Nanobrewery Models: Exploring three business plans

Photo courtesy of MoreBeer!

From their very first batch, many brewers dream about the potential of sharing their creations with the public. Yet, like any professional venture, the world of brewing isn't exempt from the usual business hurdles: managing cash flow, ensuring profitability, devising growth plans, and securing a sustainable income. Adding to these are the initial costs of scaling up to a professional level. However, brewers are known for their innovation, persistence, and dedication to their craft. Enter the nanobrewery model.

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My aim here is to shed light on the feasibility of small-scale brewery models, primarily focusing on the low-volume, high-margin "coffee shop-esque" concept that is particularly trendy in the craft beer realm today. I believe this perspective is more sustainable for the future of American craft beer. There's a clear connection between today’s local pubs and the pre-Prohibition era in the U.S. where community breweries flourished.

Establishing any business, including a nanobrewery, begins with a profitability analysis. Though my finance knowledge has at times been painfully acquired, I’ve benefited from friends skilled in this area. Insights from them and various articles underline the importance of break-even analysis during early planning. This straightforward cost vs. profit evaluation helps project the gross revenue required over a certain period to cover costs. (For deeper insights, see Audra Gaiziunas’ “Crunching the COGS: When it’s not a hobby anymore” in the Jan-Feb 2019 issue).

At The Incubator, our collaborative brewery, the initial step for new member brewers is creating a business plan. It serves as a blueprint for their path, explaining their purpose, goals, and operations. This document needs ongoing refinement to maintain coherence with the brand’s broader objectives. As the brewery grows, aligning the plan with market insights and operational data is crucial. It should encompass everything from monthly sales forecasts to demographic analyses. Effectively identifying your audience is vital for distinguishing your brand in the market. Tools like social media ads, email campaigns, and local publications can help determine who your current customers are and how best to reach them. (For more on branding and market strategy, see Ashton Lewis’ “10 Keys to Nano Success” from the May-Jun 2018 issue).

Alternating Proprietorship Model

The alternating proprietorship model offers an ingenious solution for breweries to optimize their underutilized brewing space and equipment. Essentially, a licensed brewery rents out its facilities to another licensed brewer for production. This arrangement benefits both parties: the operating brewery enjoys an additional revenue stream, while the lessee gains access to larger-scale facilities without significant initial capital investment. This model is akin to a co-op where resources are shared, fostering collaboration. However, there are limitations.

Professional brewing, like any other business, faces numerous challenges...

The first limitation is retail sales: the leasing entity must have a separate retail-licensed premises. This could be a neighboring taproom or an interim wholesale arrangement while setting up their retail space. The second limitation revolves around logistics; the host brewery may need full capacity at any time, temporarily hindering the lessee’s production plans. Detailed agreements are essential to protect both parties, a requirement by the TTB for licensing under this model.

The Gypsy Brewer Model

The gypsy brewer takes the concept of an alternating proprietorship a step further by not having a dedicated premises. This model minimizes overheads and maximizes flexibility in production volume, schedule, and variety. However, a significant drawback is the absence of retail income, making it more challenging to achieve profitability solely through wholesale. Nevertheless, for hobbyists or those in transitional phases, this model provides a way to evaluate the market and build a following without extensive commitments. Successful examples include Grimm Artisanal Ales, Triple Voodoo Brewing, and globally renowned Evil Twin and Mikkeller breweries.

The Taproom Model

The neighborhood brewpub or taproom is a familiar and effective business model. Defined as a brewery selling most of its product directly over the counter in a taproom setting, this model relies on small to medium-sized systems producing between 300 to 800 barrels annually. Profitability can be achieved at around 500 barrels if a significant portion of sales occurs on-premises. The taproom doubles as a direct sales outlet and a brand's public face, akin to an independent coffee shop. Whether it's a farmstead brewery with an artisan theme or an edgy urban brewery, aligning the physical space with the brand’s ethos is crucial for success.

Operating a brewery involves more than just brewing; it requires meticulous planning and strategic development. To provide more grounded advice, I consulted Sam Holloway from Crafting A Strategy and the Pamplin School of Business. Here are some insights from our conversation:

Q: What top three pieces of advice would you offer to a new small-scale startup brewery?

A: (1) Keep fixed costs, especially rent, as low as possible. (2) Innovate ways to serve food without running a full-scale restaurant. Food encourages longer visits and more drink orders. (3) Avoid rushing into packaging and distribution; focus on creating a compelling taproom experience where you control the consumer interaction.

Q: Are small-scale breweries viable in today’s U.S. craft beer market?

A: Absolutely. Small breweries sell an experience as much as, if not more than, the beer itself. Instead of competing with other breweries, aim to provide a unique consumption experience. Fragmentation of the market will benefit small neighborhood pubs since they offer a personal touch large breweries can't match.

Q: What changes do you foresee in the U.S. beer landscape over the next 3-5 years?

A: The trend toward fragmentation will continue. Larger breweries will focus on scale through mergers, but the majority of future growth will come from small, community-focused breweries. This shift offers more localities the chance to benefit from having their own small-scale brewery.

Nanobreweries are small-scale breweries producing limited quantities of craft beer. They typically focus on unique beers for local markets. The production volumes differentiate large breweries, craft breweries, and nanobreweries, with nanobreweries producing batches of three barrels or less.

Understanding Nanobreweries

A nanobrewery produces under 15,000 barrels of beer annually, though definitions vary by locality. For instance, New Hampshire caps nanobrewery production at 2,000 barrels per year. Typically, nanobreweries brew three barrels or less per batch.

Steps to Start a Nanobrewery

Clarify Your Goals and Vision

Define what kind of beer you aim to create and your target audience. These foundational decisions guide the development of your nanobrewery.

Conduct Market Research

Analyze local trends, competitors, and consumer demand for various beer styles to identify market opportunities.

Decide on Brewery Size

Determine your desired production capacity and distribution strategy. Starting small and scaling up is often practical.

Develop a Business Plan

Your business plan should cover your target market, financial projections, equipment costs, and marketing strategy.

Understand Legal Requirements

Secure the necessary federal and state permits, licenses, and ensure compliance with local regulations.

• Brewing kettle: For boiling wort, the liquid extracted during mashing.
• Mash tun: Used to mix crushed grains with hot water to extract sugars.
• Fermenter: Where wort meets yeast for fermentation.
• Heat source: Burner or electric element for heating the brewing kettle.
• Cooling system: Cools the wort post-boil before fermentation.
• Sanitation tools: Essential for maintaining hygiene.
• Measuring tools: Instruments like hydrometers and pH meters for monitoring the process.
• Bottling/kegging equipment: For packaging finished beer.

Nanobrewery Equipment and Functions

Nano brewing systems, despite their size, offer full functionality. Precision and flexibility are key features.

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Mash Process

Grains soak in hot water, converting starches into fermentable sugars. Consistent temperature is critical for flavor and alcohol content.

Boiling Stage

The wort is boiled and hops are added for flavor. Boiling also sterilizes the wort and evaporates unwanted compounds.

Wort Cooling

Wort must be rapidly cooled to form cold cracks for beer clarity and stability.

Fermentation Process

Yeast is added to cooled wort in fermenters to convert sugar into alcohol and CO2. Easy monitoring and sampling are important.

Carbonation and Packaging

Post-fermentation, beer is carbonated and packaged in bottles, cans, or kegs.

Cleaning and Sanitation

Proper cleaning and sanitation prevent contamination. Advanced systems often include integrated cleaning functions.

Cost of Setting Up a Nanobrewery

The cost of nanobrewing systems varies by capacity, quality, and additional features. It’s crucial to understand these cost implications when planning your nanobrewery.

Brewery Equipment Capacity and Price Range:

CAPACITY (BARRELS)	BRAND NAME	PRICE RANGE ($)
1	BrewTech	2,000 – 4,000
2-3	BrewMasters	5,000 – 8,000
4-5	BeerCraft	9,000 – 12,000
6-10	NanoKing	13,000 – 20,000

Types of Nano Brewing Systems

• All-in-One Systems: Compact units combining mashing, boiling, and fermentation. Price: $1,000 – $3,500.
• Modular Systems: Scalable systems allowing component addition or upgrade. Price: $3,500 – $12,000.
• Automated Systems: Technology-driven systems for consistent brewing with minimal manual input. Price: $5,000 – $15,000.
• Gravity Fed Systems: Rely on gravity to move wort through vessels, minimizing mechanical use. Price: $2,500 – $8,000.
• RIMS and HERMS: Systems using electric heating elements or heat exchangers for precise temperature control. Price: $4,000 – $10,000.

Various nanobrewery systems cater to different brewing needs, offering unique benefits based on their design.

Profitability of Nanobreweries

Every brewer dreams of selling craft beer publicly. However, professional brewing involves challenges like cash flow, profitability, and sustainable employment. Nanobreweries offer an accessible entry point with lower initial costs, providing a stepping stone for professional brewing careers.

Selecting the Right Nano Beer System

Assess Your Capacity Requirements

Identify your production goals, whether for personal use or larger distribution.

Evaluate Space Constraints

Measure available space to ensure your chosen system fits.

Consider Your Budget

Budget allocation significantly influences the available options.

BUDGET RANGE	RECOMMENDED SYSTEM TYPE	APPROXIMATE CAPACITY
$1,000 – $5,000	All-in-One Systems	1 – 3 BBL
$5,000 – $10,000	Modular or RIMS/HERMS	3 – 5 BBL
$10,000+	Automated Systems	5 BBL and above

Plan for Scalability

Consider future growth to ensure your system can expand accordingly.

Research Manufacturer Reputation

Choose reputable brands known for quality and reliability. Micet offers a range of systems, from simple setups to advanced automated solutions.

Get Your Nanobrewery Turnkey Solution

If you’re planning to start a nanobrewery, Micet can design custom equipment to match your brewing process. We also assist with brewery expansion plans. With our technical expertise and customizable services, we look forward to collaborating with you!

Interested in learning more about nano brewing system? Contact us today for expert consultation!