Contract brewing offers one of the best ways to quickly expand your capacity, keep a lid on your investment costs and minimize your risk profile. However like most other options in the craft beer industry, contract brewing can be complex and requires thoughtful planning to ensure your best chances for success.
We’ve compiled a list of some of the basic issues to help you ensure a successful relationship with your contract brewer.
Know your state laws
We all know that beer laws vary by state and contract brewing is no exception. Some states have restrictions on where you can sell contracted beer and others have restrictions on breweries from out of state contracting within their state. Like any other issue in beer, check your state’s regulatory requirements and speak with an attorney.
Put together credible demand projections
One of the first questions you will get when speaking with a contract brewer will be, “How much beer do you need and how often do you need it?” Forecasting demand can be challenging, especially for newer breweries, but it is crucial that you do your homework and understand your market demand.
Contract breweries will have minimum order quantities and some will have minimum annual commitments. They incur a lot of investment costs up-front to get everything up and running and the onus is on your to be thoughtful about your forecasts.
That being said, forecasting demand is at best incredibly challenging and at worst, an exercise in consulting a magical 8-ball. One of the best ways to have this locked down is to already have a distribution deal in place and work with your distributor on what you will sell. If you do not have that luxury, get your feet on the street and research. You should know your market like you know the back of the hand. For example, how many restaurants/bars/retail outlets in your area? How many taps do they have? How crowded are they? Have you spoken to a manager about getting on the menu, on the shelf or on tap? How does your beer compare to what’s out there and what customer segments will choose your beer over others? How many people are in these customer segments? What marketing plans to do you have to drive consumer demand?
The more you can think through your marketing plan and demand, the better you can forecast your required demand and build a solid foundation with your contract brewer.
Ensure they have the right packaging
If you will be packaging your beer, make sure they have what you’re selling or want to sell. If all of your beer is in 12 oz cans and your contractor only does 12 oz heritage bottles, you’re beer will obviously look different to consumers.
Whether this matters is a marketing decision for you, but most of the time you will want to consistency and you will always want to make that decision deliberately.
Responsibilities
Think about the many actions necessary to get a beer to market. There are regulatory approvals, recipe formulations, label design, label approvals, brewing, packaging, holding inventory and the list continues.
When entering an agreement with a contract brewer, make sure it is clear who is responsible for what.
Procuring raw materials
Contract breweries vary on how flexible they will be with respect to your raw materials. Do they have hop contracts in place? Do they work with a limited number of suppliers?
If you require special ingredients or a specific supplier for your beer, make sure you agree on this up-front.
Standards
The quality of your beer is THE critical foundation of your brand and you never want to put this at risk. When contracting, you should put some objective standards in place to avoid any deviation in quality or consistency.
Your contract brewer will likely have a robust lab to test criteria such as color, IBU, ABV and density. If you already have these measurements for your beer, it will be easier to write these standards into the contract and ensure consistency.
Process for rejecting a bad batch
Especially in the beginning, someone from your team should be at the contract brewery testing early batches to make sure they are progressing correctly. However, what happens when your batch doesn’t taste right or when there is a bigger problem? The real questions here are what happens to this batch and who pays for it?
While this is an uncomfortable conversation to have at any time, it is better to have it early on and not after your have a finished 30 BBL batch that you cannot sell. Nearly all contract brewers will have a fair process in place for this but make sure you are all on the same page before anything happens.
Conclusion
While these questions are by no means a comprehensive list of all of the issues you will want to work out when entering a contract agreement, they offer a solid starting point. Contract brewing your beer can be an incredibly smart business decision; you can avoid the debt of building out a new facility and respond quickly to changing market conditions. However, make sure you aren’t replacing one problem for another. Be smart, communicate up-front and happy brewing!