Even More $1000 A Barrel Beer?
Art Vandelay responded to our last missive: "I just read your latest missive Naybob...well done again. It looks like the $1,000/barrel claim is BS, which I'm happy to hear... I still don't understand your claim that "$1,000/barrel does not render a profitable business model". That $1,000/barrel is based on annual production, not total production."
Art gives an example of buying a brewery where he purchases for $10K and nets $400 or 4% per year. Thank you Art, and yes of course, you hand me $10K and I will hand you $400 per year, no problem, I am all over that deal, all day long....
Seriously though Art, we are in it for the long haul and you bought the production in perpetuity with expansion and scales of economy in mind.
Do you realistically think that any brewpub would pay .30 to .60 cents much less $3.13 per 12 oz glass (breakeven for $1000 bbl purchase price) when there are price elastic substitutes with much greater margin to be had at the tap?
So, if you are selling at .30 cents (which gets us back into the $100 bbl zone and gets Mr. Brewpub's pour costs where they need to be, if he is going to survive), and prices rise at a constant, you will still be waiting 10 years plus (don't forget for every year of production, the variations in production costs, sales costs, other overhead, expansion costs etc) to recoup your initial investment.
For this kind of ROI on capital, restaurants come to mind. Oh wait a minute isn't that a brew pub by another name?
According to the National Restaurant Association 30% of new restaurants fail in the first year, and of those that survive, another 30% close in the next 2 years. Failure factors include, under capitalized, lack of experience and competitive landscape.
Bottom line, IMO these macro's acquiring craft brewers at $300 to $500 per barrel, are overpaying now for speculative future streams and therefore, although eventually it may be profitable, its not a good ROI and as such, it's malinvestment and not a good business model. Like you said, you could buy a bond and do better.
Art gives an example of buying a brewery where he purchases for $10K and nets $400 or 4% per year. Thank you Art, and yes of course, you hand me $10K and I will hand you $400 per year, no problem, I am all over that deal, all day long....
Seriously though Art, we are in it for the long haul and you bought the production in perpetuity with expansion and scales of economy in mind.
Do you realistically think that any brewpub would pay .30 to .60 cents much less $3.13 per 12 oz glass (breakeven for $1000 bbl purchase price) when there are price elastic substitutes with much greater margin to be had at the tap?
So, if you are selling at .30 cents (which gets us back into the $100 bbl zone and gets Mr. Brewpub's pour costs where they need to be, if he is going to survive), and prices rise at a constant, you will still be waiting 10 years plus (don't forget for every year of production, the variations in production costs, sales costs, other overhead, expansion costs etc) to recoup your initial investment.
For this kind of ROI on capital, restaurants come to mind. Oh wait a minute isn't that a brew pub by another name?
According to the National Restaurant Association 30% of new restaurants fail in the first year, and of those that survive, another 30% close in the next 2 years. Failure factors include, under capitalized, lack of experience and competitive landscape.
Bottom line, IMO these macro's acquiring craft brewers at $300 to $500 per barrel, are overpaying now for speculative future streams and therefore, although eventually it may be profitable, its not a good ROI and as such, it's malinvestment and not a good business model. Like you said, you could buy a bond and do better.
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