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

 

GM Looking to Sell Opel and Vauxhall in Europe

General Motors continues to lose money in Europe.  Despite attempts to reduce costs, the company recorded losses of $813 million in 2015 and $257 million in 2016 before taxes. Even with these losses the French automaker, Peugeot, may be looking to purchase the GM’s European fleet that contains both Vauxhall and Opel.  The announcement of such measures on Tuesday have caused GM’s stock prices to soar, with the potential to unload this segment of its business with such large losses.

GM predicted that the company would break even in 2016.  As such, the first two quarters of 2016 revealed the potential for the European region to yield a profit for GM.  After the Brexit turmoil, the company believes a weak pound and decline in vehicle demand influenced $257 million in losses.  Still, 2016 remains one of the company’s better years in Europe, and the company aims to break even by 2018 now.  With such enormous losses, why then does Peugeot want to buy Opel and Vauxhall?

A major factor inhibiting the profitability of GM’s European division remains its inability to appropriately utilize factory capacity.  Last year, only 63% of its factory capacity was used, lower than industry averages.  This remains a problem across Europe, as the governments makes it difficult to close factories and lay off workers, yet the operating capacity of GM remains 8% below the industry average.  As a global giant in the auto industry, the low production capacity in Europe evidently reveals a large problem; however, Peugeot may seem to think they have the ability to harness some of this capacity.  As such, the acquisition would stand to make Peugeot the second largest player in the European car market, behind Volkswagen.

In 2016, GM’s European subsidiary showed potential for profit.  As such, Opel recorded two straight months of strong sales to start the year in the German market, an increase of over 25% during that period.  These sales were largely driven by the Opel Astra, the European “Car of the Year” in 2016.  Currently, it is difficult to tell whether GM is finally abandoning its European segment after years of losses, approaching almost $20 billion since 1999, or whether the company is selling high after the displayed potential for profits and sales in 2016.  However, it remains to be seen whether the sales in Germany alone will continue to rise across all of Europe.  If they do, the acquisition of Opel and Vauxhall may prove lucrative for Peugeot.

Sources:

http://www.businessinsider.com/gm-reportedly-in-talks-to-sell-european-business-2017-2

http://www.cnbc.com/2017/02/15/general-motors-could-exit-europe-with-1-billion-opel-sale-to-peugeot-analyst.html

https://www.fool.com/investing/2016/08/09/how-general-motors-turned-a-loss-into-a-profit-in.aspx

http://www.freep.com/story/money/cars/general-motors/2017/02/14/gm-opel-psa-group-peugeot/97886608/

https://www.gm.com/mol/m-2016-opel-03-02-sales-increase-february-28-percent.html

http://www.marketwatch.com/story/gm-faces-bumpy-road-to-profit-in-europe-2017-02-05