Tuesday, 10 January 2017

Too Many Breweries?



Amid all the heat generated by Cloudwater's decision to abandon cask beer, one or two key points started to emerge. Firstly there was a not wholly - well maybe by no means - accepted allegation that certain brewers cannot make money out of selling cask beer and a secondary and sort of glossed over one that links to it, is that there are too many breweries seeking too few accounts.

Now let's start with the first one and its ancillary argument that cask beer is more expensive to produce. Well that does kind of fly in the face of what has been going on since keg beer was invented. Since that point, keg beer  - or rather brewery conditioned beer - whether it be from kegs or tanks has always been more expensive. Where the two are sold side by side keg beer is always more expensive. If it is proprietary lager or a national brand, it has always been more expensive and it still is.  Who can doubt that?  Just go into any pub and see for yourself.  I don't intend to go into the many variables that change that for individual breweries, but these will include, ingredients, kit, how tight the operation is run on one side and on the other side, to whom and where he or she sells their beer and for how much. Neither list is exhaustive.  Is there a degree of tradition in this? A kind of hangover from the past? I sort of doubt it. Keg beer was more expensive when we had the big six brewers and they didn't do that for no good reason. It simply cost them more to make it.  It is only traditional in the sense that it has always been like that - but for a good reason.

Does that still apply nowadays? Well yes it does and some reckon it shouldn't.  The argument goes roughly "if cask is a premium products, then why doesn't it command a higher price?"  Superficially one might agree, but it doesn't take long to demolish the argument. Cask beer per se isn't a premium product though some cask undoubtedly is. Some is more or less commodity and some is in between. Also there is no guarantee that what you buy will be sold in the sort of condition that would command a supplement. (In fact a lot of keg beer on presentation alone, shouldn't command a premium either but that's a different argument.) Cask beer is a much more perishable product than keg. It has to be "priced to go". If you want to see the argument taken apart, read this from Phil's Blog.  Special pleading by breweries who reckon their operation is different/ better/more exclusive don't cut much ice with Phil or indeed me.  This kind of sums it up for me: " Not, that is, unless I can persuade a substantial number of punters that I should be able to make cask beer in precisely the way I want to, and that this is important enough to make it worth paying more for my beer. But that’s a really hard sell; mostly punters (and publicans) are liable to take the view that beer is beer, and that the world doesn’t owe anybody a living. Not because they’re evil or selfish or brainwashed, but because that’s how selling stuff in a free market, and the rationality the market is based on, work."

I'd contend that is a persuasive point and that attempts to artificially raise the price of cask beer are doomed to failure. Thus it is that certain breweries look for a way round this by using their capacity to produce higher margin keg or - even better - small package beer - as this market is far less congested and margins still exist. This has legs - in the short term at least - as this is a less congested market. 

So back to the other side of this which is alleged over supply is pushing prices down.  There must be a degree of truth in this, but there are several flies in this ointment.  Even if we shake out some breweries, we can't guarantee to shake out the right ones. You only need to read Dave Bailey's Blog here to understand that isn't likely to happen. Nobody would suggest Dave is a bad brewer, but he is seemingly in a bad place. In the meantime, all the hobby brewers, regionals and nationals will undercut him and others. With nearly 2000 breweries, just how many would need to go to make the market a better place? Even if a third went, would that guarantee anything? I doubt it.  On the keg side there are uncomfortable times ahead. The big boys, using the craft beer companies that they have purchased are sniffing around. The multi nationals are loan tying lines left, right and centre. Strikes me things will get worse unless you really know your business, your market and your customers. One thing is sure. If you don't have a reputation for great beer, you are likely to be in trouble of some kind. Sadly, even if you do have such a reputation, there is no guarantee you'll survive.

Are there too many breweries? Probably. Would many fewer solve the underlying problems of brewing beer profitably in the UK? Probably not.  Beer wise, we live in interesting times.

As I started to write this, I realised I was tying myself in knots, so this is a truncated version just to get the main points across.

Please take the survey which is simple enough. I was going to do a binary choice of yes/no until I realised I don't really know myself.

24 comments:

Dave Bailey said...

Did someone say cask was more expensive to produce? Not sure anyone actually said that. Margins are tighter, that's true.

DaveS said...

Aren't you contradicting yourself here?

On the one hand you argue that people will pay more for keg than cask not because it's a better product but because it costs more to make. And on the other, you argue (via Phil) that a brewer shouldn't expect punters to pay more for their cask than they will other brewers' cask even if it's more expensive to make.

In practice, I think Phil's point is closer to the truth, but misses one of the key points that people are making, which is essentially that it's irrational for people who go on about how great cask is and, crucially, also think that Cloudwater or Buxton is worth a fiver a pint on keg (adjust for local prices) to then baulk at paying "over the odds" for a pint of the same on cask.

Tandleman said...

DaveS: Quite possibly. I mentioned in the footnote I was getting in a mess.

Right. Quick reread. No I'm not. Both points are equally valid but come from different perspectives.

I think that you illustrate the apparently irrational behaviour that perplexes some brewers.

Dave B. Think some bugger did. Cloud water?

Tandleman said...

DaveS: Quite possibly. I mentioned in the footnote I was getting in a mess.

Right. Quick reread. No I'm not. Both points are equally valid but come from different perspectives.

I think that you illustrate the apparently irrational behaviour that perplexes some brewers.

Dave B. Think some bugger did. Cloud water?

Ron Pattinson said...

You should see what they charge for cask beer here in Holland.

Dave Bailey said...

I can only imagine cask costing more if the brewery is set up mainly to produce keg, and so cask is a disruption to process. As a rule, cask is generally less expensive, although at production it might not be very much different.

Where keg is more expensive is that there is a bit of an expectation for the brewer to support tap installation in some form or another. There is a requirement for more equipment in the brewery and an increased length of time in tank for keg. However, every brewery is different.

For us, we have 5 main forms of packaging; cask, ecask, keg, ekeg and bottle. Having the right beer packaged for the right customer at the right time is a bloody nightmare. On top of that we have to have the right beer, or a new beer, or one we stopped brew ages ago and enough of a combination of them if we are sending out to a distributor. I'd love to simplify that a huge amount. Just Azimuth in keg and bottle would be great.

Hey ho, we've got several beers going to a little beer festival somewhere in a little northern town next week. Cask and KeyKeg, That should be fun and I'm looking forward to it. Who's going to the trade session?

Phil said...

I was in a Spoons once where a guy ordered a pint and a half of Heineken, a coke and a bag of crisps, and (rather vocally) couldn't understand why it was costing him over £8. If he'd swapped the beer for cask bitter he'd have been up two quid on the deal.

I'm guessing that the Big Six didn't introduce the keg premium for the sheer hell of it, but because, at the outset, they were (relatively speaking) out of pocket and had investments to recoup. The real question isn't why keg came in at a price premium relative to cask - or why the same thing happened with 'craft keg' - but why prices have stayed that high. The only answer is that, for whatever reason, people have been willing to pay those prices (even in Spoons). Meanwhile, competition among cask beer providers has kept those prices low. I think the biggest lesson of all this is that when prices are effectively pegged, they stay pegged - so it's an awful lot easier to hold prices at a high level than to push them up.

Thanks for the link, Peter!

The Beer Nut said...

Cask beer is almost always more expensive than the same beer on keg. The only places I think of where it isn't are the UK and the handful of traditional lambic pourers left in Belgium. Have I missed somewhere?

Tandleman said...

Well elsewhere it is somewhat exotic hence being dearer surely?

Tandleman said...

Well elsewhere it is somewhat exotic hence being dearer surely?

The Beer Nut said...

That wouldn't make sense if it's cheaper to make. IMO you're overstating the importance of production cost on the retail price of beer. What people are willing to pay is a much bigger factor. Cask beer is cheap in the UK because people expect it to be cheap, for better or worse.

Rob Nicholson said...

Well after a short while, I think the results of the survey are pretty much in. The bubble has been bursting for a while. Sadly it seems some good breweries like Hardknott are dragged down with the discopunting although as Dave admits, the location of their brewery maybe not ideal.

Beartown brewery in Congleton is also insolvent - again :-(

py said...

A premium product is one people are willing to pay more for than another product, if people are not willing to pay more for cask than some other form of beer, then cask is not a premium product.

In the long run, a competitive marketplace will push all prices downwards to the breakeven point. We currently have a competitive cask market, but an uncompetitive keg market dominated by a handful of producers (this applies to craft keg and premium lagers alike).

Hence the reason there is a price whack on keg that doesn't exist on cask. Its nothing to do with desirability of the product, its to do with the number of competitors.

Cask prices are unlikely to go up (faster than inflation and taxation hikes). Its much more likely that keg prices come down to meet them. Craft keg brewers currently thinking "there's much more money in keg, no need to find a way of cutting costs, our customers will always pay a premium" are in for a nasty shock.

Being a great brewer is about more than just making great beer. Its about making great beer in a cost-effective method that means you can still make a profit in a highly competitive market.

Cooking Lager said...

Cask beer ought be more expensive. Cooking lager ought to be the cheapest. Like in supermarkets.

Pubs pricing is an irrational hangover from then past. Put the lager down a quid and add it to the bitter.

py said...

"it's irrational for people who go on about how great cask is and, crucially, also think that Cloudwater or Buxton is worth a fiver a pint on keg (adjust for local prices) to then baulk at paying "over the odds" for a pint of the same on cask"

This is determined by the price of available substitutes, surely?

If I really want a keg beer and the choice is Cloudwater for £5 or some other similar craft beers for £5, then I'm going to pay £5, so it might as well be the Cloudwater.

If I want a cask beer, and the choice is Cloudwater for £5 or some other similar cask beers for £3, then I'm going to pay £3. Cloudwater cask is good, but its not THAT good that I'm willing to pay an extra £2 for it.

Tandleman said...

Blimey. Two sensible posts from py in a row and two that I agree with.

I'm off to bake a cake!

Curmudgeon said...

"If you don't have a reputation for great beer, you are likely to be in trouble of some kind"

A lot of small breweries seem to thrive on having a reputation for decent, reliable beer, and being good at running a business.

Many brewery failures are due to the owners simply being poor businesspeople.

Surely a key reason for the price premium that mainstream keg commands is consistency vis-a-vis cask. And, while I've not been checking in other pubs, John Smith's is now about the same price as Ruddles in Spoons.

py said...

Of course, the role of pubs as middle-men between producers and consumers of beer complicates things somewhat. Their role is far more involved in the process of price-setting that a typical retailer, of say, car parts or frozen chips, and the effect of this is to complicate matters. The (often irrational and wholly inaccurate) beliefs of landlords as to what their customers will pay and what type of beers will attract new custom, is the ultimate arbiter of how much different breweries can charge for different products.

You therefore often get the situation where a brewery makes a great product that punters would be willing to pay for, and the brewery knows this, and the punters know this, but unless they can persuade the landlord of the fact, then the brewer still can't get as much for the beer as it is really worth.

Or conversely, a landlord continues with a beer because his customers are drinking it and he's just about breaking even, but secretly they all hate it and would drink far more of something else.

etc etc.

Tandleman said...

This is great stuff py. Keep taking the medication. Three in a row. (-;

py said...

This is the same stuff as I always post.

Rob Nicholson said...

>Its about making great beer in a cost-effective method that means you can still make a profit in a highly competitive market: agreed and a single person brewery is most likely not going to be able to do that unless that person has another income stream. A two person brewery is probably still borderline.

Mike F said...

Cometh the hour, cometh the man, eh py.
Did anyone read Jon's post about information asymmetry. http://stringersbeer.blogspot.co.uk/2017/01/the-professor-lemons-peaches-and-cask.html?m=1

Citra said...

Are there too many breweries,with too many pubs closing and not enough punters using them the answer must be yes even though I voted from my heart and said no!

Py said...

I did. As an analogy it's probably better suited to single purchase items like used cars rather than beer, where you can make purchase decisions based on previous experience. I suppose the question is whether punters can remember which beers they like and which they don't. Hence the importance of memorable branding if your beer is good, and generic branding if it isn't.