Thoughts on Keeping the Lights on
Hey there, MacLeod Fans
We’ll be celebrating our seventh anniversary (!) this weekend, and occasions like these generally lead all of us at the brewery to reflect on the challenges we faced in those first few years, the Beer Law®-breaking compromises we’ve made to survive, and the slickness of our current operation, especially after the operational and efficiency-maximizing deep clean that this tumultuous last year has given our business.
It’d be easy enough to keep all of this to ourselves, but we thought we’d share some of these thoughts with you this week. Whether you’re a fan of MacLeod, someone hoping to open your own small business, or just someone curious about the business side of the brewing game, I’m sure you’ll find something interesting and relevant in the following post.
The CAB Years
I don’t have an MBA, but I’ve heard, and come to believe, that if you’re going to survive in industries like food and beverage, fashion, and other “regular person”-facing fields, a strong brand is essential. Early on, word is, my mom was searching for such a brand, having landed on the insane idea to open a brewery (insane! Insane!), and decided to go with an unapologetically UK-themed brewery, in part due to her youth spent in England and years in Scottish Bagpipe bands; being married to a Scot didn’t hurt. That was a smart move, but it came with some drawbacks, both tied to the depth of commitment to this brand identity.
The first was that, even at that point, British styles, the early fuel of the craft beer revolution in the States, were waning in popularity (I state without proof; also, fun fact, they say this is because the UK legalized homebrewing some ten years before the US, so that all of the recipe books were for UK styles - Germany’s lagers would have been practically impossible to start with, because they’re harder to make, but hey, Belgium’s beers totally would have worked). The consequence was that a brewery that strictly hewed to British tradition would have had its revenue capped, simply because Nut Brown Ales and Dark Milds don’t sell all that well; unlimited growth would be impossible for such a brewery, which isn’t necessarily a bad thing! See 1786, for example.
The second issue was that, coupled with these stylistic choices, our first brewer was an absolute purist (which, hey, not all that bad of a thing when you’re building a brand from scratch), and as such enforced some bold technological limitations: our beers were to be served by beer engines, and at a temperature far…”less cold,” as I like to say, than almost all (like, 99.99999%) American beer, at 54˚F, or roughly “cellar” temp (think red wine). This was another revenue cap, but certainly a catchy and interesting play. Even now, I’m not sure I wouldn’t have done this.
And I say that because those early years, while less profitable than all of the years with draft beer, developed a strong central brand that, jeez, I’d like to imagine has helped in the intervening years, and hey, the beer was great!
The Pursuit of Revenue
After a while, we’d established a reasonable foundation of regulars and Founders (beer for life club members, and crucial early fundraisers), and we had a strong and cohesive brand identity, but we simply needed more revenue to cover our bills. This led us down the Palpatine path that all breweries that wish to survive more than a handful of years must walk: the path to popular draft beer.
In essence, the story is quite simple: we’re located in Van Nuys, and thus surrounded by more than enough beer drinkers to keep us afloat in perpetuity; how do we get them in the door? And once they’re there, how do we convince them to come back? If you guessed “by giving them what they want,” we’re on the same page. Thanks for paying attention, it means a lot.
Indeed, most beer drinkers, thanks to a largely 19th century German immigrant influx, prohibition, and a few world wars, are most comfortable with a pale lager between 3.5% and 5%, preferably with some rice or corn in it, and never, never any black currant puree or pine resin-y hops. After that American Pilsner or American Light Lager, or even International Lager (Peroni, e.g.), you have, at the time, the West Coast IPA craze, so toss one of those on tap while you’re at it. A brewery with just one of each of those on tap is likely to survive forever if it keeps its labor costs down, but toss in a Porter or something, maybe a slightly more flavorful lager, a Pale Ale for good measure, maybe a Nitro Stout to keep on brand, and you’re pretty bulletproof.
And that’s, obviously, precisely what we did. Head brewers two and three were instrumental in building out our draft offerings, and playing around with the first batches of cans, which are an insane percentage of sales these days.
It was towards the end of this broad epoch that we were finally able to install a pizza kitchen (an item on the agenda for years, but something we never had space for - it took expanding into our current warehouse for that to even be possible), and with that, we were able to order guest beer, cider, and wine, and were finally a brewpub; we did, however, distribute our beer.
The Common Era
The problem with distribution, if you’re on the smaller side, is that you’ll inevitably forgo making fifty cents on the dollar in order to make five, or zero, or negative amounts. This can happen the obvious way, by running out of a popular beer in your taproom by overselling it at a price that yields way, way, way less profit outside, or more subtly, by diminishing the variety of beers you have at the home location by pouring resources into brewing more of your core beers in order to supply them to outside accounts. Either of these is to be avoided like the plague if your brewhouse is under 15 BBL (barrels; 30 kegs per batch, in other words), because if you think you’ve maxed out your revenue at your home location, you’re wrong, and I strongly suspect that there is way more profit to be had by opening a second location than by distributing to dump excess beer; maybe 5-10 times more, given a calculation I ran when we decided to kill “distro,” as distribution is known.
But with distro gone, the rest of the game is about optimization, and, for this last year, survival.
This insane last year has really put us all through the emotional wringer, but it has brought about one significant revolution: a deliberate, periodic canning schedule that leaves us with, hopefully, between 4-8 canned beer options virtually all the time. This has caused a shocking pivot from virtually all draft beer to what I seem to recall is now closer to a 50:50 split, which speaks to both sustained demand for to-go beer, as well as the piles of money we were leaving on the table, which I read not cynically but in terms of the desire of our customers over the years, clearly, to take our beer home in a convenient way.
Lest I forget about VNBC, the final few golden bricks in the road towards customer happiness maximization, which has brought about a number of interesting experiments, but also verified a simple truism: give the people what they want. Hazy IPAs, and a ton of them, it turns out.
In summary, I’d define the modern era by the emergence of cans; the offering of a massive variety of in-house and guest options (we couldn’t legally make wine if we wanted to); the growth of our pizza kitchen into a bustling restaurant to match any on Ventura Blvd; and the quite, implicit hole left by distro (rest in peace, youthful optimism and naïveté).
My Personal Advice and Thoughts
So, should you go out and open a brewery today? Here’s what I’d do, given the fact that I’m simultaneously a measured numbers guy and someone with many bar concepts, one of which, at least, will open at some point
Breweries, in particular, aren’t singular businesses - they’re at minimum expensive food production facilities and bars, and at maximum that, plus restaurants and alcohol distributors. This level of complication makes a healthy knowledge of the basic principles of accounting and business law pretty mandatory, but wouldn’t you know it, LAVC offers both of those classes! Community college is your friend. If these classes bore you, just you wait until you start dealing with the government and its myriad forms
Be prepared to lose most or all of what you put in
You can theoretically make, you know, net profit by starting a business, but I’d bet good money that at some point you’ll have sunk in way more than you would have been comfortable with, with no path out but forward, and there are breweries that fail, so be prepared to be stressed about money for at least three years, say
A brewery needs one of two things: great beer, or a great space
You can actually get away with just the latter, which is a very important fact about breweries and the sale of alcohol in general
My personal goal, before opening my many bars, is to take a photography class, because Instagram is an absolutely indispensable business tool these days, and showing off your beer and space could drive people in, or drive them away, on either extreme
On the beer side of things, though, I’d suggest getting a considerable amount of feedback on, say, no less than four flagship recipes, and preferably a few homebrewing awards, if you’re thinking of starting a brewery as a homebrewer
Bureaucracy is a thing
The government is not all that fun to deal with, and California-based businesses that make and sell both food and alcohol have pretty much the maximum amount of paperwork that any small business is likely to face, so...brace for impact
Business is about people
I’m often demonized (the pen is mightier than the sword! I’ve been painted into a corner, unfairly!) as making arguments that depict people as numbers, but I personally view things the exact opposite way - whether you’re talking about the cohesiveness of your team, or the allure of your social media account, or the warmth of your taproom, or even just the fact that the taproom is a much better profit center than distro (this is you: 01000111011010), the beer game is all about people. From a historical perspective, one of the strongest ethical arguments for the brewing and sale of beer is that of the communal center, and if that concept isn’t at the core of your brewery, well...let’s hope that your beer is insanely good, and that you’re comfortable living almost entirely in distro land
Conclusion
Seven years, baby!
Cheers,
Adrian “The Machine” Febre