Analysis of Common Reasons for Brewery Failure

Insufficient Funding

Funds are the fuel that fuels brewery operations. When cash flow is disrupted, the business faces the risk of failure.

Five cash flow drivers require special attention:

• Accounts receivable management

• Inventory management

• Accounts payable management

• Capital expenditure control

• Operating performance (profit)

Lack of business expertise

Many brewery owners enter the industry out of a love for brewing and drinking beer.

But successfully running a brewery requires:

• Strategic planning skills

• Financial tracking skills

• Practical business skills (especially during tough economic times)

Slowing Growth and Intensifying Competition

• The craft beer industry experienced a period of rapid growth (e.g., over 300 new microbreweries opened in the US between 2013 and 2014).

• Although annual growth has slowed from double digits in recent years, nearly 600 new breweries still open annually.

• The changing market environment poses a severe challenge to breweries that are underfunded, overexpanded, or lack the ability to adapt.

Overexpansion Risk

Common expansion problems include:

• Excessive borrowing or excessive consumption of investor equity

• Expanding too quickly

• Beer quality issues

• Poor management

Small breweries typically operate on thin profit margins, which, after reinvesting profits in growth and expansion, leave little room for error or unexpected events.

Lack of Brand Awareness

• A strong brand voice and recognition are crucial to the success of a new beer business.

• Building a brand requires time, thought, and effort.

• Brewery owners need a deep understanding of their brand's values and mission, which can differentiate them from the competition.

Lack of a buffer against unexpected events.

• Small breweries operate on slim margins, and when expanding, they often lack a buffer against unexpected events (such as a landlord raising rent).

• Build in room for unexpected situations.

Lack of a business plan

• No business plan means a lack of organization.

• Lack of organization can lead to projects spinning out of control and running under budget.

• The craft beer industry is capital-intensive, and a detailed business plan helps:

1. Plan startup costs.

2. Align expectations with affordability.

Inadequate Expansion Project Evaluation

Before making a major capital expenditure (such as purchasing a bottling line), it's important to:

• Throughly test the project's feasibility.

• If the evaluation results are favorable, it can enhance competitiveness.

• If the evaluation results are unfavorable, the idea should be abandoned.

This article comprehensively analyzes the major challenges and failures faced by craft breweries, providing valuable lessons and risk warnings for those preparing to enter or already operating in the industry.