A few months ago I wrote about paying $15 for a beer at a baseball game. I still haven’t gotten over that.
On the other end of the spectrum, it was not that long ago (ok, yes it was) that I regularly bought 30 cans of pretty crappy beer at SOS Liquor for something close to 2 buttons and a stick of gum. Price is one thing craft beer manufacturers cannot compete on. The cost of high quality ingredients, economies of scale and overhead costs are all working against small beer makers. One thing that the large producers can’t do that small breweries can is sell a large percentage of their beer directly to customers by the pint. As we learned from talking with various other brewery owners, this is the way a tiny little guy like Wild Parrot can become profitable early on.
Let’s use some easy to work with numbers to illustrate this:
Scenario 1: Distribution Focus - You anticipate it will take $300,000 in sales to break even your first year.
You sell your beer in kegs to bars and restaurants for $150 each, grossing you $300 per bbl. If each ounce of beer you produce goes out the door in kegs to bars and restaurants, you will need to sell 1000 bbl (2000 kegs) to break even. That is quite a bit of beer to both produce and sell in your first year of production.
Scenario 2: Tap Room Focus - You anticipate it will take $400,000 in sales to break even your first year, given additional operating expenses.
In your tap room, you anticipate you can sell 250 bbl a year in pints to customers who think drinking a beer in the place it was brewed is a fun thing to do (like you!). You sell those pints at $5 a pop, and are a perfect pourer so you get the maximum 248 pints per barrel. That equals $1240 per bbl, and at 250 bbl per year, ~75% of your total sales required to break even. You also sell some tasting flights and growlers, which you think will be another 50bbl year (~$50,000), putting you close to your break even goal. If you sell a few kegs a week to the various bars you drown your sorrows in, you are in the black!
What this super-simplified example shows is that if you are going to be focused from day 1 on distribution, you have to go big out of the gate. This means more space, bigger equipment and a more hefty capital budget. If you have the ability to sell by the pint, it allows you to invest less at the outset, start with a smaller capacity and build up production over time. Of course, you are going to sell a lot more beer in a nice space than in a dungeon with a few stools. This speaks to the importance of the tap room itself, how it is designed and the vision for the “Oyster,” as Tom Hennessy calls it. More on that soon.
Quick Update - We are optimistic that the business plan draft will be done in the next 2 weeks. The financials have been reviewed by a couple other brewery owners and a few tweaks have been made, but otherwise that part of the plan has been put to bed. If it wakes up at 2am, we are letting it cry itself back to sleep. The new logo is progressing and looking fantastic!