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

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.

Heineken Boss Talks Sense

The Morning Advertiser has a good piece on pubs by Heineken UK boss, David Forde.  It isn't often I find so much to agree with from such a person, but he seems pretty much on the money here to me in calling for pubs to give customers a much better experience than they currently do and for better training for staff. He also encourages customers to complain about bad service and beer.

You can read it all here.

Remember the Tandleman motto - "It's the offer Stupid".

Mr Forde estimates that 30% of beer serves are inadequate in some way. He is being conservative I'd say, but a shocking figure when you think about it.