I've heard it's easy to get money for real estate.. Right?
The location of the brewery is a rather important topic that I’ve sort of skimmed over until today. Where we brew is directly related to how much we brew, and vice versa. Brewing in my garage means we can’t have a 30bbl system. Aiming for a 30bbl system means we can’t use my garage. Causation goes both ways there.
The net revenue from brewing is very much related to the size of the batch as well. A bigger batch costs less per beer, and since the beer sells for the same price, a bigger batch is more revenue per beer, and more revenue overall. But, systems of that size, and locations to house those systems, cost a lot more money. A lot more money than we have right now.
I see five main options for possible locations of this brewery: a big property in an ideal location, a small property in an ideal location, and big property in a non-ideal location, and small property in an non-ideal location, and my garage. Let’s look at the pros and cons of each. Please feel free to tell me that I’m completely off base here, and offer your perfect solution in its place.
Flying Dog's old location
Flying Dog's old location
Big Property, Ideal Location
I have one property in mind here: Flying Dog’s old space. It’s huge. Around 34,000 square feet. It’s equipped. Most of their brewing equipment is still there. It obviously works well. Flying Dog is pretty successful. It’s in an amazing location. 24th and Blake is a home run away from Coors Field. Blake Street Tavern is next door. And… it’s expensive. $10/SF NNN. That means about $12-15 a square foot (depending on utilities). Do some math, and that’s between $34,000 and $42,500. A month. Just for rent. In list form:
Pros
- Great location
- Proven location
- Huge – easy to expand
- Equipment already there
Cons
- Ridiculously, prohibitively expensive for a startup
Small Property, Ideal Location
I don’t have any properties in mind for this idea. But essentially, find a really small industrial mixed-use property downtown. Brew beer in it. Serve some in house. The main problems I see are 1) it’s still going to be super expensive, especially when we don’t have secured revenue and 2) expansion becomes a problem, especially with that much money sunk into rent. I feel like if we go with a location that we hope cannot house us for very long, we shouldn’t sink all our profits into it.
Pros
- Great location
Cons
- Prohibitively expensive
- No room to grow
Big Property, Non-Ideal Location
A warehouse somewhere far from downtown, such as Broomfield or Englewood, is a much cheaper option. We’d still have the tasting / tap room, but chances are no one would be coming to say hi. The size allows growth in that location, while the cost allows us to hold on to a little bit more of the profits than the downtown version.
Pros
- Cheaper than downtown, though still not cheap
- Room to grow
Cons
- Idea of a tap room or storefront is useless out in the boonies
- Still expensive
Location, Location, Location!
Location, Location, Location!
Small Property, Non-Ideal Location
Based on our current conversations about size and starting up smaller, this is becoming one of the top two options. A small (3,000 – 8,000 square foot) property somewhere in a cheaper, industrial area, would suit our needs pretty well. It’s still overhead, which is inevitable at some point, but not $40k a month.
Pros
- Good size for how we want to start
- Potentially inexpensive enough to allow for profits
Cons
- No room for growth
- No store-front / people coming to say hi
That's our garage, on the right. Brewery?
That's our garage, on the right. Brewery?
My Garage
This is quickly becoming the ideal location, at least for getting started. Of course this location requires my landlord’s approval (I don’t own my house.. oops), so pending that, this option might get crossed off. Until then though… Low overhead, light commute, decent size, decent (not ideal, but not bad) location. Some problems include the fact that it’s a residence. Waste is sort of an issue for a brewery of any size, and our neighbors may not be too pleased with commercial beer production in their backyard.
Pros
- Cheap. My rent is cheap right now as it is
- No commute
- Close to potential accounts
Cons
- Small – no room for growth
- Waste issues
- Residential neighborhood issues
- Delivery issues – trucks can’t drop pallets off in a back alley
The first option, the big ol’ warehouse downtown, is the goal. Eventually, I want the brewery to succeed, and to show enough growth and growth potential to afford such a location. But I don’t think that’s this year, or next. I do see some growth happening in the first few years, and moving is never cheap, so the first location, even if we’re there for 5 years, needs to be affordable above all else. If my landlord and the law say that my garage is ok, I think we’ll go with Option #1. A small warehouse somewhere on South Santa Fe or something would be the next best option. After that? Well, we’ll have to see what happens.
I vote for garage. it’s scrappy, but I like scrappy. Besides, “_____ Brewing Co started in PJ’s garage” has more street cred than “____ Brewing Co started in a ridiculously awesome space.”
You’ll move when you can afford to (from a risk and financial standpoint). but good call on the legal issues with the garage/landlord, although I think you just need a business license.
keep it up. I am already looking forward to your super bowl commercials.
I don’t know how it is where you’re at but here in Michigan, we cannot brew commercially in a residential area. So my barn even though it is an amazing place to brew and I have a nice pilot system, I cannot brew commercially there.
My thought was what about the first location (old flying dog location), would the landlord rent you a portion of the place and let you grow into it? It could be an option. Especially given the real estate market right now.
My 5 cents, I love your blog!
Hey Jeff,
Thanks for reading! I posted in the probrewer forum (http://www.probrewer.com/vbulletin/showthread.php?p=40987&posted=1#post40987) about the laws and whatnot.. I think I might be ok, but I think I need to make some legalese speaking friends.
I’d love to get into Flying Dog.. Right now the property is on sublet, until 8/2010. Then the owner takes it back, and I haven’t spoken to him about it. The current property manager said that we could get as little at 5k sqft, which isn’t terrible (about 4200 – 5000 a month), but that’s still a LOT more than my garage costs. So we’ll see what happens.
Are you a commercial brewer? If you’re ever in Denver, let me know, I’ll pour you a beer.
Barring any laws you should start in the cheapest space available – namely your garage.
Have you proven demand for your product? At scale? My guess is no. Given the extreme resource constraints faced by a startup it’s beyond crucial to preserve every available asset you have – cash or otherwise. An investment in equipment in your garage is not throw away and it’ll prove the concept. It’ll also allow you to reallocate otherwise wasted resources to other areas of the business.
Running short on capacity is a high class problem and one that you can easily solve when you get to that point. Breaking you back with capital expenditures on unnecessary real estate is a sure way to drive your business into the ground before you can prove you have a sustainable venture.
Hey Mike,
Thanks for the comment! I’m not sure why this logic took me so long to come up with, but I totally agree with you. There’s no reason to spend 40 grand a month on a property if we haven’t developed our product at scale, don’t have any account, and mainly, have 0 capital.
So thank you for putting into real terms what I’ve been thinking. Verbalizing my ideas doesn’t always work right, and you’ve nailed it.
Do you have any financing? I agree that without demand a huge space and huge volume means you have huge inventory until your demand grows. I’m not sure starting in your garage is realistic unless you have a HUGE GARAGE or plan to start out small – you know – boot strap. This can work especially if you have no financing, but best option is to get financed. Get that business plan done. I’m in a similar boat but I’m looking to open a taproom (10 BBL system) where we sell most beer directly from the tanks. This allows us to gain higher revenue with less overhead costs while gaining brand recognition.
Hey Rob,
Thanks for the comment. We don’t have any financing right now. We do plan to get some money once we have an actual plan in place, but nothing yet. Keep checking back, hopefully I’ll know what we’re actually doing soon.
No problem, I think you and I are in similar situations but just with slightly different end goals, or methods to achieve them, in mind. I’m an MBA grad with access to people with lots of money. Getting it out of them is a whole nother issue! I’ll be following along to see how you progress.
You know you want my 2 cents as well….
Have you thought of first focusing as a distributor? If you create local demand for your beers, then establishing a tasting room/pub will be much easier as you’ll already have a following.
I’m thinking distributor in the sense of providing for local restaurants — and shamelessly asking for a plug on their menu. You can also participate in tastings/festivals. I’m sure the overhead for those is high, but the return might be greater in the long run.
Some of my favorite local vineyards (sorry, not such an amazing micro-brew community here in NM) are ones I’ve only come across at wine fesitvals in New Mexico — and I do go out of my way to find stores carrying those labels.