Tuesday, 22 April 2008

Consolidation Not Over Yet?

And there isn't the profit there used to be
In watering the workers' beer
The recent further consolidation (reduction actually) in the Independent Brewing Sector by the S&N takeover of Caledonian and the selling of Refresh UK to Marston's, indicates that the remaining big players in the cask market in the UK still see expansion as necessary. In the case of Marston's, at least for the time being, they have found a middle way of buying emerging breweries and good existing ones and keeping the breweries open. This gives the advantage of having a portfolio of "flagship brands" such as Pedigree and strong local brands which can be sent throughout the UK through their own tied houses and the free trade. As the public tend to think of the local brands as "independent" or "micro" brewed beers, this has an advantage. Over capacity is no longer such an issue as it was, though as belts tighten, watch out for a change in this policy.

Greene King on the other hand, with the exception of Belhaven, has a more traditional approach to all this. They buy a brewery and its tied houses (as in the case of Hardy and Hanson), close the brewery and brew the "brands" to any old recipe in the parent brewery. This is the tried and trusted way that has gone on for years, but it is dated and no longer can be relied on. It is becoming clear that this approach does not meet the demands of a more sophisticated public, less inclined to buy GKIPA or whatever from Land's End to John O'Groats. People aren't really fooled by a mass of bland beers from one large brewery any more. In cask they are demanding variety.

The question now is who will be next to feel the hot sticky breath on their collar? You must cast an eye in the direction of the remaining Independent Family Brewers. Those that are left (28 of them surprisingly) are probably in it for the long haul, though there may be the odd one falls by the wayside. I simply don't know enough about how closely the family controls the businesses, but there are a few possible contenders, particularly those that are publicly quoted. Thwaites used to be a favourite for takeover speculation, with its large tied estate, but after years in the doldrums, I sense a new confidence there, so hopefully not. Fullers must always be a consideration, as must Youngs with their large London estates, (when in doubt follow the money) though I rather think the bigger brewers are looking at things a little differently now. Pubs alone won't do it. There are plenty good ones about that are making no money. Cain's isn't for sale though it would possibly fit Marston's bill. Charles Wells is a private company and should be safe, but I'd keep an eye on Hall and Woodhouse, who have already sold their free trade to Marston's. Most of the rest are too small to be attractive or are completely family owned though the possibility of family splits can never be ruled out.

So what's left? One possibility is building minority stakes in businesses that have a certain different appeal. How about some of the more innovative and larger micros like Osset and Skipton or those such as Meantime who are doing interesting things? I wouldn't bet against it!

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