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Costs, Quality And That Elusive Profit

So, whilst trawling through the internet in the dead of night, contemplating the inevitable round of annual price hikes from the major brewers, duty increases from our ‘pro Britain’ government and the general downturn in trade after Christmas, we stumbled across this great Blog post from Beer Nouveau of Manchester, called ‘Costs, Quality and that Elusive Profit’. So worthy is it of a read, that we thought we would copy it to our own Blog too, with full credit being given to it’s original author Steve. Have a read, visit their site and comment, it’s a great piece of work.

Beer Nouveau

“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

 

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.”

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