The Sanity of Math and the numbers to survival

[tuumi]

But....If you read any business book 101, you will find that the mead 'industry' is creating it's own demand by pounding the pavement. It is EXTREMELY difficult (read expensive) to educate a market about a new product. That is why most (Even micro sized) wineries do not create mead, they don't have the time to educate the market.

However, I am not a baker, or an auto-mechanic, so mead making is what I do even if it means climbing the steepest slope on the hill.

As to whether we have customers, I'll be lucky to sell 10 cases a month in 10-15 stores (while we do tastings and other events at those same stores). We create our own niche and demand (sounds like Brad is still doing this too, to the benefit of ALL of us in the business and the hobby!)

My question was finance related but I didn't explain why I asked it so I'll create a situation to explain. Lets start with a calendar and exclude equipment and building expenses:
January
Batch #1
$1200 spent in honey/fruit.
February
Batch #1 goes into secondary
March
Batch #2
$1200 spent on honey/fruit
April
Batch #2 goes into secondary
May
Batch #3
$1200 spent on honey/fruit
June
Batch #3 goes into secondary
Batch #1 into bottles
$1500 spent on bottling materials
July
Batch #4
$1200 Spent on honey/fruit
August
Batch #4 goes into secondary
Batch #2 into bottles
$1500 spent on bottling materials
September
Batch #5
$1200 in honey/fruit
October
Batch #5 goes into secondary
Batch #3 into bottles
$1500 spent on bottling materials
November
Batch #6
$1200 spent on honey/fruit
December
Batch #6 goes into secondary
Batch #4 into bottles
$1500 spent on bottling materials

And so on for the following year.

In August the first batch would be six months old and hopefully ready for sale. At that point there would be some income that would offset the cost of production. So to get to August before any money comes in $8000ish (plus equipment) would be needed.

Now here is where the demand part comes in. I'll have to redo my math to double check but that would be 750bottles/batch. Now wouldn't it be great to have that sold quickly to sustain the cycle and not have to dip into savings? This is were my questions about demand come in and it's probably not something someone can really answer. You have to analyze your own market and take a gamble. I imagine the life of a meadmaker is 10% making mead and 90% hitting the pavement and hustling.

I think starting small and increasing production as the market for your product grows goes would be the way to go. Bigger is more efficient but 1.) It's not an option for some 2.) why go big when you may not sell enough to fund new batches? Bigger batches =more money in honey/bottles. Yeah they'll eventually get sold (and better with age) but it's a lot of money tied up in equipment and mead sitting on the floor. Make what you can sell and upgrade as you grow.

 

[SpamDog]

As is mentioned before thanks for being willing to share this info and for answering all our questions.

The questions that I have had little success in finding answers for is this, What are your costs in regards to licensing? IE what does TTB charge you per year to keep your lic. What are your state fees like (I know every state is different) also, do you have to have every label approved (either/both fed and state) or every batch/recipe approved(fed and state) do you have to send samples away to be tested for alcohol content or other tests, and what are the costs associated with this.

And last, and most important, where can we buy your products? I make it to Mass every few months and would love to taste your meads as well as support a fellow mead maker.

SpamDog

 

[IanB]

Hmm, best answer I can give

Tummi...
You are WAY over-simplifying it and not accounting for the time you have available. Let's say you still work your 40 hr job. (and it is only 40 hours) Let's assume you don't have a family who wants to spend anytime with you (not me, but let's keep it simple). Then let's assume you have a 'free' place to make mead (HIGHLY unlikely).

You can not discount equipment because it is a large amount of money, but more importantly it dictates how much mead you can make and in what equipment. In your summary, you would have three batches going on at any one-time. This means you need at least 4 or 5 containers that can hold your 1200$ worth of mead, (maybe they are 55 gallon buckets, I don't know). But you need the equipment first, and you can't just go down and buy this stuff at wine supply R US. You need to order it, 6 weeks lead time. Then it arrives, you need to move it to your winery (we'll assume you have a truck, or you get it delivered freight) the list goes on and on with ingredients of this size. How do you pick it up, warm it up if it is crystalized and winter (need more equipment) order your yeast, nutrients etc.

Also, in your summary you are not accounting for your time. To sanitize, stage equipment, pitch yeast, monitor your fermentation for the first 48 hrs, and be ready for the secondary with the right equipment it is probably 30 hrs of time (that is at least an hour every day for a month ish) then you need to monitor the mead over the next month you need to be ready to put in that kind of time again.

If you want to also bottle, it takes about 10 hours to bottle and label (8 weeks lead time on label and formula approval) a batch that size, and you would be doing it every 3 ish months if you are on schedule. Basically, your plan is in the 'middle zone' to big to manage easily, and to small to make any real money without doing the same work and clean-up and break-down of equipment over and over again every month. Trust me, you won't want to do this. (unless this is your full-time thing)

My way isn't for everyone, but I encourage you to think more 'whole' when determine effort. Do you have this kind of time to execute this plan, if you don't, then wait till you have more money so you don't spend all your valuable time at the Meadery 'doing' stuff rather than building your brand.

One last thing, Let's put it this way, to get the designer and the approval and the labels, and the printer to all co-operate to get our labels printed, took about 80 hours total. That is a full 2 weeks worth of work, spread out over 10 weeks (I am not full time) imagine if you needed more than three labels (like we did) small print runs cost WAY more money than larger runs but still cost the same in time and effort so it is a loose loose. Size matters.

 

[IanB]

Spamdog

Licensing for me is about 500$ a year (insurance bonds is included in that and is required for licensing). 22$ is my state license (farmer winery though) and there isn't any 'cost' for the federal license but the mailing of the forms postage cost. You do however need to get your insurance which is about 120 for feds and 160 for my state for my Bonded winery. If you don't know what I am talking about look up Bonded Winery.

Licensing is cheap, the cost is in capital equipment, materials, and time!

 

[AToE]

That's a good point that there's a threshold to how much time an operation is going to take. If there's a real minimum investment of time necessary that might only increase slightly with a larger operation (making triple the mead might not necessarily require triple the time for example), then there's a real hard line that you want to be above in order to make any money.

Of course, then there's a second threshold, where once you hit a certain size, those small (relatively) increases in time simply overflow how many hours are available in a week, in which case you either have to decide to stay below that line and keep your day job, or go above the line and start seriously risking everything by ditching your day job!

Freaky decisions to make for sure. And like Ian said (indirectly) the question is how much do you value your free time at (once you determin that you do in fact have free time!). He said for example that he sunk about 1500 hours into it, and will be lucky if he gets 13k for himself.

So if he decides not to grow his company at all, he made about $8.50 an hour. Labour of love of course, and no new business does huge numbers out the gate, but still - you have to be VERY passionate to give up essentially every spare minute of your life for what is basically minimum wage (slightly below minimum wage where I live actually).

And that's if he decides to make only the exact same amount of product next round. If he decided to grow at all, bam, now he's really looking at a scary number per hour.


It's really great that you made this thread Ian. We're all daydreamers, and hopefully lots of us will still take the plunge one day, but by showing us the cold hard truth you're doing us all a massive favour (whether it dissuades us from starting something we can't finish, or simply warns us and leaves us better prepared). ;D

 

[IanB]

I was never a boyscout

But 'always be prepared' is what I want out of this thread...I want 600 meaderies, not 600 more wineries from California....the best way to having that happen, for us to have any real industry (like craft brew for instance) is to share information....hopefully this will allow more people to be prepared and not go bankrupt or loose faith in the middle of everything.

 

[AToE]

But 'always be prepared' is what I want out of this thread...I want 600 meaderies, not 600 more wineries from California....the best way to having that happen, for us to have any real industry (like craft brew for instance) is to share information....hopefully this will allow more people to be prepared and not go bankrupt or loose faith in the middle of everything.

Be prepared is totally what I get out of this. If I was looking at a meadery there are a pile of things in this thread that I would have overlooked.

 

[Golddiggie]

AToE and IanB, wouldn't you (also) think that a 6 month young mead wouldn't be mature enough to actually be a good reflection on the mead art/industry? Unless it has a really low %ABV, or something else going on, I'd think it would need to wait at least another ~6 months before bottling, or at the very least make it a full year old before making it available for purchase... Unless the mead is going to be offered at lower prices at least...

Even as a starting mead maker, I'm not planning on drinking anything for at least 9-12 months from the start... I'm also trying to get my hands on an used freezer that I can use for longer aging, keeping it within a few degrees of target temp (I hope) even during the summer time... I plan on bottling the batches, fermenting now, after the summer heat is over, and most likely a decent way into fall 2011. Basically, 8-9 months from start, considering bottling... Targeting the holiday season 2011 for actually letting anyone else have any (other than a small taste for opinions)... From everything I've been reading here, that seems like the best plan to get a good product even from 3-5 gallon batch sizes... I've even started a 1 gallon batch that might not be ready for ~18 months, or more... Or really good for at least 24+ months...

Not to say that SpamDog doesn't have a way to accelerate the process, but I'd be wary of any mead that's age is not at least a year old (now that I know)... Just like you don't drink wine started in January in September... Well, at least not if you want something good... Maybe the $5/bottle stuff, but not what I tend to drink... I usually go for stuff that has a vintage that's at least a few years ago... Even then, I've been known to keep it (under proper conditions) for years more before drinking all of the bottles... I have some 2000 vintage Cab. that I'm looking to get into soon (the final two bottles from that year)... Promises to be very good by now...

 

[AToE]

Well, that's my opinion as well to be honest, but take a look at the numbers here. If he was trying to age this stuff for twice as long he'd be looking at pretty huge financial hits.

First off he'd have to store the stuff untill it'd aged, and that costs money. Also, he'd have no new revinue at all to start more batches with, so he'd have to either sit on his hands for a half a year extra doing nothing, sell off more of his business to investors (he's already sold off 11%), or invest even more of his own money to keep the thing going.

It's just not feasible.

Also, though I am a great believer in letting things age over a year at least, I have tasted meads that were pretty amazing at younger ages. I've had 6-8 month old meads that beat out commecial aged meads I've bought (even ones over 2 years old).

I have faith that Ian wouldn't let this stuff out the door unless he was totally satisfied with it.

 

[tuumi]

Ian,
I definitely oversimplified my example above because I didn't want to high jack your thread with the details of what we have and don't already have. We have almost everything so it's a moot point. (I think my brother was overly optimistic buying everything before getting approval but that's another story). I'm interested in volumes a new meadery could expect to sell and how long it would take to be sustainable once equipment is purchased.

I've thought about the whole picture more than just the hypothetical calendar created above.
Big picture:
Rent is free. The place is nearly finished with an industrial kitchen. Have a steam jacketed kettle to melt crystallized honey. Already thought about that. Storage tanks? Was going to go with the Flextanks but it was determined that they are food grade plastic just like any other food grade barrel. Can get off cheap there. Found a place to get the barrels for under $50
Kids? None. I have three months off in the summer where I have nothing to do anyway and get paid. My brother/partner has most of the winter off. We still have to work but have more free time than most people.
Honey prices? Can get it from a guy for $2.25 and it's really good stuff. We also happen to live in an area full of orchards so I think we could do better than that by shopping around. Lots of local beekeepers. Speaking of orchards apples and cherries are super cheap. Could probably pick them myself if I have the time. I can walk there in between my hourly checks on fermentation.

I've thought a lot about this and have tried to find ways to make sacrifices when possible. For us the idea situation would be to break even after buying just a few things to help speed things up. Bottling is going to be a bitch. That's one area that seems like money well spent.

I'll keep saying it. This thread is great. Learning new things each time I come back. After seeing your numbers (man hours and money) I have no illusions that things are going to be easy but I have hope it could work.

 

[wildoates]

Having day jobs will certainly make it easier to work, because you won't need to immediately rely only on what the meadery brings in and can go longer without having to make mead monies...but it also limits the hours you can spend there...but what can you do?! Starting up a business is a risky business. But oh-so amazing when it works!

 

[IanB]

Ok, a few answers

wildoates - You need a day job period...or you need to make bad decisions because you have no cash. This is in almost all start-up books for any business. Moonlight Meadery in NH is named that for a reason.


Tummi - If you have thought about the time costs for making the wine and it seems you have. That means you can 'warp' the triangle of constraints (you don't need to worry about your time, and you supposedly have your equipment) Get going on your permit and your wine bonds (took 5 months from start to begin first fermentation) Then buy honey in the summer what is is already soft. 60lb buckets of honey are heavy, and difficult to carve-up (to say the least) in the winter time.

But most importantly!!! Plan your selling time. How many stores do you plan to be in, how many are there in your area, how long does it take to drive to the store and sell your wine and drive back. Plan that time into your 'sales cycle' so you know how much time you will have to make your mead. Even you only have 24 hrs in a day (just like everyone else). Do a sales budget and estimate going back to a new account after 3 months. (hopefully a lot more often, but that is conservative) Then figure out how many accounts, where they are located, and how long it takes to get between them. That is what I would be doing after I did my paperwork.

AToE & Golddiggie - Most commercial mead (except some polish stuff and some of the more established meaderies in California) is out the door in around 3 months. The reason is the use of filtration and finnings, really really tight temperature control, and really really good sanitation. You do these things even on the home level, and you will get better mead quicker. On a commercial scale, my wine has never tasted at home as good as the commercial batch does. We fermented 5k dollars worth of honey and water. That batch size ironed out any small anomalies found in smaller amounts of honey that can create off flavors that need to be aged out.

Ok, this is a financial post, so lets stick to finance. In this conversation you would not want to bring into question the 'quality'. It needs to be assumed in the conversation that your equipment and process can give you your quality in the timeline. However, anything under a 3 month cycle is very suspect. I don't know anyone doing less than two months from ferment to bottle.

 

[Brad Dahlhofer]

However, anything under a 3 month cycle is very suspect. I don't know anyone doing less than two months from ferment to bottle.

Once in a while, we'll get a batch of Wildberry Pyment that finishes in 6 weeks.

IanB is right about Fining, Filtering and Temperature. I think that the next generation of meaderies are mainly coming from folks on this forum. And they're armed with the right tricks (Umm.. I mean techniques) to getting a mead to taste great in less time.

 

[AToE]

Obviously getting the mead out the door in 3-6 months after pitch is important for the business, and the quality can be quite good in that time frame, but has anyone thought about taking the same meads that are normally released so fast, splitting off smaller amounts for longer aging to be sold for more?

Lots of wine seems to be done like this, you just come up with a different name or sales pitch for the older stuff and sell it for more.

I know you have some that are aged longer, but those are specific meads intended for barrels right, not your normal fare?

I guess my question is dependant on one major thing - of the meads that are being shipped out fast, have you ever held on to some for aging over a year? If you can make something that's that good after just 3 months, then after a year I would presume that it would go right up to spectacular.

I guess that's tough to do if you're trying to meet demand and have limited storage space and production capabilities. Also, you know the market far better than I, maybe there's simply not enough demand for a longer aged mead that sells for 5-10 bucks more than it's young counterpart of the same recipe?


This is the part of the business that seems really tough to me. Small wineries must have a way to survive a year of selling nothing at start up, and then a year between batches, but obviously there's a loooooooooooooot more demand for wine than mead.

EDIT: and as per Ian's request, I do consider this to be a finance question!!!

 

[Brad Dahlhofer]

Obviously getting the mead out the door in 3-6 months after pitch is important for the business, and the quality can be quite good in that time frame, but has anyone thought about taking the same meads that are normally released so fast, splitting off smaller amounts for longer aging to be sold for more?

Lots of wine seems to be done like this, you just come up with a different name or sales pitch for the older stuff and sell it for more.

I could. But I still have to like myself the next day. So I don't.

I know you have some that are aged longer, but those are specific meads intended for barrels right, not your normal fare?

Correct.

I guess my question is dependant on one major thing - of the meads that are being shipped out fast, have you ever held on to some for aging over a year? If you can make something that's that good after just 3 months, then after a year I would presume that it would go right up to spectacular.

I guess that's tough to do if you're trying to meet demand and have limited storage space and production capabilities. Also, you know the market far better than I, maybe there's simply not enough demand for a longer aged mead that sells for 5-10 bucks more than it's young counterpart of the same recipe?

There is a demand. But a smaller one. Our longer aged meads aren't made to be more financially viable, but to feed my need to be creative and happy. But we still need to stay in business.

This is the part of the business that seems really tough to me. Small wineries must have a way to survive a year of selling nothing at start up, and then a year between batches, but obviously there's a loooooooooooooot more demand for wine than mead.

EDIT: and as per Ian's request, I do consider this to be a finance question!!!

It is VERY tough. One of the hardest decisions a mead maker must make is the one that keeps the dollars flowing in at the expense of making their "pet" meads. I only get to make a handful of my fancies every year. The other meads keep food on my table.

 

[AToE]

Just to be clear - I'm not talking about making longer aged ones to make more $$ or to rip people off, the price would just go up proportionately to pay for the extra storage space, the costs of having your investment tied up for so long, etc. Basically, a fair price. I would pay 5 bucks more for a mead that was a year old instead of 4 or 5 months - assuming of course that it actually does improve markedly in that time.

I totally understand that there are the meads you push onwards and upwards with, and the ones that keep you fed (and which to be fair were most likely just as passionate to create back when they were new).

 

[IanB]

Aging...

Age is a difficult sell. Our 'industry' is so fledgling, that selling something on Age doesn't really make sense. We need (in my opinion) critical mass of a base product that is strong.

Look at what most wineries do (even the porsche and farrarri's of the wine world). They sell the wine when it is ready 20+ months or so in barrels. If other people want more age on the wine, they can age it in their homes. The wine industry is like this and the only exception is wine sold at auction (which current demand for mead could not sustain an auction) ....

Besides what the market will bear the real problem is cash-flow, You just can't have 100 cases or three hundred gallons taking up space that isn't going to make you any money for 6 or 18 additional months. You go broke...unless you have even 'more' start-up capital to burn. And because of the market conditions I described above, the long-term aging of wine or mead is not there, so that means you need to create it.

Maybe I am not being clear above, but in my financial analysis at this stage of the game (and Brad seems to agree and he is MUCH FURTHER into the game than I am) I think an 'aged' mead would not bring a comparably larger or worth-while profit margin. If I run the math, you almost need to charge not 5$ more, but 10-15$ more, so now you are putting my wine up in the 45-50 dollar retail price point. The industry does not have a market at this price point, and I don't feel like becoming like the ice-wine segment of the industry.

 

[Golddiggie]

Just tossing this out there as a thought...

How about putting an item listed (online) as a longer aged mead (you could do polls to see how much interest your customers have first) as a very limited run, and price it at a level where it does make sense to store it. You could, I would hope, do 5-10 gallons (the corny kegs seem perfect for this) of a type, or batch that comes out particularly well. Get deposits, or maybe even full payments, up front on the extended aged variety.

I see the advantage of the mead maker doing the aging... For one thing, you can bulk age it... For another, you can test it and know when it's actually optimal for bottling. Then send it off to the people that have actually requested this 'special' mead...

I do realize we're talking about a small number of people wanting this (hopefully, just initially) hence the need to make sure enough people will commit to purchasing the product (or buy it ahead of time). Get enough contact information so that when it is ready you can confirm where it's being shipped to (or have them come to you to pick up their bottle(s))... As demand increases, or decreases on a mead, you can adjust your volume accordingly. If there's not enough demand to do this for any batch you designate as being worthy, then drop that batch from the aging.

I just see it as being a decent option to offer... Provided (of course) you can get enough buyers to commit to it and make it viable in any quantity that makes sense...

 

[AToE]

Well, just to be accurate, lots of wines on the shelf at a liqour store are aged fairly long, from 2-5 years, sometimes more when getting up into the higher price range. Also, they generally advise against attempting to cellar wine yourself, as very few people have the facilities to do it properly.

I appreciate the rundown on the situation, it's one I'm extremely curious about. The no-demand thing makes some sense, though I would see the demand being driven more by the product simply being better and causing more repeat buys (though, like I said above, this only works if there's a huge increase in quality after aging it for 3-5 times longer than you normally would before sale). If it is going to be in excess of 10-15 bucks more per bottle then I agree whole-heartedly that this simply will not work.

 

[akueck]

I think we need to emphasize more the "fledgling" part of the mead industry. Wineries can age a big Cab for 3 years before release because they're still selling wine they made 3, 5, or 8 years ago. For mead, there is no 8 years ago, and often not even a 3 years ago. There simply isn't opportunity to cellar mead before sale because something has to pay the rent, and that something is the mead that was made a few months ago.

This shouldn't always be true, eventually the production scale will match demand (and more meaderies will exist as well), margins will be healthy enough to provide for some cash reserves, and each individual meadery will have been around for more than a few years so they can actually reach back into the cellar and find mead there. See the Polish 25-year meads (which apparently are now 6-year meads due to demand): they've been at it for generations.