Gypsy Brewing Pros & Cons – Is It Worth It?

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Another subject suggestion from Chris was to look at the pros and cons of gypsy brewing or contract brewing. It was a red hot topic in Series 1 of the BMAB Podcast and has come up on the Build Me A Brewery (BMAB) Facebook group a few times now for discussion.

One reason people look to gypsy or contract brew, is to establish a brewery brand before investing in their own brewery. I recently had an email from someone in the UK looking to;

“Contract brew a couple of recipes to test the market with my product and branding”.

The emailer seemed keen to set up his “own brewing space”. But in lieu of opening his own place wanted to discuss the gypsy/contract brewing route.

I replied to the guy’s email and thought I’d share some of the points I made in this article. But before we do…what exactly is gypsy brewing?

Gypsy Brewing Explained

Gypsy brewing is where you brew your beer at someone else’s facility using their equipment paying them a fixed fee. Generally, the rest is up to you; from putting up the money for materials, the marketing to selling the beer in the wild.

As a British brewing consultant based in China, I mostly help people source brewing equipment here. However, if I think a potential client isn’t ready to have their own place or sense some unease.

I’ll suggest to take a step back, evaluate their numbers (again) and look at gypsy brewing to prove their concept. Plus test the market, without investing too much money.

I don’t want to take on a client I don’t think is ready. Gypsy brewing can bridge the gap from inception of an idea to owning your own commercial brewery.

Here’s a response I wrote to someone on Facebook a while back when they initially approached me about Chinese brewing equipment.

Gyspy Brewing

Gypsy Brewing Pros and Cons – Different Models

There are several models with contract brewing, one being an alternating partnership. With an alternating partnership the host brewery assumes ownership of the beer throughout the production phase.

Please note: I’ll use “host” for the people who own the venue where the beer is brewed and “guest” for the gypsy brewer, whose beer is made at the host venue.

In this model the brewery will use their own ingredients. The title/ownership passes to the guest brewer only when this person receives the beer.

Furthermore, another option is for the guest brewer to rent time in the host brewery. In this instance the guest brewer will pay for their own ingredients; using the host equipment and venue to physically brew the beer.

The guest brewer “owns” their product from start to finish and is responsible for all the parts of the process from labelling, certification and taxes. There may be some variables in responsibility, depending on the contract agreed.

So, when can gypsy brewing be beneficial?

Looking to Start a Brewery? Gypsy/ Contract Brewing Pros and Cons

Similar to the email reply I mentioned earlier, gypsy brewing allows a person to prove concept for their beer and brand. The world of brewing is an expensive one to enter.

One of the major outlays is purchasing brewing equipment. Then there’s the timelines involved; you need to wait for:

  • Equipment fabrication
  • Find and prepare a venue
  • Understand and pass local regulations
  • Train staff

…And a whole lot more. Time and expenses soon add up. Yes, gypsy brewing leads to a higher cost of goods. The host brewery needs to make a profit out of the beer brewed at their venue. However overall, the business is mostly variable costs with few overheads.

When gypsy brewing one doesn’t have to pay the usual costs such as:

  • Rent
  • Brewing equipment
  • Maintenance costs
  • Staff payroll

…and so on. The guest brewer is free to spend additional capital on branding and marketing to yield a higher return on the investment.

Gypsy brewing allows someone to get product to market quickly, without huge capital costs. As well as establishing a brand and proving concept at the same time.

Brewery Expansion (Bridging the Gap) – Gypsy Brewing Pros and Cons

I used to brew just outside Kunming in Yunnan, China. There I had a great assistant called Yang. He now owns his own contract facility. One of his biggest contracts was when Bravo Brewing signed on for six months, to brew at his facility.

Bravo Brewing had outgrown their current facility so, were in the process of building their own production brewery. However, before this brewery was ready, they needed greater volumes of beer than they could produce.

Yang had a number of 6,000 litre fermentation vessels and Bravo signed a 6-month contract to brew into them. Using another brewing venue whilst you build a bigger production facility, allows a guest brewer to serve a growing customer base, in a cost-effective way.

It offers breathing room whilst making internal plans a reality, in a structured way. Yes, this beer will be more expensive to brew per litre. Plus, there’s more complicated logistics to get the beer to clients. It is however, a good compromise overall.

Importing Beer

On a semi-regular basis, I get approached by breweries wanting to discuss contract brewing in China. So, they can expand into the local Sino market.

Honestly, I’ve spoken against this model because Chinese craft beer consumers prefer to drink foreign beers produced in their country of origin.

There was great episode with Bryant Soorkia, in the first series on this subject. To listen to the episode on Exporting Beer to China click the link.

I worked for AB InBev, where I witnessed even them having problems when switching production of Goose Island from Chicago to China. However, China is a unique market.

In other examples, like Gweilo from Hong Kong brewing their beer in the UK for the British market, they’ve seen their beer well received.

If a brewery is looking to crack a new market in a different country the expense of transport and import fees can make the unit cost much higher. Plus, for some beer styles like hazy IPA’s, the beer may not travel well

Meaning the experience drinking the beer in the import country is much different from country of origin. In this case, contract brewing in the country you intend to enter makes sense if…

The cheaper cost of producing beer in the target market (plus it’ll be fresher) will be accepted by the target customers. Since it’s not brewed in the country of origin.

Gypsy Brewing Is Becoming More Widespread

In the last 5 years, I’ve seen the instances of gypsy brewing increase. Breweries are now being set up solely to act as contract breweries.

With larger breweries ramping up production or when they don’t have the space, leasing/renting tanks from these contract breweries.

Then there are homebrewers making the jump to commercial. Who see gypsy brewing as bridging the gap. Till they’re confident enough or financially ready to invest in their own brewery. This has led to a fairly new concept called incubator breweries.

Gypsy Brewing

Tony Dichiera from the Suburban Brew (SA) & Adam Betts from Edge Brewing Project (VIC) both feature in Series 2 of the BMAB Podcast to discuss the Gypsy Brewing model in more detail.

Gypsy Brewing Pros and Cons – The Incubator Brewery Concept

These incubator breweries work slightly different to the traditional contract brewing model. They offer formal training to a potential owner/hobby brewer looking to go pro.

This type of business allows them to learn the ropes and understand the brewing industry on a deeper level. Furthermore, incubators can help with marketing and distribution too.

I know these incubators are on the rise in the US. Where they act as a co-working space, helping would be brewers off-set the initial start-up costs.

Through offering a shared space with access to brewing equipment plus, allowing collaboration and interaction between participants.

The Downside

The relationship between guest and host brewer is symbiotic. The guest brewer is always at the mercy of the host.

I’ve seen the downside here in China where a guest brewer witnessed the host mess up a centrifuge run, ruining a batch of his core beer.

The host offered to pay for a new batch, but the beer had already been allotted so, there was a delay in delivering to the customers. The initial bad batch had DO (dissolved oxygen) number in the hundreds so, was compromised and not fit for sale.

This is why a contract has to be water tight. As a guest brewer, you’ll rarely have full control of the brewery and staff. The beer brewed will only be at the standard of, or below that of the host brewery.

One positive though, is contract brewing may give you access to equipment you might not otherwise have…like a centrifuge.

Further Negatives

Lack of Community, Presence

Ultimately, you don’t own the brewery, your beer is being brewed on. This can make it hard to sell your brews to the local craft beer enthusiasts.

However, this is becoming less of an issue, as contract brewing becomes more popular and accepted by the craft beer drinking community.

Smaller Profits

The fact you’re paying another company to do a significant amount of the heavy lifting to brew your beer, doesn’t come cheap.

Yielding Control

You will always be a “guest”. If there are critical decisions to be made, you’ll always come second to a host brewery, if they make their own beer for sale.

There are some great host breweries out there. You just need to carry out your due diligence before choosing your host brewery.

Relationship Pressures

I’ve been brewing for 25 years; it can still be stressful times. You just learn to deal with it better with more experience. I’ve witnessed arguments between brew crew, sales and management.

The relationship of guest and host is one step removed from internal issues. You might not be aware of internal brewery conflict. You’re entrusting the production of your beer to another company, at the end of the day.

Steve ‘Hendo’ Henderson’s Opinion on Gypsy Brewing

Those who followed Series 1 of the podcast, might recall an interview Chris did with one of Australia’s most prolific gyspy brewers, Steve ‘Hendo’ Henderson. Being the founder of the famous BrewCult brand, and taking out the Australian International Beer Awards Trophy for Champion Gypsy Brewer, Hendo has had a first hand taste and experience of what life is like being a full time gypsy brewer.

The BrewCult brand developed a massive following, and appealed to the hardcore ‘Beer Geeks’ who were quite prepared to pay a handsome price for his unique style of beers. Still without his own brewery, Hendo was able to build a demand for his beers all over Australia.

However, Hendo is honest to admit that the BrewCult business model may of been a little bit too ambitious. Trying to be in multiple markets and locations and having to wear many hats as ultimately the sole business owner, and having to stock several lines of his beers in warehouses all over the country since moving to a core range. This also limited his ability to focus on developing and putting out new and creative beers, which the BrewCult brand was founded on.

During the interview, the gypsy brewing model topic got brought up. Hendo, being Hendo, dished out his brutal honesty about it. Below is a very brief extract from the initial conversation on the topic:

 

Chris – What would you say it the sweet spot for having a successful brewery these days? What sort of model would you recommend?

Hendo – There’s two models, that you could do depending on how much money you got. Be a brewpub, and sell takeaway cans or whatever, or get big and be a big production brewery. There’s no in between

Chris – But you looked at the Gypsy brewing model as a potential springboard into owning your own brewery? 

Hendo – I would not recommend that. It used to be viable, but it soon quickly became unviable. Although you are not dipping into your pocket in the beginning to outlay large capital to build a brewery, but essentially you are paying for someone’s else’s.

So with your unit cost you get no economies of scale. If I was a gyspy brewer, making a million litres a year, you pay what it is called a Copack fee to the brewery. A copack fee includes the costs of the brewery to make your beer, like electricity, labour etc. Its not your raw materials or your packaging,

Now if I make a beer and the co-pack fee is say $20 (to pull a random number out) and if you make 10,000 litres a year or 1 million litres a year, your co-pack fee is still going to be $20. Where if I owned my own brewery and had my own space, a lot of the costs become fixed costs such as rent, rates, wages etc. And so, then it becomes easier for you to be come profitably, because if you can squeeze out more beer faster through the same amount of rent, you are making money.

Chris – I understand that gypsy brewing isn’t a sustainable business model long term. It’s a tough slog, and if you are breaking even, you are doing quite well. But my perspective on Gypsy brewing is one as dipping my toes in the water, building a brand and a bit of a following about my beers before investing half a million in a physical brewery.

 

Check out the full gypsy brewing topic conversation with Hendo in the video excerpt below.  It’s a great listen for anyone wanting to gain further insights about the realities of the gypsy brewing model.

To listen to our full interview with Steve Hendo, check out Part 2 – Brewery Consulting & Quality Management

Gypsy Brewing Pros and Cons – Conclusions

Gypsy brewing can’t be the right option in many instances. I’ve recommended this route to several clients and lost out on potential revenue. As craft breweries continue to open around the globe competition simply gets fiercer.

You need to bring you’re A-game if you want to survive and thrive in the market. Gypsy brewing could be the logical step in making it happen.

Yes, I admit you’re ceding control and placing a lot of trust on a host brewery. However, they are also having to trust you also. Furthermore, not having your own “bricks and mortar” facility which people can associate you with, can make brand recognition harder.

You’ll also be dealing with smaller profit margins too, as the unit price to produce beer on someone else’s facility is higher. However, the upsides are many.

  • Initial costs and lead time to get to market is reduced
  • You’re not buying equipment
  • You don’t have to pay insurance
  • You’re not paying for staff and for your own building
  • No equipment headaches, if a pump breaks the host brewery fixes it.
  • Brewing is 80% cleaning, a lot of this will be taken care of by the host brewery (depending on the contract)

Contract Brewing

If you do your research and agree on an arrangement which works for you. Then success with the gypsy brewing model can be yours. It can even be appreciated by the host brewery too, allowing them to increase profits. If they’ve spare capacity.

Chris also aims to explore the gypsy brewing model in much more detail in the coming soon Series 2 of the Podcast, so stay tuned.

I hope you enjoyed our article on gypsy brewing pros and cons, if you have any feedback or follow-up questions, please feel free to leave a comment below or send me a message.

 


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