As the craft brewery market continues to grow, there is an increased opportunity for those interested in entering or exiting the industry to do so.
The craft industry has been steadily growing its consumer base over the past ten years, with the millennial population spearheading this positive forecast for the future of craft beer.
Despite these optimistic predictions, there are still some considerations that must be taken into account — namely the different preferences Gen Z will bring to the market paired with supply chain issues as a long-term consequence of the pandemic.
But deciding to buy or sell a brewery is a delicate balancing act that requires more than just a love of beer. There’s no exact instructions to follow for such a large decision, but there are a few very important considerations you will need to be aware of before hitting the ground running. Here are a few questions to ask as you weigh the pros and cons of each scenario.
Table of contents
- Is there a “right time” to buy or sell a craft brewery?
- What’s the brewery worth in the market?
- What exactly am I buying or selling?
- How does the location of the brewery affect its future?
- What’s unique about this particular brewery?
- Are there any regulatory or legislative requirements I need to be aware of?
- How do I get started?
Is there a “right time” to buy or sell a craft brewery?
First, it’s important to understand market conditions before deciding to buy or sell a brewery. Do some research into current and future predictions for the market, and pay close attention to what others in the industry are saying.
For those looking to sell an existing business, take a look at the numbers to see if your brewery is considered profitable at this time. Businesses are always harder to sell if they start to show a decline in profits. Timing is everything when it comes to selling a brewery — especially if the local market is already established and competitive.
For potential buyers, leveraging your connections in the craft industry is also going to be crucial because there are a lot of unknowns that come with owning and operating a brewery, no matter the size! Listening to other brewery owners’ experiences is imperative. They might tell you about the importance of thinking ahead or how to prepare for the costs and time required to run a craft beer business. Chances are, those responsibilities might be more than you’re planning for.
What’s the brewery worth in the market?
Potential sellers, be sure to review your local market’s competition and demographics to see if there’s a good amount of market share and future growth predicted — or if this market is already a little too saturated to begin with. Also consider the economic impact of the craft beer industry on your state. Depending on whether or not it’s sizable, it can help determine a fair asking price. Regardless of the size and age of your business, you’ll likely want to work with a professional to perform a comprehensive business valuation and analysis to come up with a final number.
As a potential buyer, you’ll need to do your own homework to make sure you understand not just the initial asking price but also the other costs associated with owning and running a brewery. Most breweries can range anywhere from $500K to $1 million in start-up costs alone, and while you’re going to be purchasing an already established brewery, there can still be hidden fees and expenses you weren’t initially prepared for. Find out where you’ll receive financing from and be sure to go through the pre-approval process before making an offer.
What exactly am I buying or selling?
Yes, you’re looking to buy or sell a brewery, but what exactly is included in this exchange? There are two ways a purchase can be structured: buyer purchases the assets or buyer purchases the business.
The asset buying process means you as the buyer are purchasing more than just the physical brewing equipment. You may also be buying the trademarks, the existing business’s reputation and market share, its digital assets and accounts, and customer information. Buying a brewery’s assets means you are buying all of the things that make a business a business — without including any potential liability or risks that came with the business while it was in the original owner’s hands.
As a seller, you’re likely going to want to sell the brewery as a “business”, which in many cases would mean you proverbially “wash your hands” of the entire situation once the paperwork has been signed.
Regardless of the scenario, as both the buyer or the seller, you’ll want a business lawyer to take a look at the agreement and help you to understand what is — and isn’t — included in the purchase agreement. It’s crucial to know what you’re buying or selling and negotiate accordingly!
How does the location of the brewery affect its future?
Taprooms and brew gardens draw in the local community, creating a space for residents to enjoy a beverage and good conversation beyond traditional bars and restaurants. The most successful breweries move beyond those economic and geographical benefits, and become a draw for craft-beer tourism, a growing sector itself.
In fact, a recent Brewers Association survey found that 1.6% of craft beer drinkers will take 10 or more trips a year to visit breweries more than two hours from home. Understanding the location and demographics of the area you’re looking to buy or sell a brewery within will help to form a more complete valuation of the business both now and in the future.
As a brewer, you’ll also need to tap into your local population to understand the types of beers that will best suit its consumer demands. Do locals prefer lighter, domestic-inspired beers such as lagers and pilsners, or are they adventurous and open to trying new, unfamiliar things? Do you have a hoppy-forward crowd for IPAs and other variations or does the geographic location lend itself to dark porters and stouts during the colder months? These considerations play a large part in building a sustainable business plan for a brewery.
What’s unique about this particular brewery?
A brewery’s branding is almost as important (if not more) than the beer it produces and serves. That’s because there’s been such an increase in competition within the craft brewery space, so you’re going to need a cohesive and memorable brand to stand out.
This is another thing to weigh when deciding to purchase an existing business. How successful has this business been in attracting and retaining a customer base? Is there something unique about it — whether that be its taproom, location, types of beer it’s known for serving, etc.? If you can’t easily identify something that makes this brewery special already, it will be another thing to add to your to-do list once it changes ownership.
From a seller’s point of view, anything you’ve done previously to make this business stand out amongst its competitors should be calculated into the business valuation.
- Is there a strong brewer/business model and plan already developed?
- Is there a flagship beer recipe that’s included in the sale of the business?
- Have we already established a strong ecommerce presence or canning/bottling business?
Each of these items will contribute to the overall profitability of your brewery sale.
Are there any regulatory or legislative requirements I need to be aware of?
Due to the nature of the business (a direct connection to alcohol production and sales), there are quite a few state regulations and laws that you need to be aware of when purchasing or selling this type of business. In the U.S., both the federal and state governments heavily oversee the alcohol industry, and requirements will differ depending on location and situation.
Educate yourself about the types of legal documentation and permits you’ll need to obtain prior to the sale. Ask questions of other brewery owners in your state to learn first-hand how the permitting process works. Work with a professional to outline property, casualty, and liability insurance options, as well as other permits and licenses required for brewery operation.
How do I get started?
Once you are ready to start the buying a brewery process, you’ll want to work with a legal representative to create a purchase agreement for both parties. This document must make it very clear what the conditions are of the brewery sale and what the expectations will be during this closing period.
Be sure to carefully read the fine print before signing any contracts or legally binding documentation. There are a lot of moving parts during the sales process, so be sure to really understand what is being agreed upon before signing anything.
Like all major decisions, buying a brewery or selling is not something that should be decided quickly or without the proper background research. Possessing a deep love for craft beer is only the first step — the rest of the plan will require a little more work but will be worth it in the end.
*Note: This article does not contain legal advice and should only be used as a reference and starting point for determining what legal documentation is needed to open and operate a brewery. Refer to your local and state laws for specific information, and consult legal counsel when reviewing binding contractual agreements.