tasting rooms either weren’t legal or weren’t discerning. Like everything in this industry, that changed faster than a lightning strike.
Now you’re locked in a death match with the bars, restaurants and other breweries and tasting rooms nearby. Any butt in any seat that isn’t in your building is a problem. And it does NOT matter if you don’t believe that, because your competition does, and they already have plans to choke out your brewery. Upgrade those old picnic tables now if you want to stay relevant enough to stay in business.
When people first hear about my podcast and my book, they assume I’m trying to convince people not to start a brewery. I’ll admit that I was angry when I first faced my failure back in 2021. And in many of those early episodes, I still was angry. But my goal now is to make the industry better and stronger and to help your brewery live a better and longer life.
I believe the way to do that is to research failure and learn what is killing America’s breweries. Stare death in the face and laugh. And then to aggregate those stories to find similarities and correlations you can use in your business. With that, you will know How NOT To Start A Damn Brewery.