Why Setting Up a Microbrewery is Not for the Faint-Hearted
In episode #011 of The Artisan Food & Drink Business Show I talk again with John Paulson, owner and founder of Big Shed Brewery, a real ale microbrewery based in rural Shropshire, England.
John talks about about the importance of being adequately funded and points out that properly done, a microbrewery start up requires a substantial capital investment. He describes how he distributes his real ales and explains the advantage of adopting a hospitable style when selling to customers. Real ale, after all, is in the hospitality business. Finally, John reveals the aspect of the real ale brewing business that is most likely to keep him awake at night.
This is the second of a two-part episode. It’s a good idea to listen to the first part (Episode #010) before you listen to this.
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If audio isn’t your thing, you can download a transcript of the show here: Ep #011. Big Shed Brewery Part 2. Why You’ll Need Long Arms, Deep Pockets and a Brave Heart. You can also find the full transcript of the show at the end of this post.
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Key Points from the Show
- Don’t underestimate the substantial capital costs of setting up a microbrewery. It’s not a cheap way into artisan drink production.
- Recognise the power of picking up the phone and calling your (prospective) customers or, better yet, of meeting them face-to-face to sell your products.
- Having a company website with a crystal clear description of your products is becoming increasingly imperative. Your customers will visit your website with one thing in mind: ‘what’s in this for me?’ You will need to get to the point quickly. Firstly, describe your products and secondly, explain where and how your customer can get hold of them. Worry about being cutesy, artsy or airy fairy later. If at all.
- Breweries lose a small percentage of casks each year. If you distribute via a third-party you’ll need a plan for minimising cask loss.
- Remember that the whole point about beer is that it’s hospitable. For this reason it’s highly likely that the better you can get on with people, the more beer you will sell.
- Real ale (micro)breweries operate on short sales cycles, which means it’s critical to keep orders coming in, week in, week out.
Very Sounds Bites from John Paulson
Check out the infographic below for some direct quotes from John during the show.
Thanks to John for taking the time to talk about his real ale start up and for sharing his business insights. To connect with Big Shed Brewery online and to find out where you can buy hand crafted ale from Big Shed Brewery see the Links and Resources section next.
Links/Resources Mentioned in the Show and Other Useful Links
- Big Shed Brewery website.
- Big Shed Brewery on Twitter.
- CAMRA, and independent organisation that campaigns for real ale.
- Here, a press release from the current owner of an iconic British beer that was once known as Bass celebrates the fact that it has changed its brand name. On the flip side, Martyn Cornell describes this change of name as ‘atrociously nonsensical’. This article also tells the fascinating story of Bass.
- Brew Dog
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Transcript of the Show
Catherine: Hello, and welcome to episode #011 of The Artisan Food & Drink Business Show, the show where artisan producers tell their brand story and share the secrets of their success. I’m your host, Catherine Moran.
In this episode we hear again from John Paulson, founder of Big Shed Brewery, a real ale brewing company based in a beautiful part of rural Shropshire, England. This is part two of my conversation with John, so it’s a good idea to listen to part one first, which is episode #010, before you listen to this episode.
Coming up, John talks about the marketing and distribution of real ale and the substantial capital investment required for setting up a brewery: you’ll need deep pockets and long arms if you want to do it properly. He talks about one aspect of running a real ale business that might keep him awake at night and he gives some surprising advice to anyone who is considering taking the plunge and setting up a real ale business. If this is you, John’s advice is probably not what you’ll want to hear, but you should take it on board, nevertheless and let it inform your decision. Don’t go into a microbrewery venture with your eyes closed.
Here, now, is my conversation with John Paulson, founder of Big Shed Brewery; we start by discussing digital marketing tools.
Catherine: Let’s just talk about all these new tools, the digital tools like Twitter and Facebook. They are potentially very useful for marketing businesses.
John: Yes. I would have to say that I am a traditionalist. I also have a background in marketing because I marketed a medium-sized enterprise during the eighties and nineties.
At this stage of our development, those direct and immediate traditional methods of marketing, face-to-face selling really, are the ones that will prove most immediately effective. Certainly, we do not use paid for page advertising as such at the present time. And I think most people will say, ‘Well. I very, very rarely see a paid for page advert for a brewery or for their beer.’
The digital marketing of the modern era, digital media, I think really replaced paid for page advertising. They are the modern analogue. So, things like Twitter, yes, we have a presence on Twitter [@BigShedBrewery] and on Facebook. Certainly, there are tweets go back and forth. At this stage of our development that is not selling casks of beer into pubs week by week, month by month.
Having said that, I find that now pub landlords are making use of our website [bigshedbrewery.co.uk]. Pubs we have never heard of who have heard something of our beer who have tried it in someone else’s pub will go, ‘Hmm, find out about them, okay? Let’s look on the web.’ They find the website, they phone us up, so the more time goes on, the more a business establishes itself and gets past its initial phase, then the digital media and the marketing benefit from that will come through stronger and stronger and I can see that in a year or two things like Twitter, once our beer is very well much better known through the drinking community, will tend to become more and more important.
Catherine: You are laying the foundation, the groundwork for your marketing by the old traditional, I shouldn’t really call it traditional but the tried and tested method of picking up the phone or going face to face with somebody, and then of course there is the word of mouth, which is very powerful as well and that’s working at the moment.
John: Yes. We’re in the hospitality industry. The thing that works best is to be hospitable. It’s face to face, really. That is the hardest. It’s the most expensive but it’s the most effective. And, if you want to sell a product such as beer you’ve got to go, you’ve to go march in, sell it to the landlord or the bar manager. You’ve got to do it at the right time of day and you’ve got to appear with a smile and you have to relate to him or her. That’s what this business is about.
Catherine: Simple really. We did talk about your sales streams. Which one would you most like to develop?
John: Sales streams? I think or I would hope that we will have fully developed our direct delivery area which one might say stretches… could be from Droitwich, up the Wirral, Chester, through the [Welsh] borders, Staffordshire, this side of the Birmingham conurbation, certainly by this time next year that we would have that fully developed. If the business is going to grow and expand beyond that, it has got to be done by distribution.
John: So that would be where our volume would be coming from over the next year or two.
We already do some distribution. I got an email from somebody in Jersey the other week. They’d been to the beer festival. Their CAMRA member had been enjoying the beer. I got an email to say, ‘Hey. We’re on Jersey. We’ve just been to the beer festival. We think your beer is great.’
Catherine: Wow! Fantastic.
John: And that was a distributor from north of Manchester. They’d had ten casks. Two or three of them perhaps had gone of to the Channel Islands for a beer festival.
Catherine: How wonderful. Not quite international yet, I suppose.
Catherine: Yeah. Very close. So, distribution, of course, that’s another really big issue, which will enable you to expand.
John: Yes. There are many, many routes to market with beer. There are different types of distributors that work in different ways, different types of schemes. One of the big issues with distribution is cask recovery.
Catherine: Ah ha. Of course!
John: A stainless steel cask costs a lot more than the beer that’s in it. You have to get those casks back. And that can be quite a problem, on occasion. Every brewery loses a certain per cent, hopefully extremely small percentage but there is a percentage of casks lost every year. And if you’re involved in distribution you need to do it in a manner that ensures your casks are recovered.
Catherine: You are currently doing some of your own distribution?
John: No. When I say distribution I mean using a third party distributor. He sells the beer. We deliver beer… might be two or three at a time or it might be ten or fifteen casks at a time. He takes them on and sells them out to his customers. We have a very small distributor in Hampshire, for instance. When somebody is travelling between us, they take and bring four casks of beer and four empty casks come back and they are distributing it to two or three pubs in their area. Certainly we deal with a couple of distributors who specialise in consolidated shipments for beer festivals. And, as I say we deal with one north of Manchester and they send it all over the country.
Catherine: What about selling from your website? You don’t currently do that, do you?
John: No we don’t. It would really be something that’s difficult to do. I do know one or two distributor websites that sell a very broad range of bottled beers. Same as one can buy wines from a wine club over the internet. But the problem is that you have a very low cost — I know people don’t think it’s low cost in the pub — but essentially a low cost product that is heavy and goes in fragile packaging and it’s liquid and this makes general remote retail sales, or online retail sales a very difficult proposition and one that’s probably uneconomic.
I think, and certainly when one looks at major supermarkets, your milk comes from the supermarket not from a milkman anymore, while you are picking up the milk you can pick up a similar number of bottles of beer priced very, very competitively in the supermarket. I think we’ll all be aware that with supermarket groups the large cardboard packs of lager are sold as loss leaders at less than cost.
But certainly, real ale is priced very competitively by them at roughly half the price you pay for a pint in a pub. And so they effectively cover the market. I think that if we are wanting to target retail sales in the future I think we’ve got to go back to the bottling issue that we discussed and then we have to get bulk distribution via those major retail outlets.
Catherine: It’s actually a question of volume as well as everything else, isn’t it?
John: It is indeed.
Catherine: Scaling up.
John: Yes. Usefully as I say, there are many, many routes to market. There are people who fill niches. So, there are distributors who will take your bottled beer and they are supplying major outlets. And they will package your products alongside other products that they are supplying to those major retailers. So, we will never have to go and sell directly to a Mr. Tesco or Mr. Sainsbury but there’s somebody who will do it for us.
Catherine: Right. You are not adverse to supplying supermarkets?
John: I’m an old fashioned kind of guy. I like proper shops, I like real shops. When I’m buying alcohol I’ll buy it in Tesco’s or Morrison’s or wherever, so I’m happy to sell to them.
Catherine: If I can say, what you are saying is, you buy from wherever is convenient for you, isn’t that the crux of it?
John: I don’t think anybody has any alternative in this day and age. Get on with it and don’t worry too much.
Catherine: I think it’s changing though. I think the retail landscape is changing. The papers are full of how the supermarkets, some of them are in dire straits, and I think it’s going to be interesting what happens over the next several years with our high streets and what out of town shopping looks like.
John: I think you are absolutely right. Yes. I think there’s been a shocking wake up call during the course of this summer. I don’t think that there is a major supermarket chain that hasn’t admitted that. They’ve had to admit it because their results are so dire because of it.
In fact, it reminds me, really, of a situation probably fifteen, eighteen years ago when Marks & Spencer, the number one in this country in fashion retailing, found itself in a terrible pinch from all of those low cost fashion suppliers that everybody now takes as a fixed part of the high street. Marks & Spencer’s came very close to absolutely drowning. I think it’s a very similar revolution in relation to food now as it was with fashion in those days.
Catherine: It’s true, yes. History is repeating itself in that respect. So, it seems to me that many artisan producers are under-capitalised. The capital outlay for a brewery must be substantial. How important was it for your start up to be adequately capitalised?
John: It’s absolutely key. There are… really going back to the microbrewery market. There are fifteen hundred microbreweries. Barely a week or two goes by without me reading about somebody, some personal contact, my friend’s father in-law is thinking of starting a microbrewery or so and so is planning to retire and have a go at a microbrewery. It’s an extremely crowded market. It’s extremely capital intensive.
Without going into facts and figures, the invested cost of our brewery is very, very well into six figures. Very well in. Even a small five-barrel microbrewery done reasonably properly, with the cost of casks, is going to be comfortably over a hundred thousand pounds.
And it is something where the principal person — the brewer — will be the brewer, the salesman, the delivery man, the cleaner, the Uncle Tom Cobley [i.e., a person who wears many hats and performs a long list of job functions]. A five-barrel brewery will only pay one wage. If you go into that with your eyes shut, if you are under-capitalised, if you don’t have a good business plan you should forget it. If somebody asked me, ‘I’m thinking of starting a microbrewery. What advice have you got?’
Catherine: Which is what I was about to ask you.
John: Well. The answer is very straightforward. I will give you the answer that several existing breweries gave me: Don’t.
John: Seriously. Don’t. I then considered that I had got my own special interest. Blowing my own trumpet, I do have a huge amount of previous business experience. I had got a need and a want to do something, to start a new business venture. I don’t have a need to make a substantial salary for myself. It’s not a hobby business by a long, long shot but I don’t need to take a direct substantial living wage out of it for myself.
And so I think I have got factors that are in my favour in this business and that it will… it started out successfully and I believe it will continue. But really, if you are thinking of starting a microbrewery, if you don’t have huge business experience, if you think you will have difficulty knocking on doors and selling beer just don’t.
Catherine: Very sobering advice from a brewmaster.
John: Sorry. I don’t think there will be many breweries or owners of brewery businesses who would say much different.
Catherine: What one thing, therefore, about, I know it’s very early days for you, but what one thing about the operation of your business keeps you awake at night?
John: Oh! Everything. I’m just thinking. I don’t think there is anything specific keeps me awake at night. I think that the one natural worry that is always an enterprise such as this is that you are in a very short sales cycle. You will take an order today and you will be delivering that beer in a week’s time.
If I was running BAE Systems and making aircraft, I would take an order today and I’d probably be delivering that aircraft in five or ten years’ time against an order book. They have a five- or ten-year horizon on their orders. We have a one-week horizon on our orders. If we don’t phone anybody and if nobody phones us, or sends an email in requesting beer, we aren’t selling any beer next week.
Simple as that. And there is always a tendency to worry about that. Small builders, jobbing builders always take on more work than they can handle.
Catherine: Notoriously, yes.
John: They are always frightened that they’re going to run out of jobs next week. It’s a natural human worry. Where is next week’s crust coming from?
Catherine: Yes. Keeps you on your toes, doesn’t it?
John: Oh yes.
Catherine: What other real ales or real ale companies do you most admire?
John: That’s probably a very difficult one. I’ve got very catholic taste in beer. I like real beer. I don’t worry who the company is. I don’t worry whether it’s a beer I’ve never tried before. There are national brands that I like and national ones that I definitely don’t.
The most traditional and oldest beer brand in the country with the oldest trademark [dating to 1876 and the UK’s first registered trademark] is of course Bass and their red triangle. I think the modern draft Bass as it is now produced under license in another brewery is a travesty of what it used to be in the past. Yes, I do like a lot of national brands.
I don’t like some of the modern new wave beers, particularly those that come from an America; a modern American West Coast style is extremely bitter. They can taste extremely citrussy to my mind. Some days it can be like drinking lemon juice. I want to drink beer not lemon juice.
However, if I’m looking at a company that I admired, one that inspired me, just under two years ago, that was Brew Dog. We went on a visit to Glasgow for a music festival; we went in a Brew Dog bar and they do everything differently. They have been extremely successful. I admire their cleverness and success.
I don’t think that having a website that is full of effing and jeffing [profuse swearing] or driving a tank through the streets to the opening of your new bar is the way that I might naturally conduct my business. I don’t like all of their beers. I know many experienced people don’t like any of their beers. I think their beer is technically made very well, and purely as a business phenomenon, I think I admire them as a very, very successful business phenomenon.
Catherine: They have turned a lot of things upside down in a very positive way.
John: Yes. They certainly haven’t taken accepted and received wisdom and reapplied it as is for themselves. I think we have taken the precisely opposite approach. I think so far, in our first six months, I think we have gone the precisely traditional route. You know, that might change. As time develops, as we have the security of an established business, yeah, we might think a bit more laterally and add more innovative elements to our business model.
Catherine: So it’s a question of watching the space?
John: Oh yes. Oh no. Sorry. No, no. Question of buying the beer, please.
Catherine: First and foremost. Perhaps I could come back and have a chat with you in five years’ time or something like that?
John: You may.
Catherine: That will be absolutely wonderful.
John: You may.
Catherine: John, thank you so much for your time and your insights. It was a fascinating discussion, conversation. I really appreciate it.
John: Thank you, as well. It’s been a good opportunity to talk about the business — something I never tire of. I think you put me to answering some of the very definite issues that surround a business such as this. It’s a good opportunity for me to think and clarify and explain.
Catherine: Yes, yes. Good all round.
John: Thank you.
Catherine: Thank you, John.
Thank you, John, for being such an articulate and insightful guest. I am looking forward to the time when you’ll be delivering Engineers Best, Sentinel Amber Ale, Orion Light Ale and the chocolaty Ruby Special Bitter to South Shropshire. To find out about Big Shed Brewery’s selection of real ales, check out their website, which is bigshedbrewery.co.uk. Big Shed Brewery is also on Twitter as @BigShedBrewery.
If you would like a transcript of my conversation with John visit myartisanbusiness.com, where you can download it for free. If you liked this episode of the show would you please leave a rating and review on iTunes. And if you’d like to connect with me on line you can find me on Twitter as @FoodDrinkShow.
Until next week, I’m your host, Catherine Moran. Happy cooking, happy brewing, happy fermenting and thank you for listening.
You can listen to the podcast episode with John at myartisanbusiness.com/podcast.