The craft brewery sector has exploded in popularity over the past decade, causing thousands of investors to flood the market. According to Mainvest, a company that aggregates and promotes available investment opportunities, craft brewery investments achieve a high 95% success rate.
While that sounds great on the surface, most investors only receive a 1.2-2x return on their investment, leading many to stay away. But does that mean you shouldn’t invest in a brewery?
How To Know If You Should Invest In A Brewery
A 95% success rate would be a no-brainer for most investors, but to get that number, you need to know your market. Here’s how to determine if investing in a brewer is the right move.
Yes: If The Price Is Right
One of the hardest decisions to make for any business is setting the right price for its products and services. However, pricing your craft beer is easy if you calculate your direct costs (raw materials, shipping, and labor) and cost of sales (wages, benefits, and overheads) correctly.
You’re in the business to make a profit, so the brewery you’re investing in should have a 25-50% markup for bottled beer and 200-300% for poured beers. Otherwise, the business may fail.
No: If They Can’t Compete
The craft brewery market is oversaturated with startups looking to capitalize on the industry, but that ship may have sailed. The retail dollar sales of craft beer decreased by 22% in 2020. Although all beer sales were down during the pandemic, craft beer seemed to suffer the worst.
Although startups have done a lot to compete in this market, you have to find that one special company that can keep its head above water. It’s a big risk, possibly for a minimal reward.
Yes: If You Believe In The Founders
A great startup founder can carry a business to success, but organization and business sense isn’t the most important thing here. A founder could understand the market but not know how to market their product. Passion is what a startup needs to get through difficult financial situations.
Believing in the founders is one thing; investing in a business is another. If you have a good feeling that this brewery can go the distance without you, think of what your money can do!
No: If You’re Unfamiliar With Beer
Too many investors spend money on businesses they know nothing about. If you have money to burn, then we aren’t going to stop you, but if you’re trying to make a deliberate investment choice, you need to know the market. If beer doesn’t interest you, we suggest moving along.
After all, it’s impossible to make sound business decisions without all the facts. Keep in mind that liking beer won’t make you a great business investor, either. You also need market knowledge.
Yes: If The Founders Have a Plan
For every impulsive investor, there are thousands of businesses that start rolling out products without a plan. Never invest in craft breweries without seeing a 5-year business plan or asking questions like “what’s your typical population to brewing ratio?” or “what’s your market?”
Remember that the founders are supposed to impress you. If they come prepared for the investment meeting and draft a realistic profit/loss statement, they’re likely trustworthy.
No: If You Value High-Profit Potential
Unless you get really lucky, your craft brewery investment won’t see a lot of profits. While they’re basically a sure thing, thanks to their low startup costs, that doesn’t mean they’re worth the investment. There are other markets that have a high success rate but receive higher returns.
If you still want to invest in a craft brewery, we recommend making it a passion project. There’s nothing cooler than seeing a startup grow and succeed. Plus, you’ll get some free beer out of it.