UK: Craft brewers facing continuing pressure as the country reopens
As drinkers flock to reopened pubs and restaurants, Paul Walker of Hunter’s microbrewery in Devon expects soon to start hiring new staff. But less than three months ago, he relied on the goodwill of crowdfunders to bring the business back from the brink, The Financial Times reported on May 31.
“We’ve begged, borrowed and bargained to reach this point, but when the money runs out options are few,” said the brewery in its March crowdfunding campaign. “This has left us very vulnerable.”
Craft breweries that multiplied during a years-long boom are toasting the return of socialising after a precarious year. But even as they reopen, brewers face continuing pressures, from potential tax changes to competition from craft brands bought out by international brewing groups.
Most have been supported by UK government loans and support schemes, but operators fear that as that tapers out, small brewers could face tough decisions on the viability of their businesses.
The number of UK breweries declined in 2020 for the first time in 18 years, after more than doubling in size in the previous decade to 1,823, according to data from the Campaign for Real Ale.
Dave McCarthy, managing director at Drinks Adviser, a consultancy, said: “Right now a lot of craft brewers have been kept alive through furlough schemes and being able to negotiate payment terms and freeze payments. When all that ends, it’s going to be quite difficult.”
James Calder, chief executive of the Society of Independent Brewers (Siba), said: “The frustration for us is that people think the pubs are now open so, ta-dah, everything is fine. [But] only about 65 per cent of normal levels of beer are being sold at the moment.”
Some have spied an opportunity. Luke Johnson, an investor in hospitality businesses including Patisserie Valerie and Gail’s, completed a £5m deal this month to buy Curious Brewery, a brewer run by the English vineyard Chapel Down, out of administration.
Johnson plans to create “an alliance of beers” that could be brewed through the Curious facility. “We will pursue a buy-and-build strategy . . . In the coming 12 months there will be quite a few craft beer brands that need recapitalising and we have the resources to do that,” Johnson said.
The closure of pubs, restaurants and tap rooms for long periods hit brewers hard. Walker, whose largest hospitality customer is Caribbean restaurant chain Turtle Bay, sold more beer through supermarkets but still fell behind on tax payments.
During the last UK lockdown Siba estimated that on average craft brewers were burning through £5,000 each month, with government grants not covering their costs in most cases.
Brewers trialled local deliveries and ecommerce. Combie Cryan, co-founder of Round Corner Brewing in Yorkshire, said he ended up with a 650-strong distribution list for takeaway “growlers”, or jugs, of beer.
This was “enormously not profitable”, he said, but proved to shareholders that there was appetite, and encouraged them to put in more funds.
Even before Covid-19, small breweries faced intense competition. In the UK, more than 1,800 independent brewers make up just 10 per cent of the roughly £20bn market, while 90 per cent is controlled by international drinks companies.
“There are hundreds of these beer people eulogising 47 different kinds of craft beer but in truth, only about five have cut through, and four are owned by the big brewers,” said one former craft brewer.
Walker pointed to “some major competitors” locally, “where [the founders] have business degrees from Oxford and Cambridge and things like that. They’re looking for volume, they want to rule the world.”
Hunter’s Brewery was one of several that successfully used crowdfunding over the past year, with loyal customers contributing almost £17,000 to help the brewery to stay afloat.
Some sold stakes to larger players. Brixton Brewery in London said in February it had fully sold itself to Heineken, which already owned a stake, while Innis & Gunn, a Scottish brewer, sold a stake to listed drinks maker C & C Group.
Others have not survived, including Wickwar brewery in Gloucestershire and London-based Hop Stuff, which was closed down by US owner Molson Coors.
Reopening has proved a boon, with drinkers consuming far more than brewers had anticipated. But space for bar taps has been at a premium as the big brewers look to recoup losses.
Several have offered publicans periods of free beer in return for locking in contracts of two or three years. Calder said this was causing financially pressed landlords to replace independent beers with mass-produced supplies.
The industry also faces a potential escalation of UK taxes if the Treasury follows through with a proposal to lower the threshold of beer volumes that would push brewers into a higher tax band.
This could be offset by a proposal backed by more than 100 MPs to charge a lower duty on beer in pubs than in supermarkets, aiming to cut the availability of cheap booze.
Hunter’s Walker does not anticipate “an influx of more breweries now”.
“It’s put people off,” he said of the pandemic. “That’s probably a good thing for the industry . . . though I hope the ones that have survived can carry on.”
He plans to strengthen the business, including sales through stores, and its options for when a crisis hits. “We’ll be in a slightly stronger position, certainly by the end of this year,” he said. “Next year we’ll be ahead, and now we have ‘pandemic’ in our business plan — we didn’t have that before.”
31 May, 2021
