tip
Don’t be held back by your geographic location. Thanks to the online market, some of your best customers can come from other continents.
Selling equipment for the craft business is big business. With so many small breweries, distilleries, and cideries opening, the people supplying these producers are working overtime to meet demand. And their businesses are thriving. “In Portland, we’re seeing new brewery equipment fabricators,” says Kurt Widmer, founder of Widmer Brothers Brewery, a unit of Craft Brew Alliance. “There was one and now there are five and all are doing very well. There are now four universities in Washington and Oregon with brewery programs. The industry has created 8,000 jobs in Oregon alone. Barriers to entry are low, and failure rate is even lower.”
Is the Equipment Niche for You?
Robert Soltys and his wife, Michelle, owners of Premiere Stainless Systems in Escondido, California, are among the few American manufacturing business owners whose fortunes took off as the recession was looming. Ever since, they’ve been racing to keep up with demand for the brewhouses they fabricate. “We have had the same pricing for three years; we are so busy, we haven’t had time to look at raising them. Customers are willing to pay more to get their systems faster, but we can’t make them faster,” says Michelle Soltys.
“We’ve gone from two employees five years ago to 30 employees today,” she says. In 2012, they sold 50 brew systems; in 2014, they sold twice as many, with customers in Australia, New Zealand, Argentina, Kenya, Spain, and Israel.
tip
Don’t be held back by your geographic location. Thanks to the online market, some of your best customers can come from other continents.
“We started in 2000 with the idea that we just wanted to be part of the beer industry. Five years from now I think we will be just as stressed. I don’t see it slowing down. Everyone who orders a system is back in three months ordering more tanks so they can expand,” says Soltys.
Selling brewery equipment is the equivalent of having the shovel concession at the gold rush. Everyone in the business is working as hard and as fast as they can to meet the demand for new or bigger breweries. Look for equipment, supplies, and services new breweries, distilleries, and cideries need, and ask yourself if these are business opportunities for you. Few craft producers have experience with advertising, a piece of the marketing puzzle that will be more important going forward. A quick look at craft websites is all you need to see the crying need for both web and graphic designers. Small technological enhancements to brewhouses and stills sell quickly by word-of-mouth across this well-connected industry.
In 2009, the typical new brewery was a three-barrel system, which means that the maximum size of each batch of beer was three barrels, says Soltys. It went to five to seven barrels a couple of years ago. Now 15- or 30-barrel systems are the norm. “They have figured out they have to go as big as they can afford to go right out of the gate. A brewer’s biggest challenge is keeping up with demand. If you start small, you will have to change out your system in a year.” At Premiere Stainless Systems, the standard 15-barrel microbrew system is around $210,000. It costs around $340,000 for a 30-barrel system. “We’ve seen the ups and downs, weathered the 1990s nosedive and the slow early 2000s. Then when everyone around us was losing their jobs, the market for breweries took off. I guess beer is an affordable luxury because people were sure drinking it when the economy tanked.” There are 90 breweries in San Diego now and another 60 planning to open. And guess what? All of them need someone to sell and service their equipment needs.
The market for hops, the green herb used in all traditional beer recipes, has been on a boom/bust cycle for decades. Originally, craft brewers bought hops on the spot, picking up whatever the big beer companies didn’t buy. But hops are expensive to grow. And when craft took off, hops farmers hadn’t anticipated the demand. There wasn’t enough to go around. Today, craft producers sign five-year contracts for the hops they want, giving hops farmers the ability to plan ahead.
fun fact
Hop ratio is much higher in craft beers, says Ann George. Big Beer only uses a quarter of a pound of hops for every barrel of beer (31 gallons). Craft uses an average of 1.3 pounds of hops in an average barrel of their beer.
“Thanks to the craft industry, a five-year forward contract is now the industry standard,” says Ann George, executive director of the nonprofit, Hop Growers of America. As a result, the hops industry has been profitable for the last three to five years. “Craft has turned our industry around. They have set very high expectations for quality. They want more and better varieties, and they are funding the research to support that. The growers who have stepped up are benefiting from the boom. We now have on-farm cold storage, cleaner facilities, and a wider range of quality indicators than Big Brewers ever considered important. And craft is willing to pay us enough to maintain these improvements.”
There now are hops growers in 14 new states, and an additional 880 acres of hops has been planted. There are 180 growers farming 150 acres of hops in New York State alone. “Hops has terroir,” says George. “The different hop varieties taste different when grown in different places. Yakima hops taste different from those grown in Michigan. It’s like wine grapes. Thanks to craft, we are in a new discovery period for hops.”
“It is fair to say we are selling shovels at the gold rush,” says Jake Keeler, director of marketing at Brewing Supply Group (BSG), a supplier working across all craft alcoholic beverage sectors. BSG has seen sales grow between 15 percent and 20 percent every year, in both dollars and volume, for several years. “We’re seeing a lot of money flowing into craft. There is talk of a bubble, but we can see that the growth is real. There still are places in the country that are underserved. Opportunities are greatest in the Southwest and Southeast and the Great Plains states. All are underserved. This industry is going to continue to grow at this rate. In 2016, it might begin to slow down, but it won’t fall off.
“We talk about the failure rate for breweries every day. It is crazy: maybe 7 percent. This is an unprecedented industry,” says Keeler. “The new breweries are opening with more capacity than they did even a few years ago. They start with a multistate distribution plan and a 30-barrel system, which used to be the size of the second expansion. Or, they open really small, no investors, a five-year plan to serve just a four- or five-mile radius, that’s what I recommend. They build their markets organically. No marketing budget. Self-distribute. By the time they go to investors they are debt-free and making a profit. They live within their means and survive, like a local baker who lives above his store.”
Making the Jump to a New Product
The craft business is easy to transition within, and for good reason. Many of the methods, business planning functions, and marketing translate well from one type of brewing or distilling to another. For example, “Distilling has the capacity to be like craft brewing, only the product sells for much more, and the craft producers don’t seem to be much of a threat to the big distillers,” says Keeler. There are new distilleries opening all the time. It’s all tied to the demand for locally produced and sourced products. The transition from being a craft beer drinker to being a craft spirits and hard cider drinker is easy to make. That person is already into experimenting.
fun fact
Distilling may be the cheaper choice in terms of startup cost. The equipment for distilling compared to brewing is relatively inexpensive. Raw ingredients are less, and you don’t need many ingredients. You can make a white spirit in 14 days and sell it immediately.
Another wide-open niche is the used equipment market, which is ridiculous (in a good way), says ProBrewer.com owner Tom McCormick, who also runs the California Brewers Association. ProBrewer is the only source for classified ads for used brewery equipment. “Now that the lead time on new equipment is 6 to 12 months or more, the advantage to buying used is that is it available immediately. But used equipment costs about the same as new equipment. The more moving parts to the item, the higher the potential wear and tear and the lower the cost when it is used.
“Used equipment gets snatched up very, very quickly. If you start a small brewery, when it is time to grow, you are able to sell your equipment for what you paid for it,” McCormick says. Right now, the most popular approach is to start with a seven-barrel system with a tasting room and sell as much beer as you can through that tasting room, then self-distribute the rest through kegs or bottles. When it is time to expand, sell the equipment that doesn’t work in the larger system to help finance the growth.
Clearly, it’s boom time for craft across the board, even as the country recovers from a down economy. So what’s holding you back? Go west, young man or woman. The gold rush awaits.