Costs, Quality (Again) And That Elusive Profit

Earlier today I posted on Twitter about the costs of producing beer, and the potential profits to be gained from different packaging. I admit that the figures were a bit haphazard, taken across a couple of different beers, and only really touched lightly on the subject.

This was all in response to people responding in various ways to Cloudwater’s decision to no longer produce cask. Having talked to Paul and a lot of the staff there previously about all manner of things, the one thing I can say without any doubt whatsoever is that they are all very passionate about whatever they do, and no decision will have been taken lightly.

So now I’ve got a few minutes spare, here’s a better break down of the figures involved in our industry. All these figures are based on our West Coast IPA, a 5.6% Cascade hopped beer brewed on the 6BBL kit, giving us 760 litres.

BREWING COSTS

Ingredients

Malt £104.86
Hops £128.10
Yeast £36.00
Adjuncts £0.00
Total Ingredients Cost £268.96

 

Brewing Costs

Water £10.00
Electricity £60.00
Total Brewing Costs £70.00

 

Beer Duty

Hectolitres 7.6
Hl% 0.43
Duty Rate £9.73
Duty Total £414.11

 

This then is the cost just to brew one batch of this beer:

Ingredients £268.96
Brewing £70.00
Duty £414.11
Total Costs £753.07

 

Running Costs

But these aren’t all the costs, they don’t include the actual running costs of the brewery itself. As an example, ours break down monthly like this:

Outgoing Cost VAT Total
Rent £1076.04 £215.21 £1291.25
Rent Insurance £63.51 £0 £63.51
Pest Control £30.00 £6.00 £36.00
Business Insurance £50.00 £0.00 £50.00
Investment Repayment £810.75 £0 £810.75
Van Hire £120.00 £24.00 £144.00
Phone/Internet £40.00 £8.00 £48.00
Business Rates £77.00 £0 £77.00
PRS Licence £30.42 £0 £30.42
Total Running Costs £2297.72 £253.21 £2550.93

 

No matter how many brews we do, and sell, a month we have to cover that £2,550.93. And you may have noticed that there is still no wages in there.

We work on brewing, and selling, five brews a month. Which means that each brew itself has an additional £510.18 cost, to cover the running costs.

So this then is the actual cost, still without wages, for us to brew this IPA:

Ingredients £268.96
Brewing £70.00
Duty £414.11
Running Costs £510.18
Total Costs £1263.25

 

 

PACKAGING COSTS

Once we’ve brewed the beer, we then have to package it. Up to this point, it doesn’t matter whether the beer is destined for cask, keg or bottles (I don’t do cans so can’t cost those), it’s still the same beer and process. We use our own casks, but single-use KeyKegs. It is possible to also hire one-way casks and kegs, reducing costs for tracking them down, fully cleaning them, etc. But these are our costs

Cask

Preparation

Cask Size (litres) 40
Casks Needed 19
Cleaning/etc per cask £2.00
Pumpclip £0.78
Total Casking Cost £52.82

 

Pricing

Batch Cost (brewing and cask preparation) £1316.07
Per Cask Cost £69.27
Sell Per Cask £75.00
Per Cask inc VAT £90.00
Bar GP% 65%
Bar Sell Per Pint £3.65
Wetherspoons Purchase Price £60.64

Profit

Profit/Cask £5.73
Profit/Batch £108.93
Bar Profit/Cask £210.00
Profit/Cask into Wetherspoons -£8.63

 

As you can see from this table, this beer would not be sold into a Wetherspoons pub, they use a specific formula to dictate the price they’re willing to pay, and this particular beer would not be cost effective to sell to them with our overheads. If we were to reduce those, by brewing and selling more beer, then it could get to that level. It’s also important to note that profit for the bar is not profit but their takings minus the price they paid for it. They still have their overheads to pay!

Keg

Preparation

Keg Size (litres) 30
Kegs Needed 25
Cleaning/Purchase per keg £18.00
Pumpclip £2.00
Total Kegging Cost £500.00

 

Pricing

Batch Cost (brewing and keg preparation) £1763.25
Per Keg Cost £70.53
Sell Per Keg £75.00
Per Keg inc VAT £90.00
Bar GP% 65%
Bar Sell Per Pint £4.87

 

Profit

Profit/Keg £4.47
Profit/Batch £111.75
Bar Profit/Keg £225.00

 

Two things you may notice from this, firstly there really isn’t that much difference between the profit on keg and cask, on paper. And the second is that there is no line for costs/profit selling keg into Wetherspoons. The reason for the second point is that Wetherspoons pay full market rate for keg. The reason why keg doesn’t look much more profitable on paper is because generally it isn’t. Unless you charge more per keg because it’s seen as a premium product.

 

Bottle

Preparation

Bottle Size (ml) 330
Bottles Needed 2303
Cleaning/Purchase per bottle £0.21
Labelling/Packaging per bottle £0.15
Total Bottling Cost £829.08

 

Pricing

Batch Cost (brewing and bottle preparation) £2092.33
Per Bottle Cost £0.91
Sell Per Bottle £1.60
Per bottle inc VAT £1.92
Bottle Shop Sell Per Bottle £2.56
Bar Sell Per Bottle £4.65

 

Profit

Profit/Bottle £0.69
Profit/Batch £1592.47
Bottle Shop Profit/Bottle £0.96
Bar Profit/Bottle £3.05

 

Packaging Summary

For a full 760 litre run, it initially looks obvious as to where the profit lies. Bottles. A quick summary of the figures are:

Bottle: £1,592.47

Kegs: £111.75

Cask: £108.93

 

STAFF

But still this isn’t the full story, remember there’s still no staff hours, and their wages taken into account for these figures. With automation you can speed things up a lot, and the faster things are done, or the less staff needed to do them, the cheaper they become. It takes us roughly 2 hours to cask a full batch, roughly 4 hours to keg a batch, and a full day with two people to bottle a batch.

If we were to pay any staff minimum wage (£7.20 an hour) we would have more costs.

Packaging Previous Profit Staff Hours Wage Costs New Profit
Bottling £1592.47 16 £115.20 £1477.27
Kegging £111.75 4 £28.80 £82.95
Casking £108.93 2 £14.40 £94.53

 

Sales

And still the costs rack up. Unless you’re a very successful brewery you have to make a lot of sales calls to sell your beer. And if you are a very successful brewery you have to handle a lot of people calling to buy your beer.

For these batches there’s 19 casks or 25 kegs or 115 cases of bottles to find outlets for. As you can no doubt see, it takes longer to sell bottles than to sell cask, and it takes longer to deliver to 115 different venues than it does 19. And that’s more staff wages and less profit.

 

SUMMARY

Putting your beer out on cask or keg doesn’t make you much money. We’d be looking at less than £500 a month. That would be my wages. Would you expect anyone to work 60 plus hours a week for that? But as breweries we have to put beer out on draught because that’s generally where the majority people first see and try it. And those first impressions are what are vital to us, because if someone likes our beer on draught, they’re more likely to buy it in bottles or cans. And that’s where we start looking at making a living wage. So as brewers we have to strike a balance between getting out names out there, and getting our bills paid.

Going back to Cloudwater’s decision to drop cask, I can fully understand it. Cask is the weakest link in the quality chain. Our beers on draught are, as I mentioned, our showcase. They’re where people first see, and first form their opinions about our beers, and us. If the beer is rubbish, we’re considered rubbish. We do what we can as brewers to ensure that the beer leaving our breweries is in the best condition it possibly can. But until we have a fully chilled distribution chain for all of us wanting to pay a bit more for it, until we have properly trained cellar staff, until we have bar staff who stop using the lazy “It’s supposed to taste like that”, until then cask will always be the most likely candidate to present a bad quality pint.

Personally I think that some beers on cask are far superior to keg. But I also think that some keg beers are far superior to a lot of cask. The method of packaging or of dispense isn’t the issue that we need to address, it’s the quality of the beer. I personally don’t care if a beer is Real, I don’t care if it is Craft, I care that it’s good.

Hopefully this very long, waffling piece will have opened your eyes to how little brewers make from their efforts. Hopefully if you get a bad beer, don’t automatically blame the brewer, but instead let us know so we as an industry can try and solve the underlying problem. But most importantly, enjoy what you drink.

39 thoughts on “Costs, Quality (Again) And That Elusive Profit

    1. I wanted to stay away from the Wetherspoons pricing debate, but felt there was a need for a comparison in there.
      In general, if you’re able to spread lower overheads over more brews, you can meet their pricing structure and make money. This is why generally they tend to have on beers from more established breweries who’ve already paid off their start-up costs, or from new breweries that are willing to lose a couple of pound a firkin in exchange for marketing. It still works out cheaper than a printed advert in most beer festival programmes or local Camra branch magazines.

    2. As I’ve said elsewhere, CAMRA should get out of Tim Martin’s bum and take a more balanced attitude, if they are to keep bringing up the XX pubs close per week thing.

      CAMRA should view Wetherspoons in the same way as cask breathers – a necessary evil to allow cask ale to reach certain parts of the market, but not a core part of what CAMRA does.

  1. Surely the issue in your case is simply that you only brew 5 times a month, i.e. massively under capacity? Brew twice as much – only 10 brew runs a month – and that overhead cost of £510 a brew run is halved, and you’re making oddles more net profit.

    By choosing – or only being able – to achieve a very low volume of production and sales the business is marginal. You just need to grow. And if the answer is that you can’t because the customers aren’t there, I’m afraid that just tells us you’re unable to compete in a crowded market.

    1. We’re not brewing massively under capacity, and brewing to full capacity isn’t our business model. We have however brewed, and sold more beer every month since we started and that growth doesn’t look to be slowing down any time soon.

      1. If you have a premium product Keg makes sense as a) you can charge more for it knowing you aren’t over a barrel with limited shelf life and cellarmanship and b) can export it

        I imagine CW will be back on ‘limited’ casks before long, at a premium

        1. I hope they are, I enjoyed the casks of theirs that I did get to try. I think we’ll see them at their brewery tap when they’re able to open it more often.

          Keg is a great way to counter the loss of cellarmanship, that’s a whole other rant of mine having started out as a cellarman! And yes, it’s very few styles that you can export in cask!

    2. “massively under capacity” is an interesting statement.

      5 brews a month is low, but it rather depends how many vessels you own, and those vessels aren’t cheap either.

      doubling capacity is extremely expensive once you reach a certain size as well.

      It could predicate savings in terms of overheads, but it also means more staff (assuming your current staff are fully occupied) and more space to condition your beer, and perhaps another van and driver depending on your route to market…….

      it’s not that simple

  2. Great piece Steve and nice to see what goes on in the financial ledger (Spreadsheet really) when a brewery plans and brews a beer.

    “It’s supposed to taste like that”…I hate that!

  3. Great piece Steve, a good insight into the costs of running a small brewery. Shows the advantages of selling cask (and keg) direct through a brewery tap. I suspect if Cloudwater had a brewery tap with regular opening times (twice a week perhaps?) they would happily produce and sell cask ale.

    1. Cheers, there’s a lot of costs we have to take into account that don’t immediately come to mind.

      I believe Paul said as much himself that they’d like to see cask at their own brewery tap, and I’d like to see it there.

  4. Very honest of you.

    Is good to see it broken down somewhat although to me it underestimates the cask costs.
    Doesn’t appear to be any factoring in of the costs of at least two elements of a cask operation – empties collection & replacement/repair of damaged/lost casks.

    It also suggests that you are already suffering from not being able to get a market price for your keg as presumably there is a degree of needing to reduce prices to effectively buy your way onto the line to displace a Cloudwater, Magic Rock or Beavertown.

    1. These costs are for the day-to-day running of the brewery, not for things like investment in better equipment, or replacing lost/damaged casks. They make the “profit” even smaller. Empty collection tends to be done when dropping off new sales, so there’s no real cost there.

      I don’t reduce my prices, I charge the same whether it’s on keg or cask, as I tend to feel that cask should also be considered a premium product. I don’t sell much keg simply because it all sells out quickly on cask and I don’t get the chance to put some into keg.

  5. Great to see the data. I shall comb over it later.

    One note though at the end of the cask section it seems you’re effectively comparing your ‘P’ to a bar’s ‘GP’ right? That’s unfair if so. To be an equal comparison you need to subtract the bar’s operating-costs-per-cask from that GP. (Correct me if I am wrong.)

    1. You’re not wrong, and that’s why I say “It’s also important to note that profit for the bar is not profit but their takings minus the price they paid for it. They still have their overheads to pay!”

      1. Ah, right, I’ve read that bit now.

        IMO the table would be more accurate to label them as different measures of “profit”. Gross and net. Or folk might read it the wrong way, folk in a hurry like me who only look at the table 😉

        Anyway – great to see all this info.

        I personally think selling a 5.6% cask direct to pubs for only £75 ex is fucking bonkers mind 😉 Not that I’m a brewer…

  6. Great read, thanks.

    It looks like a chunk of the keg profit is eaten up by the fact that you need more kegs per batch than you do casks. Is this because KeyKegs only come in a max size of 30 litres? Are there no Firkin-sized one-way kegs on the market?

    1. The profit difference between keg and cask is really down to the fact that casks are reusable, and kegs aren’t. Not sure why they don’t do a larger keg, possibly because people have got used to the 30 litre size.

  7. As a publican (Freehouse). That is really interesting. I have said more than once in the Cloudwater debate that our costs of heating and lighting the pub are a massive part of the cost of a pint. So good to see you say “It’s also important to note that profit for the bar is not profit but their takings minus the price they paid for it. They still have their overheads to pay!”

    1. I’d love to do a similar thing to this to show the pub side of things. I used to run them back in the 90s, and beer pricing hasn’t changed much since then, yet rent, rates, etc have gone up, and minimum wage and now the workplace pension (wasn’t that supposed to be covered by National Insurance?) have certainly gone up!

  8. Too many people are price focused when it comes to a pint of beer, CAMRA don’t help this mindset, neither do the breweries who are willing to sell shit beer for next to nothing. It’s holding the industry back, beer has been too cheap for too long. People need to accept that if they want great beer, they’re going to have to pay a fair price.

      1. A wage rise? I’ve not paid myself a wage at all yet! Everything the brewery has made has gone back into it to improve and expand.

  9. Do you think a brewpub would be a better business model? I ask as this is the approach we are thinking about taking. How much profit does the Brewery tap bring in and do you find that folk are keen on off sales?

    1. Personally I think that a brewpub is a better business model, but I’ll also be honest and say I’ve not really looked into it as such. A permanent brewery tap is a little different (license, planning, etc) and we find ours works really well. The amount of profit you’d make from it really varies on the beers you put on, and how many you can sell when you open.

    1. I use a dried yeast, and a fresh packet every time. Wet yeast didn’t give the consistency I needed and was giving me esters I didn’t want.

    1. I have a very clever spreadsheet that handles it all for me. The figures come from my brew sheet which does everything from theoretical og,fg,ibu,cals etc through to actual figures, duty rates/payments, brewing and packaging costs and recommended sale values.
      It’s been checked against HMRC’s calculations for both individual brews and monthly returns so I know it works. Trying to work it out by hand every time was a nightmare.

      1. yeah – the duty element of beer seems to be a bit of a dark art – why is it not simple? I am trying to understand it… and failing

  10. Fabulously informative Steve ! Always ‘knew’ it was a challenge for Brewers, now that your figures have explained it I really do know. Thanks.
    Personally I usually prefer Cask, but have had some brilliant Keg. It’s about choice for me, I’m not a brewer, just a consumer, so want choice. As you say ” I care that it’s good”

    cheers,
    Jock

  11. Since you are charging VAT, I’m assuming you are VAT registered.

    It’s not my specialty, but can’t you reclaim the VAT back on your running costs and ingredients?

    1. We can indeed claim VAT back, but there isn’t VAT on ingredients and the figures for the running costs take VAT into account. VAT paid out is offset against the VAT that comes in, so each month we pay HMRC some money from VAT that we’ve charged.

      1. Ok, it’s just that you had a separate line for VAT in the expenses, which you then claim back.

        VAT is complicated!

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