Hyper Local Brewing – Small Can Be Profitable

Have you heard the term “hyper local brewing”? I’m seeing the term discussed more and more in brewing circles. I was lucky enough to be on the Build Me A Brewery podcast hosted by the wonderful Chris Hayton. Here is a link to the episode I appeared on:

Equipment Sourcing Podcast (podcastaddict.com)

In it I discussed equipment sourcing and shared tips on opening a brewery. Drawing from my experience in the brewing industry. Well, Chris set up a Facebook group off the back of his podcast for prospective brewery owners.

It’s a great group by the way, with some really passionate and dedicated members. If you’re looking to open a brewery someday, I’d highly recommend joining the group.

Hyper Local Brewing - Bear Pond Wuxi

Many people in the group are planning hyper local brewing setups. But what does the term actually mean? Well, if you look up “hyperlocal” on Wikipedia you get:

” Hyperlocal is information oriented around a well-defined community with its primary focus directed toward the concerns of the population in that community.”

With hyper local brewing your dedicated to serving the community with a neighborhood bar which produces its own inhouse made beer.

Hyper Local Brewing – What Type of Setup Are We Talking About?

It’s a small brewhouse setup, usually a 300-liter brewhouse or under. Going hyper local isn’t opening a brewery focused on year on your growth.

It’s opening an establishment to be a hub, watering hole and hangout for the local community to come together for good beer, rest and relaxation. The ideal customer would come more than once a week and stay for a few beers.

Do you remember the TV show Cheers? A place “where everyone knows your name”; this is a loose of example of the hyper local experience.

The issue is most brewers believing a commercial brewery less than 500-liters in size is commercial suicide. Is this true, can a hyper local brewing setup work?

Hyper Local Brewing and Profitability

There are breweries with systems at 300-liters and under which are profitable. It comes down to your breakeven analysis. You need to ensure you fixed and variable costs are covered and exceeded by your revenue. It’s cost vs profit!

When putting together your business plan, you need to figure out what your gross revenue must be in a given period to ensure your meet and hopefully surpass your expected costs.

With a brewery taproom the majority of your sales will be at the venue. In fact, you should be looking to sell every last drop possible over the bar of your own establishment. Having your own taproom and selling you beers onsite means greater profit margins compared to distribution, where profitably is eroded.

Hyper Local Brewing - Layout Example
Floor Plan for a 300 Liter Brewery

Setting up your taproom correctly is the key to success, it’s where the majority of your sales will take place, as well as being the public face of your company. You’re relying on the local community and locale to be successful.

The space you create for your taproom is equally as important and linked to your business plan. Developing a brand and the environment to house it in, will ultimately decide whether your brewery sinks or swims.

You need to create an environment which is welcoming, memorable, where people feel comfortable and want to visit again and again. So how do you go about that?

Let’s Take a Look at Some Tips for Success with Hyperlocal Brewing

The Plan

You need to decide upon plus, lock in an ethos for your brewery. It’ll keep you centered when you become operational. If you’re main driver is to be a sour and wild ale brewery, the milkshake IPA recipe you’ve been tweaking over time, might need to fall by the wayside.

You don’t want the public to see you switching focus after opening. It can confuse the customer base and when you’re hyperlocal that’s not a path to success.

You need to strategize to create profit. Whatever you lock in for your business plan, it should be followed in your ensuing business performance.

Don’t Spread Yourself Thin

There’s a temptation to sell your beer off-site at other venues. As craft becomes more popular around the world, local bars and restaurants want to offer specialist beers from local breweries.

It can be a good ego boost to see your beer served at a local hotspot but does it make business sense? I’d say no because, you’re eroding your sales margin even with self-distribution. People will not pay more for your beer just because it’s at another venue.

Small Affordable Skid-Mounted Brewhouse
200 Liter Skid-Mounted Brewery – Lean More About It Click Here

To be a successful with hyper local brewing, you need to sell as much beer as you possible onsite, before considering beer distribution. Seriously, off-site sales are often not worth pursuing at the nanoscale.

Which leads neatly on to our next point…

Hyper Local Brewing – High Margin Beer Sales

With hyper local brewing, you’re really a “boutique business”, you’re not competing against the big macros. Trying to be all things to every beer drinker will lead to failure. This is why the business plan needs to be locked in.

Small batch brewing is expensive and your brewery has a limited number of sales opportunities. Each glass of beer sold has to generate a healthy margin. Stay away from high volume low margin sales.

Craft Brewhouse Design Tips - Get Help Here

People will come in the door for beers which resonate with them, they’re not going to pay premium prices for ordinary beers. Yeah, you can have a pilsner on tap BUT it needs to have an accent that makes it stand out.

I hate the term but you need to “craft” it up. It could have a particular hop accent from dry-hopping for example. Another option is to use a less popular hop, I’m looking to make a “Japanese Lager” soon as part of a collaboration. We’ll use Sorachi Ace hops and maybe a small percentage of a sake yeast.

How Many Taps? Plus, What to Brew

In brewing sometimes less is more, there’s a temptation to have lots of taps at your location. Yes, with hyperlocal you want to embrace being small and use it to your advantage.

However, you want to find the balance between batch size and projected sales volume. Often having less taps with decent turnover makes sense. It ensures you’re always serving fresh beer to your patrons.

If you want to have 20 taps with a 300-liter system you’re going to be doing A LOT of brewing. Plus, some of the slower sellers will be on for a long time. Having less choice but, with a tightly focused program of regular specials and seasonal beers planned, will keep you customer base excited about future beers.

Hyper Local Brewing - How Many Beer Taps?
Is Best Not To Have Too Many Beer Taps

You might want to have a coveted sour beer program however; this will require space for barrels. This isn’t always viable when you’re hyper local when space is critical.

If you opt to specialize in authentic European beer styles you might need to decoction mash system which requires specialist brewing equipment. Again, this might not be practical at nanoscale.

Planning and understanding what your brewery can or cannot do is key part of the design and planning process. If you’re unsure, then seeking the help of a brewing consultant could save you a lot of trouble and heartache in the future.

Food is Critical

There’s a common misconception that it’s about the beer only. A taproom needs some form of food program if it wants to be truly successful. Think about matching the food program with the look and feel of the taproom.

You don’t need to cook onsite. If that happens, your business just became a restaurant, bumping up your staff levels and operational complexity. Find partners to work with who are producing locally made goods. It can be cheeses, breads, pickles and condiments to make an awesome food platter.

You can team up with local food trucks too. Having a table of four stay for another beer due to the food option available, will help be more successful.

Hyper Local Brewing – Costings

With any brewery there are fixed and variable costs. Examples of fixed costs would be rent, wait staff on salary and your insurance. These costs don’t change even if level of production does.

Examples of variable costs would be your raw materials; like malt, hops, CO2 and adjuncts. To make things more complicated, there are variable fixed costs too. Like utilities paid monthly which can vary in cost throughout the year.

Costs can also be labelled as direct and indirect costs as well. A direct cost can easily be tracked back to a batch of beer. It’ll be the cost of the raw material used. For example, how many kilos of malt were used for a double IPA. Or it could how many hours your salaried brewer spent producing a batch of beer.

Brewing Boiling Tips

Examples of indirect costs are, how much CO2 was used in a batch of beer. Indirect costs are harder to track. For example, CO2 is used to carbonate the beer but also push beer through the lines to the bar.

These types of indirect costs are based on the level of activity. Like how many litres of beer were produced over the month and what was the total amount of CO2 needed. The big question is…

How Do You Calculate the Cost of a Batch of Beer?

On a hyper local brewing scale, you can use spread sheets for each recipe. You input the direct costs, material and labour in dedicated tabs. You then add tabs for indirect costs. These are called your overheads.

Overheads are your breweries ongoing expenses which are separate to direct labour, direct materials or 3rd party expenses which are directly billed to the customer.

Your brewery will pay these overheads on an ongoing basis independent of production volume. They need to be factored into costs as they need to be covered by the beer you sell so; you can make a profit.

Your overhead costs can be broken down annually, quarterly right down to monthly. For ease of use and to keep up with adjustments many breweries go with quarterly. With hyper local brewing; overheads can include marketing, depreciation of the brewing equipment, insurance and utilities.

Calculating Costs

To make this work, define your term for calculating costs; in this case quarterly. Factor in how many litres your produced in this time and divide the total cost of overheads by the number of litres produced. This will determine cost per litre when you add in your direct costs such as raw materials.

Please note: When accounting for overall costs and your breakeven point; you need to account for beer losses too. When brewing a beer, you’ll not able to serve the full batch.

You’ll have beer losses throughout a beers journey to the bar. You’ll have losses due to hop additions, clarifying the liquid, beer tasters given out and foaming in the lines.

Of the batch you begin; with you’ll end up with 65-75% actual beer which can be sold. This needs to factored into your costings and setting your price point.

Hyper Local Brewing Conclusions

When it comes to hyper local brewing, there are many factors to consider. We tried to cover the basics in this article. As I work with clients; such as the one discussed in my last article about commercial small space brewing.

I’ve come to understand, I need to help clients on many subjects. So, in an effort to help prospective brewery owners I plan to write more article like this one on hyper local brewing.

If you need assistance on your brewing project or you would simply like to chat then I offer a FREE 30-minute consultation call. Feel free to reach out to me by email at:

neil@asianbeernetwork.com

Or scan the QR of your preferred network below, add me there and send me a message, I look forward to talking to you.

Thanks for reading, have a good day and happy brewing

Cheers

Neil

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Neil Playfoot

Neil is a brewer with 25 years international brewing experience. Based out of China (first came in 2010) he works as a brewing consultant helping brewers with their projects and brewing processes. To find out what services Neil can provide your brewery please click here. If you'd like to contact Neil you can email at neil@asianbeernetwork.com.
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