The US craft beer industry has come a long way since the explosive growth of the ‘90s and 2000s. These days, it’s a more mature and competitive market, but small and independent brewers are still going strong. Craft beer’s market share is even on the rise, hitting 13.3% by volume in 2023, up from 13.1% in 2022. To stay ahead, brewers are adjusting their business models, strategies, and branding to keep up with shifting consumer trends and economic pressures.
For anyone running a brewery, figuring out what makes a brewery profitable is key. While getting people through the taproom doors is a big part of it, there’s more to success than just attracting customers. Many brewers are turning to integrated software tools to help streamline operations and boost profit margins. Let’s dive into some of the main factors that can help make a brewery thrive in today’s market.
The Surging Popularity of Small Craft Breweries
Small craft breweries have blown up in popularity for all kinds of reasons, drawing in fans not just locally but from all over the world. So, are microbreweries profitable? The answer lies in understanding the factors contributing to craft brewery popularity, which include consumer demand and the allure of the craft brewery counterculture.
Breweries can be profitable, with typical profit margins of around 20% to 25%, especially when direct sales through taprooms are maximized. While initial startup costs for equipment and real estate are high, efficient operations and smart distribution strategies improve profitability. Breweries that target niche markets and scale effectively often achieve sustained growth in the competitive craft beer industry.
Consumer Demand
Consumer demand plays a pivotal role in answering the question “do breweries make money?” Beer enthusiasts have developed a craving for hoppy IPAs and distinctive, palate-tickling sours. The sparseness of these unique and often pricier craft beers on the shelves of ordinary convenience stores has only fueled the desire for them. Scarcity breeds demand, and the allure of limited-edition ale varieties further drives interest and enthusiasm for brewery products.
Large corporate beermakers such as Anheuser-Busch and MillerCoors recognize the appeal of craft beers and have diversified their product portfolios. Names like Terrapin Beer and Goose Island are craft brews from these corporate giants. But connoisseurs of the best craft beers are looking for more, and smaller craft breweries are bringing it to them. This strong consumer demand is a key factor in microbrewery profitability.
A Counterculture Movement
Craft breweries have emerged as a captivating counterculture movement, standing in opposition to mass-produced, cheap beer brands that prioritize marketing over product improvement. By offering unique and meticulously crafted brews, small breweries symbolize a departure from the homogeneity of mass-produced options. They represent a resurgence of freedom in beer production, where creativity, experimentation, and the pursuit of quality take center stage.
The promising economics of the beer industry, driven by strong consumer demand and the appeal of the craft brewery counterculture, help explain why owning a brewery can be profitable for many entrepreneurs. However, achieving and sustaining profitability requires carefully managing costs and implementing smart business strategies.
Are Breweries Profitable? Calculating Your Profit Margins
When evaluating a brewery’s financial performance, one crucial metric is the profit margin. The profit margin measures how much of each dollar in revenue is ultimately retained as profit after accounting for various costs. The basic formula for calculating profit margin is:
Profit Margin = (Revenue – Costs) / Revenue
For example, let’s say a brewery generates $500,000 in annual revenue and has total costs of $400,000. Using the formula above, we can calculate the profit margin as follows:
Profit Margin = ($500,000 – $400,000) / $500,000 = 0.20, or 20%
In this scenario, the brewery has a profit margin of 20%, meaning that for every dollar of revenue, the brewery retains $0.20 as profit.
It’s important to note that profit margins can vary significantly based on factors such as brewery size, location, distribution model, and operational efficiency. However, by implementing strategies to boost revenue and minimize costs, breweries can work towards improving their profit margins over time.
Ignite Brewing Co. was selling some of its beers at a much lower margin than intended, driving them to adjust some brands by as much as 10%. As they said:
“We were selling some beers at a much lower margin than intended in some cases, driving us to adjust some brands by as much as 10%. Having the batch history in Ekos helped us realize it. Now, sales are better aligned to costs over time, which helps us target recipe adjustments and ingredient contracting opportunities.”
Learn How Ignite Brewing Co. Used Ekos Beverage Software to Align Their Sales to Costs Over Time
Putting Profit Margins to Work: A Brewery’s Path to Optimization
Once a brewery understands its profit margin, it can set realistic goals for improvement. This may involve implementing cost-saving measures, such as streamlining production processes, negotiating better rates with suppliers, or reducing waste. Additionally, the brewery may explore strategies to increase revenue, such as expanding distribution, introducing new products, or focusing on high-margin offerings like taproom sales.
For instance, a brewery with a 20% profit margin may aim to increase it to 25% within the next year. To achieve this, the brewery might invest in more efficient equipment to reduce production costs, renegotiate contracts with suppliers to secure better pricing on raw materials, and expand its taproom to capture more high-margin direct sales.
By continuously monitoring and adapting based on their profit margin data, breweries can make informed decisions that drive profitability and support sustainable growth in the competitive craft beer market.
It’s important to note that profit margins can vary significantly based on factors such as brewery size, location, distribution model, and operational efficiency. However, by implementing strategies to boost revenue and minimize costs, breweries can work towards improving their profit margins over time.
The Tasting Room: A Key Driver of Brewery Profit Margins
Establishing an on-site tasting room has emerged as one of the most effective strategies for maximizing brewery profitability. While retail sales and distribution remain important channels for larger breweries, smaller operations can significantly boost their margins by focusing on direct-to-consumer sales through their tasting rooms.
The beauty of a tasting room lies in its efficiency—despite requiring minimal physical space, it serves as both a powerful marketing tool and a high-margin distribution channel. This direct sales model is particularly valuable for small brewers who might otherwise struggle to compete in wholesale markets dominated by larger players.
Think of it as the “brewery-to-pint glass” movement, similar to how farm-to-table restaurants have found success by eliminating middlemen. When selling directly to patrons, breweries can command premium prices while eliminating distribution costs. This advantage extends beyond draft pours to include growler fills and pony keg sales that customers transport themselves.
Tasting rooms also create opportunities for additional revenue streams beyond beer sales. Smart breweries capitalize on merchandise sales, food service, and brewery club memberships. With strategic pricing and thoughtful offerings, these complementary products and services can substantially contribute to the bottom line.
By leveraging the tasting room as a multi-faceted profit center, breweries can create an engaging customer experience while maximizing their margins through direct sales and ancillary revenue opportunities. This approach helps offset major expenses like equipment and maintenance costs while building brand loyalty through face-to-face interactions with customers.
The Economics of Beer: Key Factors That Impact Brewery Profitability
While tasting rooms can boost brewery profit margins and offset equipment and maintenance costs, implementing sound business practices is foundational for making breweries profitable and minimizing expenses. The initial step entails identifying the most substantial expenses breweries typically incur, which include:
- Ingredient costs
- Real estate expenses
- Overhead costs
- Packaging expenditures
- Distribution expenses
For each brewery, there exists a unique set of optimal approaches to address these expenses. Gaining a comprehensive understanding of potential cost-saving opportunities is essential for determining how to make a particular brewery profitable. By proactively exploring strategies to decrease these costs, brewery owners can enhance their profit margins and overall profitability.
Ingredient Costs
Water, grains, hops, and yeast stand as the primary raw ingredients in beer that offer opportunities for significant cost savings. Specialized software systems can help to track the costs of these ingredients but also how the ingredients are stored and used for quality control purposes.
Water
Despite its importance, water savings often go overlooked once a brewery has installed its initial water treatment process. However, investing in steam heat brewing vessels that recycle condensate can drastically reduce water usage.
Reusing this condensate, which closely resembles distilled water, not only conserves water but also minimizes equipment wear and tear. Condensate presents a favorable alternative to water with a high solid mineral content that requires softening to prevent scale and corrosion.
Grains
When it comes to grains, such as malt, breweries can choose between purchasing pre-milled varieties or investing in their own milling equipment to cut down on costs. The scale of production typically dictates the decision to mill grain in-house, as it entails additional equipment and overhead expenses.
Hops
While specialized hops often serve as a unique selling point for craft brews, considering all options can be beneficial, not only for cost savings but also for innovation and the creation of new beer recipes.
Over the past couple of years, brewers have benefited from a growing spot hop market instead of having to contract their hop use for multiple years. This allows them to quickly adjust to changing consumer tastes instead of being locked into a specific hop for multiple years.
Yeast
For many breweries, yeast management presents the most logical pathway to cost savings on beer ingredients. Reusing yeast multiple times, whether it’s four or twenty times, can lead to significant savings.
Additionally, reusing yeast can impart distinct flavors and fermentation characteristics. Extending the lifespan of yeast is a common practice among breweries seeking to reduce costs, but it’s important to find the optimal threshold for reuse. Tracking fermentation history is instrumental in making yeast management decisions.
12 Gates Brewing Company used Ekos to better manage their inventory, production, accounting and sales.
“Understanding our costs and profit margins has always been difficult to manage. With Ekos, we have a better understanding of our entire operation which will hopefully lead us to become a more profitable business.”
Tom Kirchmeyer, 12 Gates Brewing Company
Learn How 12 Gates Brewing Company Used Ekos to Have a Better Understanding Of Their Entire Operation
Real Estate Expenses
The choice of real estate can greatly impact a brewery’s profitability—especially its tasting room venture. When considering starting a tasting room, the selection of real estate becomes a crucial factor. Breweries situated in industrial properties may save money on rent, but they often lack the desired foot traffic. This can be acceptable—if the facility transforms into a highly sought-after destination with the added advantage of convenient parking.
On the other hand, opting for a downtown location for a tasting room offers increased visibility and foot traffic. The tasting room serves not only as a place to serve beer to patrons but also as a powerful marketing tool.
Downtown real estate tends to come with higher costs, but it provides a dual-purpose benefit, serving as both a brewing location and an eye-catching advertisement display for the business. Weighing these costs and benefits is essential when determining the optimal location for your brewery and its tasting room.
Ultimately, the decision should consider the potential trade-off between lower rent in an industrial area versus the heightened exposure and marketing advantages that come with a downtown location. Striking the right balance between costs and benefits will be instrumental in making a brewery profitable.
Overhead Costs
Employees represent a significant expense in any business, but they are also a valuable asset. In the case of new breweries, founders often shoulder various tasks, including tank cleaning and keg washing, until the business generates sufficient cash flow to support additional staff. However, it is important to recognize that these business owners may be better suited to focus on activities that drive greater profitability for the brewery.
Attracting and retaining high-quality employees requires offering competitive compensation and incentives. Breweries must provide appealing incentives to attract the kind of employees who will uphold the quality of their products. Investing in skilled and dedicated staff members is crucial to maintaining product consistency, customer satisfaction, and overall business success.
While the cost of employing capable personnel may seem significant, it is essential to view it as an investment rather than a mere expense. Quality employees contribute to the growth and reputation of the brewery, ultimately boosting profitability. By offering competitive compensation packages and creating a positive work environment, breweries can attract and retain top talent, which is key to making a brewery profitable.
Packaging and Distribution
Packaging and distribution channels pose significant costs, particularly for emerging breweries that may have limited cash flow. In the early stages of a brewery’s life, hand-bottling efforts often present the most affordable option. However, even established brewers are increasingly favoring cans over bottles. They recognize that cans are more cost-effective, cool quickly, and offer superior light-blocking properties to preserve beer quality.
Navigating distribution can also present challenges. Establishing contracts with distributors can simplify the process and reduce complexity, but it may also diminish direct quality control efforts. On the other hand, self-distribution can be a more cost-effective option, particularly if it’s local.
This approach involves distributing kegs at festivals and private events where the breweries’ beer brands are prominently showcased. Some new breweries may choose to focus solely on keg distribution, especially when they receive advertising benefits.
Carefully considering packaging options and distribution strategies is essential for breweries aiming to balance cost-effectiveness, product quality, and brand visibility. Evaluating the long-term benefits and drawbacks of different packaging formats and distribution channels will allow breweries to make informed decisions that align with their goals of maximizing profit margins.
Great Beer and Great Profits: The Importance of Data-Powered Brewery Management
In the craft brewing industry, understanding your business thoroughly requires accessible data. This data should be relevant and seamlessly integrated. When using separate accounting, POS, and brewery control systems, valuable information may be available, but the lack of aggregation can hinder the ability to make profitable decisions with ease.
Implementing a comprehensive craft brewery management system allows decision-makers to have a holistic view of their operations. By integrating various data points from inventory management to production scheduling, sales, and accounting, breweries can streamline processes, reduce manual effort, and gain real-time insights into their business performance.
The most profitable breweries are using and benefitting from a comprehensive brewery management system that seamlessly integrates data for various components—including many discussed above— to streamline operations, foster efficiency, and enable data-backed decisions that will impact the brewery’s bottom line.
Calculate the ROI of Using Ekos Beverage Management Software
The Profitable Brewery: Use Technology to Power Your Brewery with Data and Make Money in the Beer Business
So, are breweries profitable? The answer is yes—with the right strategies and tools in place. Approaches to enhancing brewery profitability may revolve around strategies like reducing ingredient costs or expanding the brewery’s business through the sale of merchandise, food offerings, or brewery club memberships. Effective cash flow management plays a crucial role in determining the most viable income strategy to maximize profit margins.
Implementing appropriate software solutions can greatly enhance transparency by tracking costs, income streams, and various other financial aspects. With the aid of the right software, breweries can gain clearer visibility into their financial operations, enabling them to adopt the best business practices tailored to their specific requirements.
Craft beverage software designed specifically for the industry can provide a range of benefits that directly impact profitability:
- Streamlined Production: Maximize efficiency and minimize waste in your brewing processes
- Automated Task Management: Save time and reduce errors by automating inventory management, production scheduling, and reporting
- Seamless Integration: Connect your existing accounting and POS software for a unified view of your business operations
- Data-Driven Insights: Access valuable analytics to inform decision-making and optimize profitability
- Remote Accessibility: Manage your brewery effectively from anywhere with secure access to critical business information
- Simplified Compliance: Easily navigate regulatory requirements specific to the craft beverage industry
Let’s face it—running a brewery is complicated enough without getting bogged down by spreadsheets and paperwork. With the right software tools in your corner, you can spend less time crunching numbers and more time crafting amazing beer. The best part? When you have clear insights into your business data, you’ll spot opportunities to save money and boost profits that you might have missed before. After all, better brewing starts with better business practices.
Ekos software provides software solutions for every aspect of craft brewing operations. Our integrated inventory and production brewery management systems automate essential tasks such as TTB reports, sales orders, and employee training. Book a demo today to find out how Ekos can help your brewery become more profitable.
