Contract brewing and packaging has long been commonplace in the world of beer. It can offer real, tangible, benefits for both the business offering such a service. It also offers flexibility to often newer beer brands as well as established names needing extra capacity. In this feature, we explore how forward-thinking producers are structuring their contract services, balancing partner needs with in-house brands, and turning spare stainless into sustainable profitability.

Over this series on contract brewing and packaging, we will look the range of areas to consider when offering these services, as well as the opportunities alongside potential pitfalls when working with other businesses. We will also shine the spotlight on those that chose to take the contract brewing route and why it was the right decision for them.

Fergus Fitzgerald is the head of production at Adams in Suffolk. The business offers brewing services as well as assistance on the selection of raw ingredients, through to the packaging and even the design. And for a business offering such a proposition, he says there are areas to consider when it comes to calculating an accurate cost of each hectolitre they brew.

“The starting point before doing any contract is to really understand your costs to brew and pack. It is often straightforward to see what costs are fixed and what are variable,” he explains. “But we all have cost elements that are both, and it takes work to really understand what that split really is, and how they are affected by batch size”.

The challenging cost conundrum
 
Fitzgerald adds that is easy to take on contract work that, on the face of it, is profitable but it can also drives costs that sit outside cost of goods that actually leave it costing you money. “You also need to have a cost structure that allows you some certainty on cost. Having a fixed energy price is far simpler than working on a volatile day rate,” he says.

In Suffolk, Hepworth Brewery, they offer a comprehensive contract brewing service designed to help brands create beer with precision, efficiency, and sustainability. Business founder Andy Hepworth says that accurate costing is “absolutely vital” due to the small margins contract brewers work under.

“In the countryside we burn fuel oil to generate steam and those costs vary daily so we have a clause that allows us to adjust the cost if it varies more than 5% in our contract,” says Hepworth. “We work on an open costing with our clients so they can see what our costs are and understand them.”

Utilities and how to use them

And at Renegade Brewery in Berkshire, the company has the ability to brew ale and lager in 60-240hl batches in addition to a raft of packaging types. Here, the business takes what it calls a “fully loaded costing approach” rather than relying solely on raw material and labour inputs. “Our costing models incorporate direct production costs alongside utilities, packaging costs, quality assurance, warehousing, and operational overheads,” says marketing manager Clare Candy.

She explains: “Utilities are one of the most variable inputs in brewing, so we continuously monitor actual consumption. This allows us to understand the true resource requirement of each production run and ensure our pricing remains sustainable and fair.

Rather than making decisions based on short-term fluctuations, Candy says, they focus on building long-term partnerships with customers, allowing predictable costing structures that reflect the realities of modern manufacturing.”

Why transparency is key

While transparency is key for both parties, the nature of production can also result in hidden operational expenses emerging. At Hepworth this has come about in the packaging side of their proposition.

“To be frank the biggest variable is packaging machinery down time caused by poor quality packaging materials supplied by the customer or if they were delivered late. We don’t buy other companies branded materials,” he says.

Neil Playfoot is a brewing consultant who says hidden expenses can often often occur after fermentation is complete. “With the advent of low-alcohol beers you have to be careful not to freeze the beer when put on cool. We keep it at a higher temp (4C) so there is less flocculation. You don’t want to be dumping too much beer to get clear beer later,” he says.

“Honestly good cellar management is needed otherwise it’s the quickest way to erode margins. As each litre of beer is so valuable.”

And at Adnams, Fitzgerald is more forthright. “Everything erodes margin!” he explains. “When we started contract brewing for customers we definitely underestimated the time resource needed, not just to set up but also the additional ongoing reporting and planning required. Every customer has their own requirements that need fitting into your brewery.” 

Fitzgerald adds: “Contract brewing costings often involve an assumption that you are utilising a fixed cost, but the reality is they take time to manage and whilst that salary might be fixed, that time spent on managing that contract could also be used to improve your own costs or process.

Can you afford to offer that capacity?

Some businesses operate established contract operations while others might look to utilise excess capacity by offering it to the trade. In this case, it’s important to understand what you can offer out, and what you can’t.

“As with any brewery, sales have peaks and troughs throughout the year. Vessel configuration, packaging capability, staffing structure, and customer requirements are all factors to be considered,” says Clare Candy at Renegade.

“In our experience, successful contract brewing is less about having a specific amount of spare capacity and more about having predictable available capacity. Reliability is critical for contract customers who need confidence that production slots will be available when required. Carefully considered forecasting facilitates this.”

And at Adnams, Fitzgerald says this forms part of a bigger picture. “We contract brew and distill because we have spare capacity. If we could profitably fill all our spare capacity with Adnams beer we absolutely would but the reality is the beer market we primarily sell into still likes choice, and as beautiful as it is to see a row of taps of Adnams, it is, and possibly should always be, a rare sight in the wild,” he says.

Fitzgerald concludes: “Once you really understand your own costs its also becomes obvious that there is a cost to developing and selling new beers, and whilst we love new beers and there will always be a need to have a seasonal offering, there is a limit to how many we do that don’t cannibalise and dilute margin.”