How to start a microbrewery

Keen to get in on the microbrewery scene, but unsure of how to start? It’s understandable to have reservations – there’s an economic storm brewing in the UK, after all, with the supply chain and inflation crises adding a sour note to would-be craft beer business launchers.

But, opportunity remains, provided you are clear sighted about the likely risks, rewards, and key considerations for ensuring your microbrewery plans take shape into a defensible business model.

This guide is here to help, answering common questions and hearing from those who’ve launched their own successful microbrewery businesses.

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What skills do you need to run a microbrewery business and who is it suited to?

Britain’s appetite for craft beers and ales shows no sign of abating, and while alcohol consumption in Britain is the lowest so far this century, beer sales are actually increasing.

The UK’s ailing ale scene has been revived, with microbreweries firing up the fermenters across the country – as of October 2017 the number of UK craft breweries now sits at over 2,000; the largest number of breweries since the 1930s!

A new report from accountancy firm UHY Hacker Young has also indicated a rising trend in craft beer with the number of new breweries up by 18% in 2016; growth of 64% over the past five years.

Usually defined as an independent brewery that produces a very small amount of beer, microbreweries are characterised by a stronger focus on quality, flavour and technique; giving consumers something to be sipped and savoured, rather than the bland, mass-produced lager pumped out by the large corporate distilleries.

To many, opening and running a microbrewery seems like an idyllic lifestyle. Paddy Johnson, from a Berkshire-based microbrewery says that you have to have “a passion for doing this over and above economic sense,” warning that “the market is now massively oversubscribed. You do this not to make money, you do this because you cannot stop yourself.”

But passion in itself doesn’t run a business; Johnson reminds us “you’ll be spending far more time selling beer than brewing it, so you need to go in with people that are business minded.”

It’s wise to appreciate that just because you love drinking beer doesn’t mean you’ll be an excellent home brewer. Many owners of microbreweries spend years learning and perfecting their craft before they think they’ve got a product good enough to sell.

You could throw caution to the wind and try to learn the time consuming and complex skill of brewing on your own, or you could take a short brewing course to learn the process from experts, and save yourself costly, early mistakes. If you have the time and inclination, you could even take a brewing degree at the International Centre for Brewing & Distilling at Scotland’s Heriot Watt University.

While there’s a tried and tested, centuries old method for brewing beer, once you’ve got the basics down you can start innovating with taste and flavours. The scope for experimenting with unusual ingredients has given rise to a vibrant and varied craft beer scene of quirky and interesting brews. And with so much competition around, creating a unique brand and product is key to success in this industry.

Despite the highly competitive market, there is also a strong sense of community amongst brewers, who are ready to share and support each other, as well as offer advice and guidance.

If you want to open a microbrewery you have to be patient, passionate and persistent. Brewing can be an enjoyable and rewarding process, but it is also time consuming, physical work that involves a lot of heavy lifting and cleaning. Johnson describes the typical brewer as someone who works “phenomenal hours, for very low rates of return […] but that’s what they want to do with their lives.”

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How much can you earn running your own microbrewery?

This will largely depend on how much you can brew, and what retail avenues you use to shift your produce. Remember, the price of beer duty means your profit margins aren’t great, so if you’re going into this business to make big money then brewing certainly isn’t for you.

Johnson says that for him and his business colleagues, it’s not a means of making money but a state of life: “We’re five years in, we’re considered to be one of the most successful beer start-ups in the country. We’re paying ourselves an hourly rate at about minimum wage. However, it has some upsides – we can drink as much beer as we want, and it’s a lifestyle that people want to do. And we’re building a business, it’s our business. But would I advise people to do it as a way of getting rich quick, no, I wouldn’t.”

If you build a strong brand image, merchandising is a good way to raise your profile. You could print your logo on t-shirts or even beer related merchandise like beer mats which can be sold via your website.

Organising or attending tasting events is an excellent way to gain some exposure and build a following, as well as receiving some honest feedback on your beer.

Research how other beers are priced to get an idea of what kind of price you should put your own at. It’s not just the taste and brand image that needs to appeal to your target market, it’s the price as well.

Johnson explains that “everyone wants to be a brewer, but there’s very little money in it.” He apologises for his “doom and gloom” approach but explains that “there’s a need for realism” in the business, before concluding: “Would I do it again? Yes I would.”

How much does it cost to start your own microbrewery?

“There isn’t a typical figure” Paddy Johnson from a Berkshire-based microbrewery explains: “Anything from £1,000 to £1m. How much do you need to make a living? I would say probably down for a quarter of a million quid.”

There are a myriad of factors that will dictate how much it costs to set up your microbrewery including how much you intend to produce, your location and what equipment you buy.

Equipment

After the building, this is one of the major costs involved with starting up a microbrewery. You don’t necessarily need the highest quality equipment from the outset, and there’s plenty of used but perfectly adequate kit available online.

Below is a list of the integral equipment you’ll need. It’s not a complete list but everything you’ll need to get started.

• Mash System – Mash tank, lauter tun, electric stream generator, malt mill machine, wort pump, plat heat exchanger
• Fermentation system – Fermentation tank, yeast adding equipment, cooling pump
• Cooling system – Ice liquid tank, refrigeration machine
• Filter system – Filter diameter tank, pump
• Controlling system – Meter controlling board, refrigerator board, PLC control board
• Cleaning system – sterilisation equipment, alkali liquor tank, washing pump

Ingredients

As a beer aficionado you’ll probably know there are just four basic ingredients to making beer: water, hops, malted barley and yeast. Within these four base ingredients however are a range of different combinations, which will impact the taste and quality of your beer.

• Water – this is the liquid that makes up the vast quantity of beer by volume. Tap water is generally not considered ideal for home brewing, but will do just fine if you’re trying to be cost effective. Many brewers recommend purified or spring water, which don’t contain the high levels of sulphur that can affect the taste of your beer.
• Hops – this little flower is what gives beer its distinctive bitterness. There are many different types of hops, which will affect the flavour and body of your product. It’s a good idea to do some research on different kinds and their properties.
• Yeast – this is the agent that converts the sugars in the barley into alcohol, and wort into beer. Again, there are many different varieties, so you should do some research on how they will affect the finished product.
• Malted Barley – although there are many different grains used in brewing such as wheat and rye, barley is most common. Barley can be roasted differently, which will affect the flavour, colour and body of your beer.

There are plenty of online and brick and mortar stores where you can buy these four main ingredients, and in most cases there should be someone on hand to give you advice and guidance should you require it.

Location

If you’re confident you’re ready to move into premises you need to find an adequate space and install a brewery. If you’ve got the capital there are a number of companies in the UK that will install a whole brewery for you for between £10,000 and £80,000 depending on your size requirements. Again, the variety of options and specialist equipment necessitates thorough research. A £10,000 kit will produce around 400 litres of beer with each cycle, while the largest 12-barrel brewery up to 2,000 litres.

Not just any building is suitable for housing a brewery, and it will need running water, electricity and drains at the very least. People are converting all sorts of empty old buildings now – from stables to schools and even dairy farms. You’ll want big open floors, and maybe consider finding somewhere a bit bigger than you need, to give you the option to expand. Having the correct flooring is a necessity in the interests of hygiene and safety. Wash down walls and a floor that is seamless, impact resistant, impervious and anti-slip will prevent you getting a poisoned environment or having accidents in the event of a spillage. There are a number of companies in the UK that will install polyurethane resin flooring, tailored to the needs of a modern brewery.

If you know how much beer you’re going to be producing it’s possible to work out exactly how much space you’re going to need. There are many considerations such as positions of windows and doors, roof height and drainage but just for the equipment a small 2.5-barrel brewery would need between 250-500 square feet and 240V of electricity. A medium 8-barrel brewery would need 800-11000 square feet and 415V, and a large 15 barrel brewery would need 1400-1600 square feet and 415V.

It’s vital that you properly clean and maintain the equipment. Stainless steel makes up a lot of the equipment, and given proper maintenance and care, can last for up to 30 years.

Once you’ve got everything set up and are ready to brew the cost of production will be determined by the batch size and how often you brew. You will have to adapt depending on demand. By some estimates you should be able to produce a 4.0% ABV for 33p a pint after duty – the government takes a significant percentage of every beer you sell, so beer duty will be responsible for around 60% of your costs.

Microbrewery rules and regulations

Of course, brewing alcohol is subject to quite extensive unavoidable legislation. “There’s a lot of red tape to go through”, says Paddy Johnson from a Berkshire-based microbrewery.

If you produce beer commercially, and its strength exceeds 1.2% ABV you are required to pay Beer Duty, and must register as a brewer with HMRC to receive a certificate to brew. However, as a small brewer – producing no more than 60,000 hectolitres of beer a year – you will most likely be entitled to a reduced duty rate, as part of the Small Breweries’ Relief scheme. The rates are on a sliding scale, starting at 50% for production of 5,000 hectolitres or less, and decreasing for larger production volumes.

When you apply for registration you are required to give a reasonable estimate of how much beer you expect to produce in a calendar year, which should be recorded in a Beer Production Account.

Additionally, if you are planning to sell direct to the public on premises you’ll need a premises licence, as well as a personal licence. “You’ll also need planning permission for the site. You can’t just put a brewery where you want, it has planning restrictions”, comments Johnson.

There are a number of associations and bodies you could join which represent the political and public interests of the industry, and can offer networking opportunities and training.

An excellent organisation to join when first starting out is the London Amateur Brewers, which hosts monthly meetings where you can meet with likeminded beginners and experts. Attendees are encouraged to critique each other’s beers openly and honestly to help each other improve.

The Society of Independent Brewers (SIBA) – as its name suggests – represents the interests of the UK’s independent breweries. It was SIBA that campaigned alone for 21 years for a progressive beer duty system, which was finally adopted under Gordon Brown. The organisation aims to ensure that its members brew a high quality product, with membership on the condition that you adhere to its code of practice and by-laws.

SIBA also runs the Direct Delivery Scheme (DDS), which involves the organisation buying draught and bottled beer from its 520 participating brewers, and selling them to 18 national pub companies. This helps microbreweries access potentially lucrative trade opportunities that would otherwise be difficult to arrange.

Creating a microbrewery business plan

Once you’ve done some thorough research and know you’ve got what it takes to start a microbrewery, the next step is to write a business plan. Starting a brewery takes a lot of hard work, patience and organisation – and creating a solid business plan will help iron out the rougher patches of starting up.

Johnson says, you need to primarily include the following: “What is the cost for you to produce beer, where are you going to sell it, and what price are you going to sell it at?” But the “absolutely critical bit,” due to the increasing saturation of the market, is “why are customers going to buy your beer […] why are you different?”

“And don’t say you’re going to produce good beer,” Johnson adds, “you need to have a unique selling point, otherwise you’re just another one of the 1,500 breweries in the country.” Remember that many of the consumers you’ll be targeting are likely to be experienced and passionate beer enthusiasts – they know what they like, and may have developed a sophisticated palette.

Which brings us on to identifying a target market: “You have to decide what you are offering, and then you name your brewery, and your beers with that consistent approach.” A mythology surrounding your business and its produce will draw people in, and help them identify with your brand. For example, aligning yourself with Britain’s rich brewing history creates an association with heritage and quality. Likewise you could build your brand around a culture, an ideology, or as many do – a location.

But, Johnson advises, “forget the names […] do they appeal to that target market? Can you produce them at a price that that target market is going to take?” It’s not just the look and name of your beer brand that you need to consider, the taste and the price should also be tailored towards your target market. “You can’t be all things to all people […] Do some research.”

A well researched and detailed business plan is also an invaluable tool when it comes to securing start-up finance. Potential investors and banks will want to see you have a grasp of the business. This said, traditional forms of investment are not often the best form of finance for a brewery because of the relatively low return on investment. Due to the resurgence of interest in craft beer, appealing directly to the consumer via crowdfunding is becoming a much more viable means of seeking investment.

Another thing to bear in mind is that you are almost always selling business to business, rather than direct to the consumer, so you have to ask, “Is that business going to want to buy your product at that price?” And while there’s no harm in creating an online store, you can’t rely on online sales. Johnson explains: “online sales are nothing […] you won’t touch that marketplace […] you’ve got to be selling to pubs.”

The next most important decision you’ll have to make is the location of your brewery. Again, you’ll be operating in a market that is in many places over supplied so “you need to find a sweet spot where no one else is operating […] somewhere where there is a good marketplace but relatively low beer supply.” Johnson explains that his brewery is located 175 miles away from his home because there are around 15 breweries within a 10 mile radius of where he lives. As a start-up, you’ll struggle to gain traction in a crowded marketplace when there is so much competition.

In conclusion, Johnson warns that “whatever you think you’ve got in your business plan, the costs will be higher […] as a rough rule of thumb, whatever you pay for the kit, there’ll be at least twice that cost in the setup.”

To help structure your microbrewery business plan you may find it useful to download our free business plan template.

Microbrewery tips and useful contacts

Remember:

• Brewing is time consuming, physical and demanding – be prepared to work hard and relinquish a lot of your free time
• Have a distinctive brand and product – you’re entering a highly over-supplied market
• Research, research, research
• Get your price point right, the price you set for your beer must appeal to your target market
• As a rough rule of thumb, whatever you pay for the kit will be double in the set-up

Useful associations

• The Society of Independent Brewers (SIBA) represents the interests of the UK’s independent breweries.
• London Amateur Brewers hosts monthly meetings where you can meet with likeminded beginners and experts.
• The Craft Brewing Association(CBA) promotes the craft of home brewing, and organises local and regional tasting meetings, where you can get fellow aficionados to taste test your beer, and offer advice and inspiration.
• The Campaign for Real Ale (CAMRA) is an independent, voluntary advocacy group that supports consumers’ rights in the beer and drinks industry – with a mission to promote quality and choice.
• The British Beer and Pub Association (BBPA) exists to promote and protect the interests of Britain’s brewers and pubs. Claiming its members account for 90% of the country’s beer, the organisation champions the needs of the industry and speaks for a diverse and wide representative base.
• For London-based brewers, the London Brewers Alliance, formed in 2010, is a collection of breweries within the M25 that promotes the commercial interests of its members, and supports the improvement of brewing skills amongst its members. Membership is only granted to established brewers within the M25.
• The British Bottlers’ Institute (BBI) is a non-profit membership organisation that provides a point of contact for all those concerned with the bottling, canning and packaging of beverages and other products.
• Finally, the Brewing, Food & Beverage Industry Suppliers Association (BFBi) is a trade association that represents the entire value chain of its titular industries, monitoring legislative proposals, and providing a forum for formal and social member meetings.

Other useful contacts

• Beer Duty: Government guidance on beer duty
• The Home Brew Shop UK: Supplier of everything you need for brewing, including equipment and ingredients
• ABUK: Used brewing and bottling equipment