In the Pacific Northwest, craft beers, microbrews and local wines are highly celebrated and sought after. But if you work in the business then you know that local enthusiasm doesn’t make the brewing or winemaking business in Washington state or Oregon easy by any means.
This post explores some key trends that are shaping business realities for independent brewers and wine makers in the Pacific Northwest, along with some essential questions and tips for taking a brewery or winery to the next level.
Does this scenario sound familiar?
For years, you dreamed of starting your own winery or brewery, fueled by your passion for the beverage and the culture surrounding it. You worked hard at your day job and saved your money so that you could afford to get started… You wrote a business plan, took out a second mortgage on your home, perhaps raised money from friends, family members, or investors that shared your vision.
Now, several years in, you find yourself working insanely long days, doing everything from cleaning floors and tanks, to traveling and marketing, to overseeing daily operations and production, to accounting.
The day-to-day tasks add up so fast that you have almost no time to do anything else, like figuring out a growth strategy that will allow you to hire more help and expand operations.
If you can relate to this scenario, you’re not alone. Most startup businesses face these types of difficult circumstances at some point. As CFO service providers, we see it all the time. Yet the competitive landscapes in Washington and Oregon make careful planning essential to making it to the next level of business.
The winemaking landscape
If you’re a wine maker in Washington state or Oregon, then you know you’re in good company. Today, Oregon is home to more than 700 wineries and Washington state home to nearly 800, with more than 140 wineries, tasting rooms and wine bars in the Woodinville valley alone. But no matter where you are, the economics of running a profitable wine business are complicated. From dealing with fragile crops, to a time-intensive and complex production process, there are lots of opportunities to bleed money long before product is even ready to ship. Moreover, marketplace growth has increased competition for labor, contributing to a nearly 20 percent increase in farming costs in recent years. And then you must contend with distribution challenges and building awareness of your brand amongst thousands of other wines, as well as craft beer and craft cider labels.
The brewing landscape
The craft brewing markets in Oregon and Washington state are as hot as ever. With 305 craft breweries in 2015, Washington state has the second highest number craft breweries behind California. And Oregon is not far behind, ranking fourth in the nation with 228 craft breweries. So saying that the micro and craft brewery business is competitive is a huge understatement. Especially when you consider the nationwide growth of independent breweries coupled with pressures from the big-two beer makers for shelf space and market share. The reality is that even though craft and micro beer fans are often fiercely loyal to independent breweries, they have a lot of options to choose from, which makes it challenging to stay relevant.
Essential steps for getting to the next level
So, given competitive considerations and day-to-day management challenges how can you get ahead?
The big challenge is getting to the point where you’re dealing with enough volume that you can get some breathing room for yourself. For wineries, the tipping point is typically around 10,000 cases and for breweries around 5,000 barrels. Yet it’s also generally accepted that the maximum realistic growth rate for wineries and breweries is between 5,000 – 5,000 cases per year and 1,000 – 2,000 barrels respectively.
Bridging what may be a very sizable gap for your business may sound daunting, but it doesn’t have to be.
Make a plan
Getting to the next level starts with a good plan that will include similar elements from your original business plan (which likely hasn’t been updated for a long time). Your growth plan, however, should focus on growing revenue streams and break out all the associated efforts and costs. Here are a few essential questions that you must answer as part of the process:
What size and tier are you aiming for?
If you producing just enough wine or beer to satisfy local demand, then you need to decide what growth path makes the most sense for your business. For example, you could focus on distribution and try to get on store shelves, or you could focus on selling to restaurants to increase awareness of your brand and sales volumes. Or you could consider building out your facility to make it a destination, adding a restaurant, for example. If your winery has been outsourcing production, you could even consider building a production facility or plant.
How will you differentiate yourself?
Given all the local options, the more you can do to differentiate your offerings the better. Are you going to produce something unusual, varietals that are not typically seen on the market, or beers that no one else is brewing (gluten free, for example)? What are the costs and challenges of taking this on – do you have ready access to the grapes or specialized hops or malts you’ll need?
How will you pay for it?
Financing is also a critical consideration. SBA Loans or Farmer Mac loans may be available for specific projects, or you may be able to attract new investors. Either way, it’s important to outline how you will pay them back in light of the ultimate exit strategy you are aiming for.
Get some help
While figuring things out along the way may make sense in the early stages of a winery or brewery, there is a lot more at stake with growth efforts. Errors can cost critical momentum, and might even derail your goal of growing to the next level, or worse. That’s why now is a good time to tap outside CFO consulting services, like vcfo, that have a clear understanding of the financial pitfalls and traps you will likely face and how to avoid them. After all, a smooth growth trajectory is not only essential to helping restore sanity to your life, it also looks good to potential investors or acquirers down the road.
Michael Scheaffer is a Consulting CFO for vcfo Seattle. As a top financial consulting and HR consulting firm, vcfo provides contract CFO and CFO Consulting services, HR outsourcing and interim HR services. Additionally, we provide technology strategies consulting and cost-effective recruiting solutions. Whether you seek part-time, interim, project-based or full-time support, vcfo’s customizable engagement model will fit your specific business needs.