Collaborative buying could bring economies of scale to small breweries

Sometimes it's good to be big. The bigger the order, the lower the price, so it goes, and the biggest producers get the upper hand. Based on this math, the big typically get bigger.

But the long tail of more than 300 Colorado breweries that aren't yet regional (with annual production of at least 15,000 barrels) might take a page out a cooperative's book in order to enjoy volume pricing on ingredients. Breweries that buy together might well grow together.

Mike Blandford of Denver's Declaration Brewing Company is working to bring that strategy off the drawing board. He's planning to install five grain silos on an adjacent property he's currently negotiating a lease on. "That's way more silo space we can go through on our own," he explains.

The solution: Share the surplus. Blandford says he's looking for partner breweries to effectively share the silos with and share the opportunity to save by making bigger orders. "It behooves all of us to have economies of scale," says Blandford. "So few breweries have production to justify it."

With bagged grain hovering around 60 cents a pound and bulk grain for 35 cents a pound, there's an opportunity to realize about 40 percent in savings. "You're saving a couple thousand a batch," says Blandford. "That adds up real quick."

And it's often a big enough jump to move a startup brewery's packaged sales from the red into the black.

After packaging costs, wholesale prices often barely cover the investment required for retail distribution. Some breweries might even take a loss. "Every last cent of that margin is gone and it's painful," says Blandford. "Without economies of scale in place as a small brewer, it's extremely difficult to get to where you're making money and you can grow."

By banding together in a famously cooperative industry, smaller breweries can leverage the same kind of buying power as a regional brewery.

"It's sort of a converging evolution for us," says Blandford. "It's a good enough idea people are at least thinking of it." He's got several interested breweries in his south Denver neighborhood. It's not a tough sell.

Blandford is also planning on a 1,000-square-foot cooler for hops. Declaration won't be ordering in volumes high enough to get bulk prices, but it should increase the brewery's priority level for in-demand strains.

As Declaration takes over the property next door, the plan is to launch a distributorship, Liberty Craft Beverage Company, and a bar, Liberty Hall. He might partner with other local breweries in the distribution business.

"All of the breweries that participate with Liberty will have priority with this supply operation," says Blandford.

But it's not purely about building a business, he adds: "It's also about building the craft community around us."

The plan calls for taking possession of the properties in March and launching the grain and other operations in the second half of 2017.

Eric Peterson is editor of CompanyWeek. Reach him at rambleusa@gmail.com.