Business Models in “Craft” Brewing: Brewpubs vs. Microbreweries

As defined by the Brewers Association, a craft brewer cannot produce more than 6 million barrels of beer per year and no more than 25% of the company can be controlled by a non-craft brewer in the alcoholic beverage industry.  The market share for craft beer doubled in size between 2011 and 2015, with rising disposable incomes largely explaining this rise in demand.  Within craft brewing several models exist.  In particular, this blogpost will examine the business models of brewpubs and microbreweries.

The Brewers Association points to microbrews and brewpubs as the main drivers behind craft brewing growth in 2016.  Microbreweries sell more than three-quarters of their beer off-site and produce less than 15,000 barrels of beer per year.  They sell beer to the public through a wholesaler who distributes the beer to retailers who sell the beer to a consumer.  They also can act as a wholesaler selling directly to a retailer, in addition to selling directly to consumers through on-site taprooms and carry-out sales. A brewpub operates as a restaurant that makes its own beer, while selling more than 25% of its beer on site.  When the law permits it, brewpubs will engage in selling beer offsite, like a microbrew.  Still, a brewpub sells less beer off-site than microbreweries.  In fact, when a brewpub sells more than 75% of its beer off-site, it can become reclassified as a microbrewer, following the American Brewers Association’s guidelines.

While both forms have experienced growth in recent years, the microbrew is outpacing brewpubs.  Now why is this happening?  To begin, the emergence of taprooms due to new laws and provisions allowing on or bordering site sales by small brewers allows a consumer to buy directly from production breweries.  Taprooms focus on selling beer, whereas the brewpub attempts to sell both good beer and food.  The taproom manages to avoid this money losing operation, reaping the cost of beer sales, while also pleasing customers by allowing food trucks on-site.

Craft beer have come to represent a large share of the total breweries in the U.S.  Of 5,005 total breweries, approximately 99% are small and independent craft brewers, according the Brewers Association.  The craft brewing industry thus provides a wide variety of beers, in addition to benefiting the public as a whole as it continues to grow.  As two vital components facilitating craft brewing success, microbrews and brewpubs are important business models to pay attention to.  In the eyes of the customer, the beer may not look different, yet craft brewery owners face the decision of which model to pursue: a brewpub or a microbrew.  This decision ultimately plays a major role in the distribution and sale of beer.  Regardless, both brewpubs and microbrews remain able to return high margins on the sale of beer by selling directly to customers.  As more states allow small brewers to operate such taprooms, microbreweries should continue to flourish in the U.S.

Sources:

A new model to become master brewer and key investor in your own beer

Breaking Down the Craft Beer Growth Numbers

Brew Pub v. Taproom: Which Business Model is Right for You?

Craft Beer Industry Market Segments

United States Disposable Personal Income

What qualifies as craft beer?

2016 Craft Beer Year in Review from the Brewing Association

 

7 thoughts on “Business Models in “Craft” Brewing: Brewpubs vs. Microbreweries

  1. I definitely think the emergence of local, craft-style beer will continue in the upcoming years. Consumers like the wide variety of flavors, styles and quality of beer that craft brewers provide compared to the giants in the industry. Furthermore, consumers also like the experience of going to a brewpub where they have the opportunity to sample many of these craft beers while enjoying a welcoming environment brewpubs often have featuring outdoor seating and live music.

  2. Are there any business repercussions depending on the classification given by the American Brewers Association? It would seem that the qualifications set forth would have an impact on the way business’s conduct themselves, and therefore could theoretically limit the profits of a business.

  3. The success of these microbreweries can be explained by the cultural aspect associated with drinking these beverages, which deviates from the “factory-standard” beer that the big breweries to a degree represent. Though their qualifications are limiting, I believe the fact that they can sell directly to customers which guarantees higher margins is a well worth trade off.

  4. Since restaurants make the majority of their profits through sale of beverages, I would think that the microbrewery would be the optimal business model. Microbreweries get all the benefits of having consumers they can sell their beer to directly without the added costs and regulations that come along with selling food as well. Perhaps it is for that reason that the graph appears to show microbrewery numbers rising at a much steeper pace than brewpubs.

  5. I find microbreweries fascinating in that they appear to be the one sort of business strategy that would not result in consolidation as part of their allure is the small business, local feel. What will be interesting is if public preferences eventually shift away from craft breweries if there will be consolidation within the market. I think it’s telling that Anheuser-Busch moved to purchase Devil’s Backbone, a local brewery. It wouldn’t surprise me to see more microbreweries follow suit.

  6. For the past decade, craft brewers have seen double digit levels of growth. Small and independent craft breweries (microbreweries) now represent 12% market share of the overall beer industry. While this number is not impressive compared to the market shares of MillerCoors or Budweiser, it is worth noting that the craft brewery industry is growing exponentially fast while overall beer sales are declining. This trend of leaning toward microbreweries can be attributed to shifts in public taste, which seems to be moving away from one-size-fits-all light lagers. What is also interesting is that the majority of craft breweries’ customer base is made up of individuals who have annual incomes of $75,000 or more. The ability for craft brewers to capitalize on changing consumer tastes, especially among those with higher incomes, has no doubt fueled the sector’s growth.

  7. Microbreweries clearly have more potential in a free market. The biggest issues they face are regulations. I know Virginia has some strict laws within this market that hamper sales for these kind of businesses. Brewpubs, while I would gladly go to one, don’t seem like a logical business model. They incur the low profitability of making food, but also have to make their own beer. So they have one more cost than a restaurant in equipment to make their own beer, and one more cost than a microbrewery in making their own food.

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