I decided to write a post today looking contract brewing pros and cons after receiving an email from the UK. The writer was deciding if there was value to…

“Contract brew a couple of recipes to test the market with my product and branding,”. This was an email from a prospective brewery owner in the UK

He seemed keen to go ahead with setting up his “own brewing space” and was asking what my thoughts and opinions were. I replied to his email, but thought it would make a good post too.

Now, as a brewing consultant I help people to source equipment from China for their brewing projects. However, if I think a potential client isn’t ready or sense some apprehension. I’ll often recommend either looking back over their numbers or try contract brewing first to prove concept and get their feet wet without a large capital outlay.

I want my clients to be successful and if I don’t think they’re ready, I’ll be honest and suggest another course of action. I don’t want get paid if I believe I’m enabling some who isn’t equipped. That’s why I wrote my guide “How to Get into The Brewing Industry”, as some people need to spend some time in the industry before making the leap to brewery owner.

So, What Is Contract Brewing?

Contact brewing simply put, is taking your beer recipe then brewing it on someone else’s system. It can take many forms depending on the agreement reached. It usually involves the host brewery being responsible for the production itself.

This can include record keeping, labelling, getting the correct certificates and even mean they pay taxes before the beer leaves the facility.

The level of involvement varies depending on the contract agreed between parties. The “guest” brewer might want a more hands on approach, and to be there for the full brew day at least. On the other hand, the contracting brewery may only be the “face” of the beer concentrating instead on marketing an PR.

Contract Brewing Pros and Cons – Different Partnerships

One type of contract brewing agreement is called an alternating proprietorship. In this arrangement the host brewery assumes ownership of the beer throughout the production process.

They’ll use their own ingredients and equipment with the title passed back only when the contracting brewer receive their beer.

Furthermore, another option is for the contracting or tenant brewery renting time in the host brewery. The contracting brewery will use their own ingredients and brew on the host brewery’s equipment.

The contract brewer “owns” their product from start to finish and is responsible for all actions such as labelling, certificate and taxes. There are a few different scenarios where contract brewing makes sense.

The Start Up Brewery

As with email I mentioned above, contract brewing can be a way for someone to prove a concept for their beer and brand. Brewing is an expensive industry to get in to. If you’re looking to set a new brewery; the capital needed for equipment, to pass local regulations and for your building can soon add up.

Yes, contract brewing has a higher cost of goods with the overheads and profit for the host brewer. However overall, the business is mostly variable costs with little in the way of overheads.

A contracting brewery doesn’t have to pay the usual costs such as rent, brewing equipment, staff payroll and so on. They can spend their capital on additional branding and marketing to yield and higher return in investment.

For some being able to get product into the market place, thus establishing brand identity before committing to the huge capital expenditure of owning your own brewery makes sense. It reduces upfront costs plus, gets you to market quicker.

Brewery Expansion – Contract Brewing Pros and Cons

My old assistant, now owns his own contract brewing facility in Yunnan, China. He recently had Bravo Brewing of Guangzhou sign a six-month contract to brew their beer on his equipment.

They had outgrown their current brewery and were building a new production facility. In the meantime, to meet demand they needed to outsource their brewing somewhere else. My friend has 6,000-liter FV’s and Bravo agreed a 6-month contract.

Outsourcing or finding extra brewing capacity whilst you’ll expand allows you to service your growing customer base in a cost-effective way. It offers breathing space whilst you plan your next steps properly.

Importing Beer

I’ve been approached by UK breweries before, if I’d be willing to organize contract brewing here in China so, they can expand into the Chinese beer market. Often these overseas brewers are approached by Chinese beer buyers regarding selling their beer on the Chinese market.

To be honest, I’ve often spoke against this model; because Chinese craft beer consumers like foreign beers be produced in the country of origin. Even AB InBev had problems when they switched production of Goose Island beers from Chicago to China. Anyway, I digress…

If brewers are looking to crack a new market say in a different country. The expense of transportation and import fees can be high. Plus, for some beer styles like hazy IPA’s the beer might not travel well. It can really be a win-win for everyone.

Contracting Brewing is one the Rise

In the past contract brewing has only been small scale. However, as popularity of craft beer spreads across the world, contract brewing is becoming more popular. With bigger breweries now getting in on the act.

Some lager breweries who are ramping up production or simply have space in their schedule are leasing/renting tanks space to contracting brewers. It allows these contract breweries to get a boost in production.

Incubator Breweries

There’s a newer trend popping up called Incubator breweries which work in different ways. There are incubator breweries which offer formal training to potential owner/hobby brewers looking to go pro. So, they can learn the ropes of the brewing industry.

There are others which help smaller brewers with marketing and distribution. However, in general these incubators much like co-working spaces help would be brewers off-set initial start-up costs. By offering a shared space with access to brewing equipment plus allow collaboration and interactions amongst participants.

Contract Brewing Pros and Cons – Some of the Downsides

It’s not always perfect though, there are some downsides to contract brewing too. It’s a symbiotic relationship, where the contract brewery is always at the mercy of the host. I’ve seen the downside to this, when a brewer friend in China saw the host brewery mess up the centrifuging of one of his core beers.

The DO (dissolved oxygen) numbers were through the roof thus shelf life was compromised. The beer had to be dumped. The host brewery did rebrew the beer at no additional expense. But the original brew was already accounted for. So regular customers had to wait for the second brew to be ready.

This is where your contract needs to be water tight. As unless a contract brewer has full control over the brewery and staff (co-ownership) the contract brew will only be at or below the standard of the host brewery. On the plus side it might give you access to equipment you would otherwise not be able to afford, like a centrifuge.

Other Downsides

Lack of community presence – At the end of the day the facility isn’t the contract brewers. It might be a hard sell to local craft beer enthusiasts to believe in your brews. Although, as contract brewing becomes more widespread; this becomes less of an issue as beer drinkers become more understanding and accepting.

Smaller Profits – You’re paying another company to do a significant amount of your work; this doesn’t always come cheap.

Yielding Control – You’re always a guest at the end of the day. If push comes to shove, you’re likely to come second if important decisions need to be made. There are some great host breweries out there; make sure you do your due diligence before choosing your host brewery.

Relationship Pressures – Brewing can be a stressful endeavor. I’ve been a brewer for 25 years and seen my fair share of arguments amongst brewing teams in that time. The relationship of contractor and host are one step removed from this, meaning issues can arise. You’re entrusting your beer to the hands of another company at the end of the day.

Contract Brewing Pros and Cons – Conclusions

Contract brewing makes sense in many circumstances, I’ve recommended it in several instances to clients and lost out on potential revenue. As craft breweries pop up around the world competition becomes fiercer. You need to bring you’re A-game if you want to succeed…contract brewing helps you in this matter.

Yes, there’s inherent ceding of control with an agreement requiring a certain amount of trust on both sides. You may lack a community presence as you don’t have your own “brick and mortar facility” for people to associate with. Then there’s the likelihood of smaller margins too.

However, the upsides are many; the initial costs to get to market are considerably smaller. You don’t have to buy equipment, have insurance, pay staff and own a building. Then you’ve no equipment headaches either, if a pump brakes it’s not your concern. Furthermore, brewing is 75% cleaning and maintenance which the host brewery often takes care depending on your contract.

If you do your research, you can find arrangement which works for you. It offers a shortcut to market or gained proof of concept before investing in your own brewery. It can even be appreciated by the host brewery, as it allows them to increase their profits if they’ve spare capacity for some reason.

Neil is a brewer with 25 years international brewing experience. Based out of China (first came in 2010) he works as a brewing consultant helping brewers with their projects and brewing processes. If you’d like to contact Neil you can email at neil@asianbeernetwork.com.