Saturday, 20 May 2017

Returning to Roots

I think it fair to say that I was as surprised as anyone by the announcements that Charles Wells had decided to sell the majority of its brewing interests to Marstons.  Looking at the press release it can be summed up as selling all its major brands, including the flagship Bombardier, as well as the brewery and its free trade accounts to Marstons, but importantly, not the pubs or the John Bull brand, used mainly overseas. There will be a supply and licensing arrangement for Martons to sell into the Charles Wells estate, controlled one assumes by Wells themselves as far as what the pubs can buy.  The deal includes UK distribution and brewing under licence of Kirin and Founders and distribution of Erdinger (the blandest wheat beer ever) and Estrella Damm products.  It includes the brewing and supply of Young's beers as well as the moribund McEwan's range and the more or less dead in the water, Courage brand. So quite a portfolio, but maybe not so shiny when you look at it closely.  £55 million of your UK pounds is probably as good a price as could be had for it.  On the other side of the deal, Charles Wells will be building a new smaller brewery to supply its 200 or so pubs with its own branded beer. That's a good thing.

While I was mildly surprised by this move - after all who, these days,  can get too taken aback by breweries being sold - but what did surprise me more than a little was the reaction from some. "Sellout" cried Roger Protz, the doyen of British beer writing, along with several inaccuracies which he later corrected:
J Mark Dodds, a well known - pub campaigner wrote grumpily in response to comments:
You will also see a pertinent and useful quote from Melissa Cole.  More of which later.

So why did Charles Wells sell a large part of their business?  The most likely explanation is a low margin volume business of declining brands, a cut throat market where the company was too small a player against others such as Marstons, Greene King, Carlsberg and Heineken who can cut margins to the bone to get business.  If you look at what is being sold, Young's is relatively small beer - pun intended - and in Scotland, most people won't touch McEwan's products with a bargepole. The Courage brands are more or less dead in the water and even the mighty Bombardier is hardly the legend it used to be. That leaves supermarkets and the free trade, both of which are low margin and highly competitive. I'm guessing the family looked at it all and judged that the real, lasting and tangible value of the business is in the pubs they own. The value of a portfolio of brands which they likely saw as decreasing value assets, was something they could and should sell while the going was good.  In a dog eat dog world, they decided to rationalise for a more secure future.

Despite what people reckon, most family brewers who are still in the game know their onions.   They haven't survived this long without knowing what is what and understanding their place in the brewing world.  In their heart of hearts that they know they can't compete any more on a nationwide basis. The future of family brewing, to a large extent, relies on doing what you do best - local pubs and local beer. To survive hard headed decisions have to be made. We have seen McMullens and Thwaites retrenching and this, to me, seems almost like a mirror of the Thwaites situation and Thwaites are doing very nicely at the moment, with their new brewery, servicing only their pubs, being built as I write. If Melissa is to be believed and I have no reason to doubt it, the Wells brewery itself may need, shall we say, considerable attention.  That's another other reason to think about a different business model, but sadly, it does cast considerable doubt about the long term future of brewing on the current site, though Marstons do have a pretty good track record of keeping breweries they buy going, so there is hope.

All in all, looking ahead and considering the options and the market, I can see why a family led board came to the conclusion they have. Large scale brewing has its place, but competing on price in such shark filled waters is a nil sum game for Wells and they have realised it. They tried it and it didn't work out. By building a smaller brewery and concentrating on their pubs, they are safeguarding their core pub business, while realising assets which are only likely to fall in value. Reverting to vertical integration with just pubs and a brewery is how they started in the first place.  I don't call that a sell-out, but a sensible business decision in a difficult brewing world. They have sold well and and main assets and income stream are protected.

Going back to where they started may or may not secure Charles Wells' future, but one thing is for sure. Soldiering on unchanged was just as risky and being family owned, the future is still in their hands.  

I am sad for the employees though. I know from personal experience how loyal to the owning family they tend to be. That would have been a tough call for Wells.
Marstons are clearly number one in the super regional game now.  Greene King and Marstons are now the sole brewing giants outside the multi nationals.


Curmudgeon said...

J Mark Dodds is in a state of permanent outrage, of course. To him, any sensible commercial deal is a sell-out.

I think you understate the importance of the bottled ale business. While it may not offer the same margins as the on-trade, they're considerably better than those available for commodity lagers and, unlike cask, it's still a growth sector. Clearly Marston's see it as a key plank of their business strategy, and Bombardier and McEwan's Champion are among the top-selling brands.

Ian said...

The McEwan's effort certainly seemed to fail up here. The smooth that they launched was actually different enough for me to prefer it to the default Best, but it disappeared off bars very quickly. The new bottled range came and went very quickly as well. Export still gets shelf space in the supermarkets, but they did nothing to halt the decline. Hard to believe that it used to be a huge brand up here.

Tandleman said...

I understand that Mudgie but I reckon that off trade sales wouldn't have weighed very heavily in the balance.

qq said...

This looks like standard practice in a rustbelt industry - the secondary players have a go at becoming top-level players (the marketing push on Bombardier, bulking up by acquiring Young's, Courage etc) but then either succeed or in turn have to sell out to a consolidator. Marstons are taking on the role that Tata Steel and Ineos have played in other traditional industries. There may be as much future for brown beer in 2017 as there was for mild in 1947, but by economies of scale and sweating the assets, there may still be decent money to be made.

I'd be surprised if the market for bottled brown beer is growing, this is more about efficiencies behind the scenes and taking out a potential competitor on the shelves in the off trade.

But from what I can work out, it's a response to the demand for "choice" from consumers. Back in the days of 50 breweries and no guest beers, punters were conditioned to session on the same beer. But now there's 1800 breweries and apps that encourage people to tick as many different beers as possible. Now tickers are one extreme, but in most walks of life people seem to split down the middle between novelty seekers and folk who like the comfort of the familiar. Marstons are trying to offer variety in their tied pubs by offering a host of different pumpclips which are all brewed inhouse; Wells couldn't offer sufficient variety inhouse so they've effectively gone for a bigger version of the (brewpub+freehouse) model.

Curmudgeon said...

"I'd be surprised if the market for bottled brown beer is growing"

Try reading Marston's latest Bottled Ale Report.

The value of the Premium Bottled Ales market has grown by 92% between 2009 and 2015, and is forecast to grow another 86% by 2020 to top £1 billion a year.

I'm not saying it's the major driver behind the deal, but it's certainly a significant consideration.

Some people who are primarily focused on pub drinking tend to overlook the importance of this category.

Tandleman said...

It was likely to have been a consideration to Marstons, but less so for Wells.

It has also been pointed out to me by an industry source that losing the contracts for Red Stripe and Corona left Wells in a bit of a pickle.

I still reckon that most brands brewed by Wells are declining assets.

Tandleman said...

It was likely to have been a consideration to Marstons, but less so for Wells.

It has also been pointed out to me by an industry source that losing the contracts for Red Stripe and Corona left Wells in a bit of a pickle.

I still reckon that most brands brewed by Wells are declining assets.

RedNev said...

I'm not sure how appropriate the phrase 'sell-out' is to the brewing industry. We rightly condemn politicians and other people who publicly proclaim a set of principles when they go back on their word, but can we apply that type of condemnation to a business? Except for a few examples where the owners have depicted their company as some kind of cause, I'm not sure we can. We may feel disappointed when the owners of a company like Wells sells it to Marstons but, as Tandleman points out, there are probably reasons why this makes sense.

Militant and Socialist Worker were papers that were fond of sounding off about sell-outs and conspiracies. Protz has edited both at different times: perhaps he is reverting to his youthful dalliance with them.

Barm said...

Moribund perhaps but McEwans is still a big brand up here. Beer geeks might not touch it with a bargepole; plenty of others do. Someone from Wells told me (albeit a couple of years ago) that McEwans was in volume terms bigger than their own Wells brands. There's still money to be made in declining brands. You don't see McEwans much on Glasgow bar tops anymore but it was still very evident when I was in Dundee at the weekend. It’ll be interesting to see what (if anything) Marston's do with Wm Younger which Wells never seemed to take any interest in.

Stono said...

my experiences of visiting Bucks,Beds and Northants, which ought to be Wells core trading areas, and even London where Courage should still be well travelled beer, theyve never seem to have had any presence in many pubs/bars, and if it is there, its the lonely pump left at the end of the bar, that youll know if youve visited the occasional pub or two, the beer will have sat in the lines for days, warmed up and be better served on a plate of chips.

consequently no-one drinks the stuff, they goto the increasingly ubiquitious Greene Kings pubs, or Marstons, maybe theyll drink an ale from one of the many brands they now own but theyll more likely drink a Guinness or lager instead, and no freehouse is ever going to order it in, want Courage, get London Pride instead youll likely get some of Fullers one offs or crafts as well, want Bombardier it wont sell better than another bitter. Estrella, swap for San Miguel, Kirin, swap for Asahi, Erdinger...ersomethingbetter...and so on, actually Founders All Day IPA was alright but Greene King sell that too.

for all the talk of exciting new breweries and new bars and pubs doing amazing things all the time, outside the urban craft bubble, its really tough to shift beer of the like Wells were making in todays market in areas where most peoples visit to the pub is for a Sunday roast or family meal.

so yes it makes total sense what theyve done sell the brands, they werent working for Wells, the money is in their pubs, even in family brewers doing "well" its the pubs, the hotels, the mini casks/bottling making money, very much not selling ale they make through pubs that really turns profit. So its not a sell out, Marstons will add it as another brand, theyll probably refresh the logos, swap them around more frequently so their pubs get to showcase different styles. Wells will focus on their pubs, with a smaller brewery they have the option of maybe going down that more experimental brewing route they might have felt constrained by not being able to do before.

it seems a reasonable deal for both parties and we arent talking about 200 pub closures and the loss of big brewery or its brands.

Curmudgeon said...

"Beer geeks might not touch it with a bargepole; plenty of others do."

That underlines the point that many beer enthusiasts whose expertise is primarily in the cask and/or craft sectors are on much less certain ground when it comes to the mainstream market. McEwans Export is still one of the leading canned ales stocked in UK supermarkets.

Curmudgeon said...

Indeed, the report I cited above states that McEwan's Export is the #2 premium canned ale, with annual sales of £13.7m. That's 37% more than Punk IPA!

Tandleman said...

Annual sales Mudgie, but how much annual profit for Wells? Clearly not enough!

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