Critical success factors in owning a brewpub October 2018

As Australia’s beer taps get harder to secure, new breweries are relying more heavily on their own venues for security and cash flow.

The Craft Beer Production in Australia Industry Report by industry analysts IBISWorld suggested that “to compete, smaller craft beer producers have opened nano-pubs or brewpubs that are attached to their breweries”.

For Spark Breweries and Distilleries owner Julian Sanders, it’s because of the “tacit collusion” of big breweries with regards to tap contracts and market consolidation that craft breweries have had to consider the real value of a serve-on-site business model.

“You need to do five times the volume distributing to make the same money pouring from your own taps,” Julian explained. “It’s full margin revenue, particularly important at the beginning of a business.”

“It’s also highly defensible… no supermarket can drop you and you don’t have to fight trench warfare getting your product in fridges and on shelves.”

The Spark brewhouse at Sydney’s Sauce Brewing Co.

In its report, IBISWorld identified 250 key success factors for a business. The most important for the craft beer production industry are the establishment of a brand name, control of distribution arrangements and having a good reputation.

The nature of brewpubs and serve-on-site businesses allow brewers to put their products directly in the faces of their consumers.

“The brewpub is a brand touch point and appeals to people these days who are after transparency and provenance – who made the beer and why,” Julian said.

Quoting famed gastronome Brillat-Savarin – “Tell me what you eat, and I will tell you what you are” – Julian said that these consumption choices are what help consumers create meaning in their lives. This gives brewers the chance to build communities around them, which buttress their business.

For Ballistic Beer owner David Kitchen, the brewpub’ssense of community has stemmed from what he describes as the “third place”.

Neither work nor home, David likens the brewpub or third place to an English pub, French bistro or Italian cafe.

“It’s a place that you can go to be a part of the community but you don’t have to be actively involved in the community,” David explained.

“So, you feel welcome, you feel acknowledged as a person.”

“It’s a place that you can go and be accepted and feel warm and cosy and that’s what I wanted in our brewery bar, a place where people can come to and be a hub for the community for that area.”

“That’s what Ballistic has become in Salisbury… And as a result, we’ve had a huge amount of support from our local area and that’s why we’ve been so successful.”

David attributes much of the success of craft beer in Australia to MasterChef.

“MasterChef and shows like that have started teaching Australians again that caring about your food and caring about what you drink is actually an important thing and an interesting thing and a fun thing to do.

“There’s an overriding need now to be more closely located to what we’re consuming.”

And this translates to the brewpub he said.

“If people can come to a place where they can see what’s been made and they know it’s been made with care and attention, that’s a positive thing.”

David takes this idea of an holistic space one step further. In his view, the brewpub has changed the way we sell craft beer, where we have moved past just selling the product and onto selling an experience.

“It’s got to be more than just the beer itself to stand out in what’s becoming an increasingly competitive market,” David explained.

“As you develop that experience you develop that loyalty from your customers.”

For owner of Queensland’s soon-to-open Glass House Brewery, Simon Michelangeli, the venue is a natural extension of the production facility.

“Because we have a hospitality capability, it was a logical part of of our business model from day one,” Simon explained.

“When you look at it from a high level, from a volume point of you and from a margin point of view, you probably need – as a wholesale-only brewery – 25 to 30 customers versus having one venue.”

For David, the brewpub certainly provides him with “three to four times the profit as opposed to selling a keg”.

“There is a limit to how much we can sell over the bar but you don’t have distribution costs and you’re not paying marketing and sales costs and there’s no bad debt or 30-day creditors.”

David said that over the first 18 months, Ballistic made more on the bar than through its distribution.

This has resonated with Simon.

“From a risk point of view, we felt that being able to have a venue that would be able to showcase our products and for us to be able to sell direct to customers, and have a family-focused venue that meant that people could come and enjoy the food and the beer but not be restricted to just a beer crowd… that rounds out the business model.

“A wholesale production brewery is very cashflow intensive and we feel that the stronger cash flow position of a hospitality venue helps to balance out the cash flow drain on the wholesale side of the business.

“From the risk point view, because we have some significant hospitality experience and capability, we actually feel that [the brewpub model] is a lot less risky than a wholesale only or predominantly wholesale business model.

“And we’ve done a lot of work to validate that.

“The beauty of having a three and a half year gestation period is that we’ve been able to validate a lot of the assumptions that we’ve made, we’ve looked at what’s worked elsewhere and where things haven’t worked as well, and what kind of model would work best for us in this location,” Simon said.

He said that there isn’t much in the way of venues like his in the area, and that the brewpub “is a real opportunity to create a space for locals and also showcase our beer at the same time”.

“Having a venue of significant size provides the best opportunity to present the products and the brand as you intend, and for us it creates a home for our brand and our products.

“It also again enables us to have a point where we can distribute from.

“Likewise, the brand and the experience and the reputation all go hand in hand, so we need to make sure the quality of our beer is matched by quality of our service and the quality of our food.

“If we’re able to achieve a great outcome in those three areas, then we’re setting the brand up for the best success.”

This article has been presented by Spark Breweries and Distilleries. Achieve your brewing ambition withSpark.Brewpub specialists, plus custom large scale Brewing and Distilling systems. Local consultation, engineering, long warranty backup and close support.Equipment finance available.


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