Monday 24 September 2018

Which Way for Beer, Pubs and Brewing?

Last week two things in the beery firmament really caught my attention. Firstly there was the news that Dave Bailey's Hardknott Brewery will shortly be no more. Dave is giving up the whole shooting match which is a great shame.  He has always, in my opinion, been one of the good guys. The other was an excellent post by Glynn Davis in his Beer Insider blog where he takes a close look at that currently in vogue way to raise money, Crowdfunding.

Is there some connection between the two? Perhaps, but the real thing I took from both is that under the surface, all isn't as rosy with the beer world as some would have you believe. Firstly let's have a look at what Dave Bailey says about the beer industry. (This isn't a post about why Dave is giving up, so if that's what you are after, get in touch with Dave). One point he makes forcibly on his blog though is that basically big business is determined at all costs to shove the small guy out. He cites for example, where a major supplier of mainstream lager offered one of his customers £2000 to remove Dave's sole keg font.  Not nice and potentially very harmful to his business. No doubt they weren't picking on Hardknott as such, but it is probably safe to assume this is typical behaviour.

There is also it has to be said, too many breweries. In a world where the number of pubs continues to fall, (though there is some offset where closed pubs are replaced by other outlets such as cafes, bars and other non traditional outlets) the fight for bar space continues apace. This is the world of dog eat dog, with lower prices being demanded by bar owners and an eager rush to join the race to the bottom price wise just to get a beer on the bar.  That isn't a mutually beneficial market for anyone. Prices at the bar continue to rise in a buyers market, though many would argue that far from profiteering, any money made is being gobbled up by rent, business rates and more.  All in all, a lose/lose situation. As a corollary, home drinking continues to take market share and will likely continue to do so.

Many of the 2000 or so brewers are very small. Some are what I'd call hobby brewers. These are people who brew and sell beer, but don't rely on it as their main income.  These though are the ones that compete on a daily basis with those such as Dave, who rely on their business to put food on the table. A tricky one.  At the top end, as Dave points out, quite a few of the top businesses and brands have been bought out by the big brewers. As we discover daily, most of those are increasing their capacity hugely, so the possibilities for the mid sized brewer become severely limited.  Tellingly Dave has done a bit more analysis. I quote him directly: "Below 5,000hl annual production profitability is extremely slim. It's a sliding scale and closer one gets to this important number the more likely a brewery is to make profit, but that profit is still likely to only really satisfy an owners short-term living requirements. Below 2,000hl my research strongly points towards a loss making operation. What this means from a business valuation point of view is that within the range of brewery sizes we are talking about any exit strategy for the business owner looks poor. Making return on investment is highly unlikely without some sort of growth.

What will be the effect of this? Unsaleable assets and a business worth little. I quote Dave again: "This will have repercussions. Dave puts it thus: "My prediction is that most breweries will struggle to grow and therefore leave the owners without a plausible exit strategy".  Of course this gloomy picture, which you can choose to believe or not, does not put off those who see their future in much different terms.  There is always the prospect of success, but the failures will outweigh the sucesses.

I turn now to Glynn's piece about crowdfunding.  There are two ways to look at this. On the one hand you have people believing, that while they may not make much of a return on their investment, they have a reasonable expectation of avoiding wipeout and the tantalising possibilty of maybe a bit of money coming back. On the other, you have a sort of fan based club where people buy in to be associated with the company much as a football fan might.  They get special offers from the brewery, but little else. Commentator to Glynn's piece, Martyn Cornell, has wise advice "Regard all money invested in these schemes as cash torn up and thrown in the bin. You are very unlikely to ever see it again. " The analysis here by Glynn reveals that in making the "offer" to the interested (gullible) some very optimistic and arithmetically unsound predictions of growth are being made. Here is where Hardknott Dave's analysis and Glynn cosy up to each other.  The market is in overall decline. The cake is getting smaller. There actually isn't room for all. Relying on taking someone elses's market share is at best problematic. Nor is the take home market is unlikely to prove much of a salvation for most. The big players will always dominate here.

So where does this leave us? There will be further casualties and it won't always be the bad guys who will fail. It won't neccesarily be the ones with the worst beer. It may be your favourite small to medium local brewer and it may well be that even the optimists who are using other people's money to grow won't be successful either.

The market is changing and it is highly likely that if you want to survive you must have a guaranteed route to market.  Or find a niche that you fit neatly into. Growth is uncertain. Failure looms large.  Hard times ahead for many I fear.  Too many brewers and not enough market isn't a cheery thing to contemplate.

Tap rooms and micro pubs are one way to survive.  Their increasing popularity will ensure variety will endure.

There is also a squeezed middle here. Medium sized brewers will increasingly find themselves between the hobby brewers and the large breweies and already many are vacating the free trade as margins get trimmed away.

Photo used with permission under the Creative Commons


Boozy Procrastinator said...

I don't personally believe the micropub is the great saviour either.

Obviously a tap room is only of benefit to the brewer running it, fair enough, but micros, especially the ones in the Manchester area I've visited as all very much the same with what they offer on the bar, brewery wise.

Yes, they probably feature the better local (North West) breweries, and their mates brews but getting any other look in for any other local brewery is as impossible as the tied pub is.

Sean O'Reilly said...

Interesting, if rather glum, reading.

Alistair Reece said...

If I were to entertain the idea of getting into the brewing scene in any meaningful way, and like many homebrewers I have considered it, even having written a business plan, then the key thing for me would be having a viable route to market, and that for me would be having my own tap room or operating as a brewpub.

Having not lived at home in the UK for a very long time now I am not entirely sure of how common a thing a brewpub even is - and here I mean a place that doesn't sell beer from other breweries rather than the kind of place where the national brands are also available.

When my wife and I moved over to the States I really thought I wanted to start my own brewery, but a few years working in the industry was a massive reality check.

Brewers Union Local 180 said...

I'll be arguing all this out with Dave in a couple weeks. I hope he has a few bottles of Vitesse Noir hanging around.

Tandleman said...

Dare say he'll have a stash!

Cooking Lager said...

Have a great deal of sympathy. It's not great when a company dissolves and people lose their livelihood. Hope the guy prospers at his next gig.

Don't make the mistake of extrapolating the woes of 1 business to an industry. Small scale brewing is going great guns and in any market with this level of disruption some businesses will succeed and some with fall by the wayside. Now may not be the time to examine why this business is one to fall but at some point, someone will doubtless look back on this boom time and offer an analysis on the successes and failures.