How to start a beverage business
Have a terrific business idea for a great new drinks brand? Read this step-by-step guide which covers all the basics to starting a beverage business...
Things to think about when starting a drinks business are:
What drinks business opportunities are there?
The UK beverage market has plenty of established players but that's not to say that it's immune to innovation and change, which is why there's a great opportunity to be had if you want to start a drinks brand.
In fact, many businesses have launched recently with unique business models, new approaches and some downright crazy ideas for drinks which are going some way to transforming the way we see the sector.
Take pioneering beverage developer Brainwave Drinks Ltd. for example. Founded by Richard Baister, named a Young Gun in 2012 as the creator of calorie burning drinks brand SUMO Drinks, Brainwave Drinks has two distinct offerings: Brainwave; claimed to be the world’s first drink to combat cognitive decline and ProWater; a high protein water brand.
However, your beverage business doesn’t have to be at the cutting edge of science to stand out as Startups Awards 2016 finalist Pinkster Gin demonstrates. Pinkster is an artisan gin brand made with British raspberries to give it unique pink colouring and taste.
Founder of Pinkster Gin, Will Holt, explains: “Over 95% of traditional gins are clear. Ours is pink because it's produced with fresh raspberries. This disruptive approach and quirky branding has given us colossal stand-out in a highly competitive marketplace”.
Or, as in the case of Ken Graham, founder of Soda Folk, it might be the case that you launch a beverage business inspired by travel. Graham started his business for a taste of home: “If you can find a “problem” to solve within the business, then you might be suited to being a beverage entrepreneur. In my case, I wasn’t able to find good American-style root beer when I moved to London from the USA, a problem I managed to solve by starting Soda Folk”.
The beverage market is “highly competitive” warns founder of Virtue Energy Water Rahi Daneshmand. His range of “positive energy” drinks contains zero sugar, calories and sweeteners and only uses natural sources of energy from yerba maté, guarana and ginseng.
Daneshmand adds that while “it will involve a lot of persistence and determination to break” into the drinks sector, “a beverage business is suited to anyone who is passionate about creating new drinks and improving consumer’s lifestyles through the development of their brand”.
If this sounds like you, read on to find out how to create the perfect business plan for your beverage brand…
What should you include in a beverage business plan?
As with any business, taking some time to create a thorough business plan which details everything from your ambitions to your financials and marketing strategy, will put you in good stead to succeed. Downloand your free business plan template here.
Brainwave’s COO Nik Hrstic offers up a checklist of what to include in your business plan:
- Start with “a vision for the business”- “[Your business plan should be a] living, relevant document that management use to measure themselves against – and [it should] be updated to take into account actual performance and market conditions”
- You should also include profiles of your management team, with “their credentials and history in the sector and their empathy with the products sold”
- If you intend to grow your business successfully then funding is essential; a realistic business plan is a good tool for attracting investors. Hrstic says it’s not enough to include your sales revenues, margins, profit and loss and balance sheet for at least three to five years. Instead, the most important thing to explain is “how these numbers will be achieved in detail – because a bank lender or individual investor will hold management to account for them”.
Hrstic advises that you also include: “Products pipeline, sales & marketing, operations and everything that happens in the cycle between a customer ordering and the business collecting cash”, as well as “where the cash goes” and resources needed in the business such as the individuals with appropriate skills required to make the business plan achievable. This could be anything from accounting to legal professionals and everything in between.
Soda Folk's Graham says a number of successful beverage businesses have published their business plans online, which you can access and use to guide and inform your own like this for example. In Graham's case, reading available business plans alerted him to things he may have otherwise missed.
Most significantly it was that “large customers such as grocery multiples and major distributors might have listing fees and compulsory promotions that can run into the thousands of pounds. If you’re hoping to land those kinds of customers, you’d better account for those expenses beforehand”.
Virtue Energy Water's Daneshmand gives a concise overview of what a beverage business plan should look like, saying it should include: “the uniqueness of your beverage, the current market offerings, your plan to market your drinks, your sales strategy and the team you will hire”.
Holt’s advice is to include “the kitchen sink”and he says that, for Pinkster Gin, it was essential to detail the company’s export strategy as 70% of UK gin is exported. Holt's three year-old brand already exports to Australia, the USA and Ireland and has recently raised a £1m crowdfunding round to expand into Germany.
While you will certainly discover some useful information by researching other business plans and including the essentials above, a business plan is a document that is unique to every enterprise – every path to success will be different and there’s no one size fits all strategy.
Draft a clear and compelling mission statement for your beverage business that you and your team can get behind and work towards and you won’t go far wrong.
So you’ve written a fool-proof business plan for your exciting new drinks brand and you’re ready to start brewing, mixing and testing your wonderful beverages. But wait – there’s another hurdle to contend with: red tape…
Rules and regulations for starting a beverage business
If you choose to start an alcoholic drinks business then you're going to be at the mercy of far more rules and regulations than if you started a non-alcholic drinks brand as Holt can attest to: “Given we're dealing with alcohol there are all sort of excise complications and we spend a considerable amount of time dealing with HMRC, so finding a competent tax adviser is essential. Also, there's no shortage of health and safety issues to contend with.”
However, even drinks in the health sector aren’t immune to the burden of legislation – especially when the brand is trading on a health-giving property. Brainwave Drinks' Baister explains: “A lot of healthier drinks wish to make a claim about their function.
“In that case it's very important to be aware of the laws concerning which claims can and cannot be made and how these have to be expressed, both on packaging and in other marketing materials.”
Soda Folk's Graham echoes Baister's comments and says it's important to remember to comply with the rules established by the Food Standards Agency “which has numerous guidelines about labelling, ingredient safety, and health claims”.
According to Virtue Energy Water's Daneshmand, starting a beverage business will expose you to no more rules and regulations than the “vast majority of businesses”. However, it's the manufacture and sale of your products where you’ll find “a whole host of rules and regulations” including “ensuring your manufacturing site has all the correct health & safety legislation and making sure your drinks are safe for human consumption”.
Once you’ve got legislation out of the way, it’s time to start thinking about the costs of starting your own drinks brand. Read on to find out how to budget wisely…
How much does it cost to start a beverage business?
Once you've created your business plan, you should have a relative idea of what your start-up costs are going to be – although costs are going to vary wildly for different businesses. When establishing initial costs, you can afford to be thrifty and make sure to budget for unforeseen circumstances.
To avoid spiralling costs and unnecessary expenditure at the start, take it slow. Soda Folk's Graham asserts that it’s possible to get started with “very little capital” and that you can start out from home.
After experimenting with recipes and ideas in the safety of your kitchen, make use of “friends, co-workers and any adventurous soul whom you think will give you honest feedback”.
Once you’ve canvased views and get “rave reviews”, Graham says that's when it’s time to test the product on a broader audience by “setting up a stall at a food festival or farmers market and selling your drinks directly to the public”. You can also start to target local shops and restaurants “whose invoices can help you finance your first commercial batch”.
“At this stage, you’ve probably not yet spent more than a couple of hundred pounds for ingredients and bottles”, suggests Graham, “and you’re already well on your way to success”. Whatever you do, Graham concludes: do not spend a bunch of money canning or bottling a large batch before you have some good-sized customers who have committed to buying your product!”
As Virtue Energy Water's Daneshmand points out, your start-up costs will largely “vary on your plans” – which will have been carefully laid out in your business plan – and “how quickly you intend to pick up momentum and your overall business ambitions”.
In contrast to Graham, Daneshmand suggests that an initial outlay of £200,000 “would be sufficient” to launch a business in the beverages sector, but points out that “many businesses raise more than this and some launch with less”.
Daneshmand adds that the costs associated with starting a beverage business are different to starting a tech businesss as “minimum production runs are relatively high for most packaging formats, so it is difficult to test with a lean start-up methodology”. On a brighter note however, he says that “nowadays there are more options in manufacturing where you can do smaller runs to test your concept before going into a full scale production run”.
Whatever you budget for your drinks brand, remember to only spend on the absolute essentials at the beginning and carefully manage your cash flow to successfully manage your growth.
So you’ve tested your product and you think it’s got great commercial potential – but how much money is your drinks brand going to make?
How much can you earn running your own beverage business?
The amount you earn from your beverage business is going to ultimately come down to your own ambitions, drive and imagination. More niche products and ideas have a smaller market appeal, while others can grow to become globally recognised brands.
“It helps if your brand has a great story” says Soda Folk's Graham: “In the early days of Soda Folk, I managed to get attention from buyers and the press because I was a homesick American who started a company to satisfy my root beer cravings. A delicious recipe, great packaging, and a creative product idea are all important, but your story is what will really help set you apart” and drive sales.
It’s also advisable to “pay yourself as little as possible” in the early stages of running a beverages business. “To help your business grow quickly, invest any early profit back into the company. If you’re expecting to make a mint in a few short years, you’re likely to be disappointed” continues Graham.
To get the word out about your brand and make some early sales, “go to where you think your customers might be and give them the chance to taste your products”. This could be a more formal event such as pouring samples for a stockist’s shoppers or handing out bottles to your friends at a house party.
Doing this, Graham explains, “gives you the chance to get to know your customers personally, share your story, and build a real connection. If you find a small, devoted following, they’ll help you grow your customer base via social media and word of mouth, and before long, you’ll have a whole army of passionate fans”.
Pinkster’s Holt agrees. Holt recommends that if you want to build your customer base and grow revenues “seize any cost-effective marketing approach, be visible on social media, forge brand partnerships and be fleet-of-foot”. He adds that this is “not always as simple as it sounds…”.
In the opinion of Virtue Energy Water founder Daneshmand, any returns “will depend on your financial situation and whether you need, or would like to pay yourself, a significant wage”. He shares Graham’s view about reinvesting instead of taking a salary: “If you are focusing on growth and momentum you will not be able to pay yourself an attractive salary unless you are hitting significant revenue levels”.
We’ll let Pinkster’s Holt have the last word on the earning potential of setting up a beverages business: “Get it right and the world's your oyster. Look at the phenomenal success of the team at Fever Tree with their range of premium tonics and mixers. A modern day success story of some significance”.
- The Food Standards Agency (FSA): The UK government body responsible for protecting public health in relation to food
- The British Soft Drinks Association (BSDA): Represents UK producers of soft drinks, including carbonated drinks, still and dilutable drinks, fruit juices and bottled waters including the majority of Britain’s soft drinks manufacturers as well as franchisors, importers and suppliers
- Ampulla: Manufactures and sells a variety of plastic, glass and aluminium packaging
- The beverages market is heavily saturated – Stand out with a quirky idea, unique branding, or a great story
- When writing your business plan, it’s not enough to detail your financials, establish how you are going to achieve them
- Make sure your product complies with the FSA’s guidelines on labelling, ingredient safety and health claim
- Ask friends, co-workers and family for honest feedback on your product before blowing a load of your budget on a large batch
- Reinvest all your initial profits into growing the business and have a long-term view; don't expect to make a lot of money overnight