By Bruce Kaufmann
WBD Senior Credit Analyst Manager
In my time at WBD, I have analyzed and underwritten a number of businesses in the craft brewing industry. Combined with my enthusiasm for craft beer, and observing how these businesses have evolved over time, I have developed some insight into factors that are indicators of likely success.
I am not a brewing industry expert, but let’s just say I continue to research this subject on an ongoing basis.
The craft beer industry, which includes microbreweries and brewpubs, has shown tremendous growth over the past five years. While overall beer volume has remained relatively flat, craft breweries have been hopping up all over the marketplace.
Per the Brewer’s Association:
Craft brewers have tapped into a new consumer—a 25- to 34-year-old who seeks quality, variety, and the ability to buy local. This demographic responds to the notion of small, independent, and traditional—preferring unique blends over standard brews. In 2016, eight hundred twenty-six new breweries opened. Out of this number, ninety-seven closed.
What are some of the characteristics of a successful microbrewery?
The most obvious is making a quality product. Many microbrewers start as home brewers, making quality beer in small batches for friends and family. However, taking the next step from home brewer to microbrewer is much more difficult.
Successful microbrewers have:
- Learned how to make beer on a larger scale through volunteer opportunities at craft breweries or through educational opportunities
- Started small and grown a following in local markets
- Waited on large, quick capital investments in facilities or in expensive brewing equipment
- Approached growth slowly to avoid debt
- Purchased equipment through cash—often the best chance for small business success
- Contracted with third-party breweries to grow their businesses without large, upfront capital investments
- Incorporated basic business practices including human resources, inventory management, and accounting
- Developed and implemented best practices for quality control
- Maintained brand consistency so consumers purchase the same quality with every purchase—a vital aspect of microbrewing
- Established unique brands that stand out not only from commercial brews, but from other craft beers
- Avoided traditional advertising methods, relying strongly on social media for much of their marketing
Microbrewers may have tapped into a growing market segment, but there are challenges in the craft beer industry.
Distribution laws can be complicated, and the fight for shelf space at liquor and grocery stores has increased. The competitive landscape historically has been friendly, with microbrewers often collaborating on projects and sharing ideas. However, that friendly competition could change in the future as more investors become involved in microbrewery projects with the expectation of immediate financial returns.
In addition, large macro breweries like AB InBev and Heineken are changing the industry landscape by buying craft breweries.
Despite these challenges, the future is still bright in the craft brewing industry. Microbrewers continue to incorporate creativity, unique ingredients, and signature styles—growing both volume and revenue while staying true to the independent spirit and small-business mentality of craft brewing.
Microbrewers, or any small business owners, can grow their businesses and create jobs with the SBA 504 Loan Program. At WBD Inc., we can help microbrewers expand into larger, owner-occupied facilities and purchase larger-batch equipment and packaging systems.
Microbrewers, or business owners in a variety of industries, who have been in business for at least two years may be eligible to finance projects with as little as ten percent down. This competitive borrower contribution, combined with financing from the U.S. Small Business Administration and from WBD Inc., enables business owners to preserve working capital and to focus on growth.
The fixed twenty-year rate on forty percent of the total project also provides some cost certainty.
Visit https://www.brewersassociation.org/ to find out the latest buzz in microbrewery world.
Check out www.wbd.org to learn more about the 504 Loan Program, our other loans, our lender services.
Image source: Vecteezy