Regional contract breweries are expanding their capacities and facilities to support the ever-evolving needs of today’s brewers. Contract brewing is just like the culinary arts; the process of making beer is similar to meal preparation and cooking. All great chefs know that there are certain limitations they face and challenges to overcome when preparing a great dish in someone else’s kitchen. That is why we have put together a contract brewing guide.
Craft breweries are opting to contract the brewing processes to third-party companies with the facilities required to make beer. Read our contract brewing guide to find out more about this niche industry and how it plays a relevant role in the future of beer franchises.
Our contract brewing guide: Why contract brew?
1. Out of capacity
Successful breweries often find themselves growing beyond their capacity or brand. For example, a company may choose to brew a specific number of beers with more shelf stability for everyday consumers. As a result, the strategy will free up their facilities to produce more high-end and speciality drinks.
Contract breweries are also effective in bridging geographic expansions. Neighbourhoods and towns are growing rapidly, so companies have to look for ways to expand their distribution and breweries, which is a complex task that can take several years to accomplish.
2. Packaging and distribution
Mobile packaging and distribution have numerous limitations that can be overcome through the contract brewing technique. To achieve high-end packaging, a company must invest in high-quality equipment, good storage space for the packaging materials and hire technical staff to operate the equipment. A packaging operation is a high-risk investment that many breweries are not ready to take on, but contracting enables them to advertise a packaged product with less hassle.
3. Contract-only brands
Contract brewing has also succeeded when breweries want to manufacture a special contract-only brand. For example, if you have £1 million and you want to start a brewery, you have the option of spending nothing on the brewery infrastructure and the entire capital on marketing. Unlike in the past, now companies are required to have both a great marketing strategy and fresh tasting beer to realise profitability. Breweries need more than one beer to increase profit margins, and contracting the process enables them to launch multiple brands at once.
4. Taproom-only model
A much less successful (or common) case in which companies contract the brewing process is when they want to manage a taproom-only without onsite brewing. For such a case, working with a traditional brewery might pose challenges because of batch volume and size. However, the method is feasible for companies that have close relationships with nearby breweries. The main advantage of the taproom-only model is that the inventory cost will be less by 35% when compared to the upfront costs of other models.
How to choose your brewing partner
The process of choosing a good partnership is similar to that of an investor evaluating an organisation. Contract breweries typically make no money during the first couple of batches because they’re still figuring out your recipe and handling upfront legwork.
To get started, the contract brewery may ask some questions, including:
• Who is the team leader in your brewery?
• What beers have you been brewing?
• Are those brands selling fast?
• Why do you need contract brewing?
• What’s your sales infrastructure for the additional beer?
A plan will be developed once the brewery is satisfied that it will be a great fit for you. Many contract brewers do not ask for binding agreements for barrels brewed. This means that if you tell the brewery you’ll make 6,000 barrels in a year and you end up making only 4,000 barrels, you’ll not be charged for the extra 2,000 barrels. Contract breweries often want to align your projections with reality, so they take up most of the risk, which is particularly higher when starting.
Depending on your goals, you can use the services of a contract or commercial brewery. There are two main benefits of choosing a contract brewer:
• Competition for resources – The contract breweries making your beers will not compete with you for resources such as packaging, brewhouse space or tank space.
• Brand ownership – Commercial brewers are often passionate about their brands, but they may not feel the same way when brewing someone else’s beer. However, contract breweries understand that they’re working on a contract basis, and you’re the face of the brand.
Above all, look for a partner who shares your brewing philosophy and commitment to an excellent relationship. Better still, you can set the standards yourself before contracting the brewing process to a third-party company. An apt partner will even give you access to the data and equipment for you to monitor, track, analyse and improve your beer.
Volume and pricing
Bear in mind that contract breweries have different structures in their pricing, and several factors (such as volume, packaging type, tank time, ingredients, etc.) influence the price of any batch. Breweries often target a 30% profit margin when working with contracting clients. Numerous factors come into play here, with the biggest being the sale price of the retailer.
It’s difficult to lock in a specific cost, so most contractors usually ask for an annual minimum commitment, which often ranges from 2,400 to 3,000 barrels per year, with a batch size of about 200 barrels. The contract period varies, but it’s at least two years in most cases. Special circumstances may see the period waived, but you must have a good baseline.
To succeed in contract brewing, you must start small and then increase the volume gradually as your brand grows. Stay small and sell your beer as much as you can through effective marketing strategies. The pricing will depend on the demand of your beer and the operational costs.
The future of contract brewing
Contract breweries remain relevant in the industry because they offer a much-needed platform for companies to launch beer brands without investing in expensive equipment. The demand for contract brewing will continue to rise on par with consumers’ demand for international beer brands. The method is suitable for brands with limited capacity or those operating under a taproom-only model.
Many renowned beer brands started by contracting brewery space, but they now have large companies with high-end facilities.
As the name suggests, here at The Contract Brewing Company, we can help you with all your brewing, canning, bottling and kegging needs. Get in touch today on 01751 484 002 to discuss how we can help you scale or fill in the contact form and will call you right back. Happy brewing!