Sharing a brewery with another beer company

Why companies share a brewery

A host brewery often has unused tank time, especially in the first years. A newer beer company has a brand and a recipe but no plant. Putting the two together can lift the host's utilisation and give the newcomer a way to reach market with less capital.

The idea sounds easy. In practice it involves licences, quality, money and trust, each of which needs a written answer before the first brew.

Check the licence position first

Alcohol is regulated by the states. Whether a second company may brew on a licensed brewery's premises, under whose licence and with what records, differs by state and changes. Some states have clear rules for contract production. Others have none. Ask the state excise office or a licensing adviser before you draft a contract.

Key questions include who holds the licence for the beer, who files excise returns, whose name is on the label and how the stocks are recorded. In some countries, a model called alternating proprietorship lets licensed businesses share one site. Whether anything similar is available in your state is a question for your adviser, not for this guide.

Choose the model

Three broad models exist.

• Contract brewing: the host brews your recipe for a fee per litre. You own the brand and the host runs production.
• Tenant brewing: you brew your own beer on the host's equipment, paying for tank time and utilities.
• Joint venture: both parties form a new business together and share profit.

The first is the simplest. The second gives you more control and more responsibility. The third needs the most legal work. Our guide on company, LLP or partnership explains the structures that suit a joint venture.

What the agreement must cover

Use a lawyer. A good agreement settles:

• Recipes and ownership: who owns each recipe and what happens to it if you part ways?
• Quality: specifications, testing, who releases the beer and what happens to failed batches?
• Tank time: how many days on which fermenters? What if a batch runs long?
• Raw materials: who buys, stores and counts malt and hops?
• Cost split: what is the fixed charge, what is the variable charge and how is each calculated?
• Records and audit: who can see the production logs and stock records?
• Liability and insurance: who pays if a batch causes harm?
• Exit: what notice applies and what happens to stock and equipment at the end?

Splitting the cost fairly

A common method is to charge by litre. Total the brewery's yearly fixed costs and divide by planned litres to get a fixed charge per litre. Add the variable cost of the guest's beer: ingredients, gas, water and cleaning. Then add a margin for the host's capital and risk.

Here is an illustration with made up numbers. Fixed costs of ₹30,00,000 over 60,000 litres of planned output give ₹50 a litre. Variable cost of ₹80 a litre brings the base to ₹130. A 15% margin adds ₹19.50, so the fee is ₹149.50 a litre. Replace each figure with your own and agree how the fee changes if volume falls.

Quality and reputation

Two brands in one brewery share the same drains, hoses and yeast room. A contamination in one beer can ruin the other. Agree a cleaning standard, separate yeast handling and a record of every brew. Taste each other's beer before release, using the same sensory notes. A shared brewery works when both sides are honest about a bad batch early.

Start with a trial batch

Before you sign a long agreement, run one trial brew under a short letter of understanding. Watch how the host treats your recipe, how the two teams talk, how the paperwork flows and how the cost compares with your estimate. A trial costs one batch. A bad long contract costs far more. Use what you learn to tighten the final terms.

Plan the exit as well as the start

Every arrangement ends. Decide in advance how long the agreement runs, how either side can leave and what happens to inventory and equipment. Put the brand, the recipe and customer lists in the right hands. A clean exit protects the friendship, which is the real asset in a small industry. Our guide to writing a brewery business plan helps you test whether a shared model fits your numbers.

Costing, contracts and cash planning for a shared plant are part of our Brewery Business Management course.

Common questions

Can two companies brew in one licensed brewery in India?

It depends on the state and licence terms. Ask the excise office or a licensing adviser before agreeing anything.

How should shared brewery costs be split?

A common method is a fixed charge per litre plus the variable cost of the guest's beer and a margin for the host. Agree how the fee changes if volume changes.

Who owns the recipe in contract brewing?

That is set in the agreement. Write down ownership and what happens if the arrangement ends.