Over the past few years, the brewpub concept has become one of the fastest growing restaurant trends across the country. Articles can be found in all of the industry trade magazines indicating brewpubs are on the rise. If a savvy restaurateur can marry fresh craft-brewed beer with a freshly-prepared food menu in an entertaining and fun atmosphere, a brewpub restaurant could be extremely successful.

From 1991 to 1995 the number of brewpubs opening increased by 224 percent. Nationally, 196 new brewpubs opened in 1995 and 208 brewpubs opened in 1996. In 1995 only 26 brewpubs closed and in 1996 only 21 brewpubs closed. Microbrew experts have indicated that demand for microbrews will continue to grow. The national market is still underdeveloped with plenty of room for growth. There are a total of 764 brewpubs across the United States. Most brewpubs are independently owned; however, a select few have become small chains (e.g. Hops Grill & Bar Microbrewery in Tampa and Rock Bottom Restaurants in Boulder).

The growth in brewpubs across the country may be attributed to the large growth in interest of craft brewed beer. Craft beer sales in 1995 were 3.7 million barrels which was a growth of 51 percent over sales in 1994. Production in craft beer has increased at a pace exceeding 30 percent annually for the past five years and does not appear to show any signs of declining in the future. Of all beer sales, the market share for craft beer in the United States was 2 percent in 1995 (up from 1.3 percent in 1994). The Institute for Brewing Studies estimates market share to be over 4 percent by the year 2000. The total United States brewpub industry annual dollar volume in 1995 was $276 million.

The unit economics involved in brewpubs may be another reason for their rapid development. There are extremely large profit margins on microbrews, which cost about $0.20 per 16-ounce glass to produce, including labor, and sell for up to $5.00 per glass. You could live with a 4 percent beverage cost, couldn't you? Some brewpubs are reporting returns of more than 45 percent and beer sales making up 75 percent or more of alcohol receipts.

According to the 1996 National Restaurant Association's Consumer Survey, brewpubs are most appealing to younger crowds. For the Under 34 age group, 70 percent of the respondents surveyed reported purchasing microbrew/locally-brewed beers. In the Over 55 year-old age group, only 40 percent purchased microbrew/locally-brewed beers. The report also indicated that more women are inclined to choose beer than in previous years and among those drinking beer, 5 out of 10 women choose micro beers. The survey revealed that 18.9 percent of consumers with incomes over $50,000 were ordering more microbrewed beers than they did in 1994. The recent trend of consumers choosing places for entertainment as well as for drinking and dining experiences may also contribute to brewpubs' popularity. Consumers want to eat, drink and be entertained all at the same time. The brewpub can fill these wants fairly easily.

So are you ready to invest in a brewpub restaurant? Beware of these caveats:

Growth in supply of microbrews and brewpubs

Because of the growth in interest and popularity in craft brewing, many entrepreneurs have expressed interest in microbreweries and brewpubs as well. In the Philadelphia area alone, there are almost 20 microbreweries, including brewpubs, that compete for business. These craft brews have mostly local distribution and have to compete with the two big boys of craft brews who shower marketing dollars nationally - Boston Beer, which makes Sam Adams and Pete's Brewing, which makes Pete's Wicked Ale. Boston Beer and Pete's also have a wide variety of beers to market to their customers.

Because of the large growth in this industry, expect some mergers and fallout. Some microbrews, such as Independence Brewing, have gone public to raise capital to help maintain production and bolster advertising and marketing.

Additional cost of equipment to produce craft beer

Sure, it doesn't cost much to produce craft beer from an operating standpoint (only $0.20 per 16-ounce glass), but 7- to 10-barrel brewing systems can cost in excess of $200,000 and take up a fair amount of space that could otherwise be used to generate revenue in a restaurant. However, these systems, if located favorably in the brewpub, can enhance its overall atmosphere.

Brewpub license limits your market

In Pennsylvania, if you open a brewpub and apply for a brewpub license, you are licensed to only serve the beer you brew on location - you can not serve liquor, wine or other types of beer. This could potentially limit your market - it may pay for you to apply for a full liquor license which is a little more expensive, especially where demand for liquor licenses is high.

Overall, we feel that if the concept of freshly-brewed beer is combined with a quality food menu in a fun and entertaining atmosphere, brewpub restaurants can continued to be a growing trend. For more information on brewpubs, contact us or the Institute for Brewing Studies located in Boulder, Colorado.