Early results from our reader survey (which you should take, maybe win some stuff) indicate that capital for startup and growth is the No. 1 pain point cited. I suppose this is obvious, but starting and growing a brewery requires a ton of capital. I’ll never forget Matt Cole’s face, brewmaster of Fat Head’s, when we were chatting about their huge expansion and he deadpanned “I’m going to be in debt for the rest of my life.” This was not a lament, really, just a statement of the facts. Growing a brewery the size of a Fat Head’s means getting a giant investment or accruing a ton of debt.
For those not at Fat Head’s size yet, the initial number might not be as eye-popping, but all brewery costs are scary, especially for an unknown. Contract brewing is one route to go that’s perhaps less scary at the outset, but let’s assume you really want that physical location, want to handle your own equipment and have a business model banking on taproom sales. What then? One financing method we have explored on the site is equipment financing.
In contrast to bank financing, equipment financing presents breweries with new ways to finance the equipment they need, while preserving necessary cash flow. By counting the equipment as collateral for the loan or lease, equipment financing offers some of the best interest rates and payment terms for any type of equipment, regardless of a borrower’s time in business or credit score.
For most of you, that will be your best option. But out in San Diego, a new business plan from Brewery Igniter has caught our eye.
Turnkey brewery locations to lease
Started by property management firm H.G. Fenton Co., Brewery Igniter doesn’t brew beer, but it wants to make breweries. The company makes the upfront investment in the brewhouse and installs it on site at the outset as part of its leasing proposition to potential startup breweries. For the brewery, this dramatically pushes down startup costs. Brewery Igniter has already built seven locations, many of which are in adjacent buildings to try and instantly create new brewery corridors. From the San Diego Reader:
Pure Project and Amplified Ale Works moved into the first pair in Miramar, while San Diego Brewing Company, Eppig Brewing, and Pariah Brewing Co. occupy the trio of spaces in North Park.
This is a really intriguing idea, but as that same Reader article notes, there are risks here too. What you save in startup investment, you pay in a much higher rent. Wiseguy Brewing Co., the focus of the Reader article, went out of business in under six months because the location didn’t bring in the foot traffic they anticipated within their business plan, and very quickly they could not keep up with the rent.
Gent declined to say how much Wiseguy paid in monthly rent, but conversations with other Brewery Igniter tenants suggest the brewhouse spaces range from $4.50 to $7 per square foot. By comparison, commercial properties in high-foot-traffic areas such as North Park and downtown San Diego typically lease for around $3 per square foot. The higher cost of the Brewery Igniter spaces reflect the additional costs of purchasing and installing 10-barrel brewhouses, which start at about $200,000 for equipment.
Have you seen this Brewery Igniter model in any other locations in the country? Would be interested in hearing those stories. In the meantime, for those interested in learning more about the equipment financing route, here are two articles worth reading: