How to start contract brewing for other breweries

Guide to getting started with contract brewing

Excess capacity and system downtime hold back your brewery’s bottom line. Maybe you recently expanded. Maybe you have dead times in the brewing schedule that you haven’t figured out how to fill. The more beer you brew, the more profit you can make—but how can you increase production?

One way your brewery could increase revenue and profits is to start contract brewing beer for other breweries. With contract brewing, another party can hire your brewery to produce beer for them. From connecting with brewers to managing regulatory requirements, operations to branding, we’ll walk you through how to get started.

Why should your craft brewery get into contract brewing?

Under a contract brewing arrangement, your brewery would source ingredients, brew the wort, ferment the beer, and package the final product. Your client would then take care of marketing, sales, and distribution.

Contract brewing helps breweries like yours fill excess capacity and decrease downtime. For brands who are looking for a brewery to brew their beer for them, contract brewing can help them increase production beyond their own brewhouse’s capacity, take on lower risk or exposure when expanding into a new geographic area, or help them focus capital on marketing, brand-building, audience loyalty, instead of production.

From dedicated contract breweries to established brands such as New Belgium, “many breweries are looking for extra revenue streams,” explains Dan Christopherson, Attorney at Law with Christopherson Brew Law. “If the brewery has maxed out the amount of beer it can sell out of its tasting room, and has met the demand needs of its distribution footprint, contract brewing can be a way to keep tanks full and brewers busy.”

In 2019, Colorado-based New Belgium Brewing began contract brewing for South Carolina-based East Island Brewing Co. For East Island, they could ramp up production and gain distribution across the country—but without having to invest millions of dollars of capital in infrastructure. For New Belgium, which weathered an 11 percent production dip in 2018, contract brewing is a way to fill up more production for their 1.5 million-barrel capacity.

There was a time where contract brewing had a stigma, but no more. With arrangements such as New Belgium’s, and quality beer pouring from dedicated contract brewers such as Denver’s Sleeping Giant Brewing Company, that stigma is fading fast.

“This process doesn’t carry quite the same stigma that it did a decade ago,” explains Dan. “Some of the most prestigious breweries in the country have partnered with other contract producers to produce some of their flagship beers, freeing the brewery to focus on niche or experimental beers.”

With slowing growth, declines, and closures across the craft beer industry in the US, smart craft breweries are looking at how they can brew beyond their own brands. However, how can your brewery get started?

The 8 things breweries must consider before contract brewing

Just as your own brewery’s relationships and contracts for ingredients, space, equipment, packaging, sales, and distribution, a contract brewing arrangement has specific considerations that you need to take into account before signing on your first contract beer client.

“Enter into a production agreement that specifically outlines deadlines for deliverables, payments, and storage/delivery of finished products,” says Dan. “Involve the brand owner in the production, to ensure that there are no issues with quality control.”

Also make sure that all parties understand who is responsible for what parts of the process, and spell out those details in your contract, such as:

  1. Ingredients Sourcing: Specifications for yeast, water, malt, hops, and other ingredients. Typically, the production brewery will be responsible for procuring ingredients, with costs paid by the client.
  2. Capacity and Scheduling: Detail to prospects what production capacity you can contract brew for them, and realistic schedules and timelines they can expect for brewing and delivery.
  3. Brewing: The production brewery brews the wort on site, and ferments and conditions the beer per the client’s recipes.
  4. Quality Control: Ensure there is a solid quality assurance process, especially in the initial stages when some adjusting of recipes or processes may be needed to make sure the client’s beer brews on your equipment to the client’s expectations.
  5. Customer Service: Adding contract brewing also means that your brewery needs to make sure your client brewer is being served well. Devote resources to making sure that you have personnel who are checking with the client on satisfaction and resolving issues promptly.
  6. Financials and Invoicing: Set payment schedules and clear expectations on what the client pays for and when.
  7. Packaging and Shipping: A typical contract brewing arrangement has the production brewery packaging the beer, then the client takes delivery of the final beer for distribution. Make it clear what packaging options are available at your brewery, and spell out distribution and delivery specifics with the client.
  8. Keeping Records. As the contract brewery (the entity producing the beer) it will be your responsibility to keep accurate records of all beer production, as well as provide operational reports to the TTB.

“The brand owner pays estimated excise taxes or other out-of-pocket expenses that are paid by the contract brewer on the front end,” explains Dan. “Make sure the brand owner is very clear about all ingredients, process, and packaging requirements. Allow ample time for formula and label approvals from federal and state government.”

Regulatory requirements for contract brewing

Of course, it’s beer, and that means clearing the usual state and federal regulatory hurdles.

“Typically, brand owners need to be licensed at the state and federal level,” says Dan. “Federally and state licensed brewers typically qualify. Brand owners that are federally licensed as wholesalers meet the federal requirement, but each state will require a different type of license for contract brewing, though often a wholesaler’s license will qualify them.”

Regulatory requirements will also vary by state. As you pursue the form your contract brewing services will take, check with your state regulatory agency to make sure you are complying with state regulations for contract brewing.

“The contract producer is responsible for obtaining any and all approvals from TTB (labels and formulas), and for paying federal excise taxes,” says Dan. “The brand owner may be able to register the brands with the state, but that will depend on each state’s laws. Excise taxes are often paid by wholesalers, but again that varies by state.”

Contract brewing can help you decrease downtime and increase profits

Contract brewing is a great way to decrease equipment downtime—and grow your brewery’s bottom line. To get the word out about your brewery, posting to Capacity Tap will help you get in front of brewers nationwide who are looking for a contract brewer.

“Breweries that are not able to meet the demand for their own beer are more frequently looking to contract brewing to extend their own production capabilities,” says Dan.

And they could be looking to you.

Ready to get contract brewing clients?

Post your capacity today

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