Article published in www.withvincent.com
We’ve all been cornered at a party by someone with hard opinions about hops and IPAs. Craft beer lovers may be a lot of things, but one thing they are for sure is proof of a growing fanaticism around small traditional breweries.
Once it was mostly just other craft beer buffs talking about these breweries. Now, everyone is joining the mash. Even large market brewers are taking notice, starting their own craft lines or partnering with smaller breweries. More consumers are seeking out artisanal beers, and investors are flocking to new opportunities.
In this article we take a look: are breweries a good investment?
Historic Market Value
Dating as far back as the Sumerians of 4,000 BCE, small breweries supplied locals with non-mechanized, traditional beer production. While the techniques have evolved, these basic principles have remained intact. Today’s craft breweries also deal in smaller scale batches and use non-mechanized means.
Let’s skip ahead to the 18th Century. The steam engine comes into play and the industrial revolution is underway. All of a sudden, it’s possible to mechanize the brewing process. All of a sudden, it’s possible to produce beer in large quantities quickly and cheaply. As mechanisms evolve for breweries to produce at lower cost and with consistent results, craft falls out of fashion. Craft breweries still stick around, but the market ends up dominated by large brewers for centuries.
The Craft Beer Boom
A few years after the turn of the millennium, artisanal beers started to make their comeback. By 2013, craft brewing had grown to 14.6% of America’s beer market (up nearly 11% over 10 years). People are taking notice and the USDA opens up a grant program that leads to an industry boom.
Starting with farmers, all of a sudden people get access to the funds they need to get their own breweries running. Today, the Brewers Association takes annual grant proposals allowing thousands of brewers to get their start.
With enough funds to supply equipment, marketing, and personnel craft breweries have the opportunity to succeed and grow. They’ve gone from hobbies and small businesses to serious cash cows.
Between 2014 and 2020, the total number of craft breweries in the US shot from 3,814 to 8,764. By contrast, there were only 120 non-craft breweries.
According to the Brewers Association, by 2020, craft breweries made up 24% of the retail beer sales. Current predictions suggest that this market will grow a further 13% by 2024, increasing by 47.79 billion in value.
The numbers certainly suggest that now is a good time to learn how to invest in craft breweries.
Benefits of Investing in Craft Breweries
Any time you can get involved in an emerging market there’s going to be a “cool factor.” The craft beer boom got its launching pad in hip, progressive cities like Portland. From taprooms to microbrews, there’s definitely something cool and elite about being a part of the craft game. For most investors, it’s a poorly hidden secret that this alone holds a lot of appeal.
It’s not just the cool factor that led to craft becoming sought-after breweries to invest in. They also come with unique benefits and proven returns.
One of these benefits is that while artisanal beers can’t compete with large brewers on price, they also don’t compete for the same audience. The target market for craft breweries is more upscale, on-trend, and educated than those of more mainstream, mass-produced alternatives. In this market, they may compete to some degree with upscale wines and spirits. In this market, artisanal beer is more competitively priced.
Even with so many new artisanal breweries popping up each year the average profit margin of craft beer in the US is 4%. That includes breweries that are too new to turn a profit yet and the over-ambitious ones that are failing or underfunded. Realistically, seeing overall positive gains with the amount of recent entries is pretty impressive.
If you look at countries with similar growth rates for craft breweries and a bit more establishment you can see where the US market might head. In Australia, for instance, the average profit margin for craft is 19.9%. There, craft beers only make up about 23% of the market. If the US brewers can reach these margins with their larger (and growing) market segment, this can mean tens of billions for business owners and investors.
The Risks
It’s not all suds and shine for craft brewery investors. With any high-growth market, you need to be on the alert for quality and know-how. A lot of people are cashing in on the hype and grants available, but not everyone has what it takes to build a profitable brewery.
For starters, there is a lot of noise in the market. While grants provide opportunity, they also provide competition. Too many craft brewers are competing for a small market share. Consider what your investment has that can set them apart from others.
This competition is also driving up the price of hops and other ingredients. That cost eats right into the ROI. This might drive you to look a little more at where this craft trend started — farmers. Breweries that are part of an agricultural network have access to high-quality ingredients without inflated pricing. It might even be worth looking into agricultural investments.
On top of it all, the industry has to comply with heady health and safety regulations. Your due diligence for investments should include compliance, not just experience and financials.
That being said, financial information is very important for these ventures. The number one reason that craft breweries fail is a lack of funds. Grants are great for getting started, but they need a clear financial plan and backing to keep things going and to expand.
How to Invest in Craft Breweries
Most of us aren’t going to jump in and start our own brewery or taproom. The work involved is intensive, and expertise is prohibitive. Instead, most craft brewery investors are looking to get returns from a new or growing brewery. These will usually fall under equity or debt investments.
Equity investments allow you to own a share of ownership in the brewery. Depending on the individual opportunity, equity may give you access to voting rights or passive income like dividends. StartEngine often has opportunities for equity investments into breweries.
Debt investments allow investors to earn passive income without directly owning a piece of the brewery. Instead, they are lenders, offering capital which the brewery pays back with interest. This provides regular, scheduled payouts with impressive yields. Investing in debt can range anywhere from startup capital to providing the funds to expand. Mainvestgenerally has a lot of debt opportunities to invest in craft breweries around the country.
As the craft brewery trend explodes in the US and around the globe, the time is ripe for investors. With smart selection and careful due diligence, there is a lot of money to be made in this exciting industry. Discover craft breweries opportunities that fit your investment interests, type, and budget with our alternative investment search engine.