Brewery contract: Your support for the start-up in gastronomy

It is the dream of many people - to open their own restaurant, bar or café. But many preparations have to be made before the business can get started. Opening a restaurant requires the right property, an equipped kitchen, cozy and stylish dining rooms, trained staff, the design of a food and drink menu and much more. This adds up to a lot, which of course has to be paid for. So starting up in the restaurant business is definitely one thing: expensive.

Before you take the plunge into self-employment, you should find out about the options for obtaining financial support for your start-up. In addition to bank and personal loans, there is also the option of being supported by a brewery - with a so-called brewery contract. In this article, you can find out what a brewery contract is and what advantages and disadvantages it offers you as the founder of a gastronomic business.

What financing options do I have for starting a restaurant business?

If you want to start a restaurant business, you need to have a clear idea and a plan. You should calculate your budget in advance and write a business plan. Ideally, such a plan should include your business idea, target group, marketing strategies, operating costs, sales forecasts and your various financing options. It is important that you have a certain amount of capital of your own to fulfill your dream. In order to have enough budget available, you can also combine the following financing options.

You have these financing options for starting up in the catering industry:

• Bank loans
• personal loans
• Brewery contract
• Leasing and installment payments
• Equity capital

Gastro financing via a brewery contract

Would you like financial support for your restaurant start-up and want to offer beer in your business without investing in expensive brewery equipment? This is where the brewery contract comes into play.

But what exactly is a brewery contract?

It is a legal agreement between a brewery and a company that wants to be financially supported and sell beer. Businesses that enter into a brewery contract are most often pubs. In simple terms, when you enter into and sign a brewery contract, the brewery you choose supports you financially and in return you serve the brewery's beer to guests in your establishment. A brewery contract is therefore a give and take between a brewery and a company. This gives smaller businesses in particular the opportunity to tap high-quality beer without having to buy expensive equipment. But beware: depending on the terms of the contract, you may have to repay the loan to the brewery.

💡 With a brewery contract, a brewery supports you in financing your restaurant start-up. In return, you serve the brewery's beer.

Now you know what a brewery contract is, but what exactly does it say?

What is regulated in a brewery contract?

Like any legal decision, a brewery contract should be well thought out and both parties should benefit from the agreement. A brewery contract sets out everything important that describes the business relationship and agreements between the company and the brewery. On the side of the brewery, this includes the purchase quantity, correct production, delivery times, quality assurance, prices and an exclusivity clause for the beer. On the brewery's side, it is regulated how high the starting capital should be, what equipment is provided and whether there is an advertising subsidy.

Sounds great at first, doesn't it? As a restaurateur, it is important that you weigh up whether your benefits are in balance with those of the brewery and whether you want to enter into a long-term partnership before signing such a contract.

What types of brewery contract are there?

A brewery contract can look different depending on the brewery and contain different conditions. We'll show you various models of brewery contract to give you a good overview:

Exclusive tie-in contract

As a restaurateur, the model of the exclusive tie-in contract in the form of a brewery contract stipulates that you may only purchase beer from your contractual partner brewery and serve it to your guests. This means that you can only offer your guests beer brands and types of beer from the brewery.

Partial tie-in contract

As the name suggests, in this model of brewery contract you are only partially bound to the brewery with which you conclude the contract. This means you can also offer and serve beer from other brands in your establishment.

Supply and loan agreement

A supply contract stipulates that the brewery supplies its beer to the contracting company and on what terms. In addition to the beer provided, a loan agreement can also stipulate that the brewery provides inventory or counters, for example, which the company must return at the end of the contract.

Cooperation agreement

A cooperation agreement sets out jointly planned events and marketing campaigns between the brewery and the company and what the respective parties stand to gain from them.

💡 Depending on the type of brewery contract, you may then only offer the brewery's beer or also other producers. The brewery can also lend you certain dispensing equipment, which you must return at the end of the contract.

What does a brewery contract cost?

A brewery contract is primarily there to provide you with financial support for your business in the hospitality industry. However, this contract is not free of charge. Even if you receive a loan from the brewery, you will normally have to pay it back. The costs you incur can vary greatly depending on the brewery and agreements.

This is how the costs of a brewery contract are made up:

• Brewing fees - i.e. the money a brewery charges for the brewing process
• Packaging costs - in the event that the brewery also takes care of packaging the beer
• Raw material fees - for malt, hops and yeast
• Storage costs - if you cannot store the beer in your own company
• License fees - for the brand of the contractual partner

To avoid any surprises, you need to record everything in the contract and calculate everything beforehand. The conditions should be fair for you and the brewery and the partnership must be worthwhile.

💡 The brewery contract means you don't get the beer on the house straight away. Costs for production, packaging, logistics and licenses are still incurred and must be factored in.

How do you get a brewery contract?

Make a list of breweries that you are considering for a brewery contract and research their contact details so that you can apply for funding. You can also approach breweries via industry events such as trade fairs. Some breweries, such as Krombacher and the Bitburger Brewery Group, offer online forms that you can fill out and submit directly.

What a financing application for a brewery contract includes:

• Information about yourself/your company
• The type of financing and what financing requirements you have
• The desired term and type of contract
• How long you have been an operator
• The type of investment
• Details of your company/business (address, size)
• The desired type of beer (keg or bottle)
• The purchase quantity

What do I need to consider with a brewery contract?

A brewery contract sounds great at first. Before you sign and enter into such a contract, you should be aware of the advantages and disadvantages for you as a founder and weigh up whether a brewery contract is worthwhile for you or whether you can fall back on other financing options.

You first need to be clear about why breweries enter into brewery contracts in the first place. Cooperation with different companies from the hospitality industry can be an additional source of income for breweries. You don't just use the brewery's beer and promotional items. Normally, you will receive start-up capital to work with, but in most cases you will have to pay it back. In addition, you commit to a minimum purchase quantity of the brewery's beer. For these reasons, it is important that the terms of the contract are negotiated and set out in detail.

Pay attention to the following points before signing a brewery contract:

• Record the brewery's scope of supply and your consideration precisely.
• Make sure there are clear rules on termination and the minimum term.
• Protect yourself and make sure that you can adjust the conditions if there are changes in your company.
• Clarify what happens in the event of a breach of contract.

Advantages and disadvantages of a brewery contract at a glance

That was a lot of information up to this point. To help you keep track, we'll summarize the advantages and disadvantages of a brewery contract for you at a glance:

The advantages of a brewery contract:

• You receive financial support and start-up assistance and can count on equipment from the brewery.
• The brewery usually takes care of the delivery of the beer.
• If it is stipulated in the contract, you will receive an advertising subsidy from the brewery and will therefore be supported with the costs of glasses, ashtrays, parasols and similar items.
• The brewery often gives you free promotional items.

The disadvantages of a brewery contract:

• You are contractually bound to many conditions for the long term.
• With an exclusive contract, you are obliged to only serve the beer of your contract brewery and are therefore limited in the variety of products you can offer.
• You are tied to the brewery's prices. As a result, you may have to sell the beer at a higher price than your competitors do.
• You need to know and determine the minimum purchase quantity of the beer from the outset.
• You often have to repay the loan.

💡 A brewery contract can make financing much easier for you and provide support for events. However, depending on the contract, you may only be allowed to offer beer from one brewery and have to repay any loans you have been given.

As you can see, a brewery contract does not only have advantages. It is therefore important that you compare offers from different breweries and go through all your options before signing a contract.

Need help deciding on a brewery contract?

The German Hotel and Restaurant Association(DEHOGA) provides business consultants who can help you with your decision. You can contact the consultants via the respective regional association by phone or email. You can find more information on the relevant website.

You can read more about DEHOGA and the association's tasks in our magazine article.

How you can terminate your brewery contract

In principle, you and your partner brewery must stipulate the minimum term, the possible reasons for termination and a notice period in the brewery contract. According to § 314 BGB, extraordinary termination of a brewery contract is possible if good cause is given. Examples of such a reason are Misconduct, defects in the goods and breaches of regulations.

A brewery contract must be well thought out

You now have all the information you need and hopefully the decision for or against a brewery contract will be easier than before. It is important that you invest enough time in your deliberations, take care of everything carefully and plan ahead. If you decide on a brewery contract as a financing option for your company, choose the brewery that suits you and negotiate your requirements. Clear communication is essential for a long-term and functioning partnership with a brewery, as this is the only way you will be successful together.

(Image source: unsplash.com)