Worth $2 billion in NZ and as much as $4.8 billion in Australia (IBIS World data), the Australasian brewing industry is an increasingly competitive – and lucrative – market. The value of the brewing industry in US dominates at US$30 billion, while UK sits at £9 billion. But brewing costs can quickly spiral if business owners aren’t running a cost-effective machine capable of producing a high-quality product with minimal waste. It is, after all, a science as well as an art. Things can go wrong, and competition is fierce.
But how do you run a cost-effective brewery? What factors can determine your success?
In this article you will learn how to:
- Build a successful team
- Choose the right business location
- Manage inventory efficiently with brewery software
- Market and sell your product
- Manage costs to maximise profits
1. Building a successful team
One of the keys to brewery success is building a successful team. As the founder of a company, you know you can’t do everything yourself. Surrounding yourself with qualified experts in your weakest areas – be that accounting, IT, sales, or any other part of the brewery – will allow you to delegate those duties to professionals who can do a great job, while you focus on the creative direction of the brand.
Key brewery roles and what they do
- Head brewer: The Head Brewer is both a creative director and manager. While part of the role is to do with developing new recipes, much of it focuses on inventory ordering and management, people management, and scheduling.
- Senior brewers: Senior brewers have much the same duties as a regular brewer, but at a slightly higher level. They have likely been better trained in quality assurance and brewery maintenance, able to act with initiative and support the head brewer.
- Shift brewers: Brewers are the doers of the brewery, although the job varies between breweries. They have a hand in each part of the production pipeline, from milling grain to maintaining equipment to cleaning down after a brew is complete.
- Cellarman: A cellarman may have a variety of tasks, including dry-hopping, helping quality assurance, and operating the centrifuge, as well as cleaning in place, filtration, and potentially packaging.
- Quality control: Quality controllers are vital for the process to be successful. By monitoring the brewing process for red flags (wild yeast, bacteria), they help ensure the final product is consistent, stable, and to the standard required of the business. A quality controller may have qualifications in microbiology or chemistry, allowing them to improve the product through the use of science.
- Sales and marketing: There are usually multiple people involved in the sales and marketing process, from sales reps and delivery drivers to sales/marketing directors (overseeing the strategy) and social media or events managers. Ultimately, their objective is to help the brand reach more customers, through distributors, vendors, events, digital advertising, and so on.
- Accounting: As we’ll talk more about further into this article, managing costs is a vital part of running a successful brewery. While smart brewery software can help with much of this process, a financial expert will work to balance the books, take care of the brewery’s tax compliance, and monitor revenue and cash flow to watch for risks.
What makes a good head brewer?
A head brewer must be highly qualified across the brewery spectrum to ensure that they can oversee and control the quality of the product. Of course, this requires a high degree of beer knowledge – the brewing process, chemistry, the selection and testing of ingredients, quality control, how to run a clean brewery…
But it also includes all of those other duties that make a great business. Safety standards, for example, must be maintained at all times to ensure compliance with local regulators (for the protection of staff and the hygiene standards of the product). Trade associates, media representatives and suppliers need a point of contact who knows how to sell. Marketers and sales staff need direction, an objective to follow and a mission to fulfill.
Then there’s the financial side. A good head brewer will have a mind for budgeting, understanding what it takes to introduce new products, expand operations, take on new staff (including training, for which they will likely be responsible), market the product, and every other part of the process that requires a portion of the business’s much-needed capital.
UK’s Crate Brewery opened a taproom by a canal
2. Choosing the right location for a brewery
There is no ‘right’ answer when it comes to the question of brewery location, as the unique requirements of each business greatly affect where ‘good’ is. So, we have compiled a list of considerations for you to check off as you consider where to open a new brewery or expand operations:
- Utility needs: Ensure that local drains, water lines and plumbing will accept your brewery equipment, and that the supply of water, gas and electricity is sufficient for your needs.
- Loading and storage: Is there space for a loading area/dock and safe product storage? Can the building handle a walk-in cooler? If sharing a loading dock with other businesses, what is their actual use and can you realistically work around it?
- Infrastructure and distance to partners: Is local infrastructure sufficient to allow for easy delivery access to the building? Are partner distributors and vendors within acceptable distance to the brewery to avoid freight cost blow out?
- Zoning: Does the council allow for a brewery in your preferred areas? Could you seek a zoning exemption? Will opening a brewpub instead of a pure brewery give you greater zoning flexibility in your city?
Additionally, for those opening a brewpub or restaurant:
- Parking: Is there safe and convenient parking in and around the area? If not, is there convenient bus or train access, or a place for taxis/ride-share cars to wait?
- Visibility: Does the building have street visibility? Do people know it is there and can they find it?
- Access: Can people with disabilities access the building? Does it meet local regulations regarding counter heights, restroom design, number of entrances/exits, and so on?
- Foot traffic: Is the business in an area of heavy foot traffic so that draws in customers? Is the population of the area high enough that the number of walk-ins will help outweigh leasing costs?
Inventory management is all about improving your brewery’s efficiency and reducing costs
3. Managing inventory to improve efficiency
Inventory management is not just about how and where to store ingredients, equipment and finished goods, but about improving efficiencies and potentially reducing unnecessary costs (such as wastage and spoilage).
Smart brewery management software is capable of tracking and automating much of the entire brewery process, allowing business owners like you to keep an eye on each individual step, watch costs in real time, and effectively manage inventory so you don’t over or underspend on key ingredients, or overproduce products that you can’t sell.
To be more specific, when you look for brewery control software, look for something that can:
- Improve visibility. Your system must be able to record and track everything coming into and going out of the business, including dates, expireys, item location and costs. By tying this information to sales data, you’ll also be able to get clear on how much to spend to produce the perfect amount of finished product, and automatically order new materials as stock levels run low.
- Track sales. Business intelligence is critical to success in the modern era. Tracking data from every corner of the business and integrating it into a central database allows you to make reports that let you see the real, accurate performance of the business – and areas that are underperforming. This level of tracking enables innovation that is otherwise unavailable without, as you can pinpoint key aspects of the brewery to improve, shelf or simply monitor.
- The Role of Inventory Management in the Food Industry
- Epic Beer Grows Business With Efficient Inventory Software
How to sell and market to your target market?
4. Selling and marketing beer
Develop a sales strategy
Sales don’t happen — they’re made. And to ensure that all sales work is completed in line with the expectations of the brewery (its brand, values, financial objectives), it requires a strategy.
Some questions to consider for your sales strategy:
- What are your core values and mission statement?
- What is the history of the brewery, and who are its people?
- Who are your ideal customers, and where do they shop? Where do they hang out online?
- What are your budget figures, your historical sales, your various costs and overheads?
- How do you expect the coming year to go in the beer industry?
- What relationships do you already have with partners (suppliers, distributors, vendors) and what will you need to forge?
You’ll notice these questions blend financial data and forecasting with developing a brand and target audience. To get the most from your sales team, they can’t just sell a brown bottle with a label on it. They need something to drive them, a story to sell to prospective customers, and that’s why brand is as important to sales as finances. We talk more about brand below.
To sell to consumers or not to sell to consumers
One thing on many brewers’ minds at the moment is: Should you sell straight to consumers?
The rise of online sales platforms such as Shopify have made it easier than ever for beer makers to sell their products to consumers directly. Some breweries swear by it, claiming it can increase profit margins. Of course, the added work and legal requirements could also add costs that not every brewery can afford. That said, you might argue that direct-to-consumer sales gives a brewery more flexibility to keep selling even during times of economic crisis such as Covid-19, as there is less reliance on traditional supply chain partners like distributors and vendors, and a greater relationship between customer and brand.
So, questions to ask yourself:
- Do you have the knowledge to set up an online store and operate it in a legal, safe fashion?
- Do you have the infrastructure at the brewery to track orders and schedule them for delivery?
- Do you have a logistics partner who can safely ship your finished products to customers directly?
- Are you capable of complying with local regulations around the sale of alcohol online?
The pros and cons of opening a brewpub/restaurant
And what about expanding operations into a brewpub or restaurant?
- Another area of potential revenue, and a way to introduce more customers to your beer brand.
- Opens more marketing opportunities as well, as you can advertise not just the beer but the entire experience of your business.
- In some cities, it may help you open a brewery in an area that it otherwise wouldn’t have been allowed (due to zoning restrictions).
- Another area of regulation and inspection – more standards to track and maintain.
- Anecdotal reports from the industry suggest food is more polarising than beer, leading to increased risk of receiving negative reviews not for the drink, but because of food and service.
- Restaurants are notoriously difficult businesses to open, run and keep successful. It will require new staff with new skills, all with their own costs and risks.
The importance of a strong brand
Your brand is everything a customer sees, hears, tastes and feels when they interact with your business, whether online, with a sales rep, or holding a bottle in their hand. It can help you gain recognition in the market, it supports marketing and sales efforts, and can build relationships with customers.
Something as simple as colour can help customers recognise your brand instantly. For instance, 91% of consumers could correctly identify Google by looking only at its colours, according to a Reboot survey. 80% identified Starbucks, and 84% McDonald’s. Reboot also found that, when shown a logo of a brand they’d never heard of and then asked later to recall that logo, 78% remembered the colour while only 43% remembered the name.
But brand is more than visual, it’s also your persona and your values. It is with these that customers can build a relationship, feeling like they relate to your company, can trust it, and know to expect a certain experience from all of your new products.
The role of digital marketing
Legacy advertising (TV, billboards, etc) isn’t dead, but digital marketing has proven itself far more cost-effective, with better audience targeting controls and much wider reach.
For instance, Hootsuite’s Digital 2020 report found that 42% of internet users use social media to research brands, and Curalate reported that as many as 76% have purchased a product seen through a brand’s social posts. Given that 73% of all Kiwis alone, regardless of age, are social media users (Hootsuite), you can see how the numbers start to stack up. That figure is 71% in Australia and over 58% in the UK.
Digital marketing is powerful and cost-effective. But what should you consider?
- Developing a strong social media presence with a strong focus on building customer engagement.
- Building relationships with influencers to create long-term partnerships and advertising opportunities.
- Populating your website with interesting content (articles, podcasts, videos) for consumers to enjoy, offering advice, information and news.
You need to know your costs, track turnover and create accurate forecasts
5. Managing costs
There are three key steps to getting a complete view of your costs, so you can manage them effectively and reduce waste.
1. Know your costs
Everything to do with cash flow management starts with knowing your exact costs. That means labour costs, equipment purchasing, leasing and maintenance, the plethora of product-related costs, from ingredients to shipping to storage. Plus you must learn to identify the margins of everything you sell, known as tracking ‘Margins by SKU’, to learn how profitable each individual product is for your business.
The end goal should be total visibility. You know your earnings before interest, taxes, depreciation and amortization (EBITDA), your costs, and, as a result, your working capital, or cash flow.
2. Track inventory turnover
Poor inventory management, as we’ve touched on, is a fast way to lose money without realising it. Inventory turnover specifically is the speed at which inventory moves through your brewery. The longer something stays in the warehouse, the more it costs. If it spoils, of course, it costs even more.
The key to a healthy brewery is keeping that turnover fast, which again is where you’ll want that professional brewing software that helps you record every little detail about every piece of inventory.
3. Learn how to forecast
The final piece of the cash flow puzzle is forecasting. Business owners must be able to look ahead to identify both opportunities and risks in the next financial year, to be able to position themselves in such a way that they can either take advantage or build resilience.
Using historical costs you will be able to work out what to expect in the future from standard operating costs, but having an eye on the market as a whole will help you spot those unexpected changes – either a new market opening up, or perhaps the rise of a global pandemic that shuts down supply chains.
To be a cost-effective brewery with minimal waste and maximum operational efficiency, you need the right team around you, a smart business location, intelligent inventory management software designed for your industry, sales and marketing savvy, and the ability to record, track and predict costs.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.