Tuesday, 14 June 2022

Day of reckoning

The first five months of this year have seen a spate of closures of small independent breweries, many long-established and well-respected. They include, amongst others, Woods, Exe Valley, Beatnikz Republic, Kelham Island and Cheshire Brewhouse.

The immediate trigger for this has been the wave of cost increases resulting from money printing to fund world-wide Covid bailouts, exacerbated more recently by the conflict in Ukraine. However, it was evident well before Covid that all was not well in the microbrewery sector, and that there was a significant problem of oversupply. It seems that many breweries hunkered down during the prolonged lockdowns when nobody could make any money, but now that the pub trade has returned to something like normal are now finding themselves in a precarious position. It was often said that at some point there would inevitably have to be a shakeout, and that is now happening.

Brewing differs from most other businesses in that many people go into it as something of a labour of love rather than seeing it as a strictly commercial venture. There are many in the industry who have an additional source of income, being retired, having a working partner or a rich parent, and thus are not looking to make a full-time living out of it. This makes life more difficult for those for whom it is their livelihood, and there were numerous reports of cut-throat price competition.

Brewers of cask ale are handicapped by the widespread culture of rotating guest beers, which leads to a perception of it being a homogenous, interchangeable product, and makes it difficult to command any kind of price premium. Small Brewers’ Relief, while well-intentioned, has in practice often been used simply to fund lower prices rather than reinforcing brewers’ financial position.

Obviously the people who have taken the difficult decision to close their breweries are deserving of sympathy. There often seems to be little correlation with how nice they are as individuals or how good their beer was. But the basic facts of the marketplace cannot be denied – there are simply too many breweries chasing too little volume.

The Society of Independent Brewers (SIBA) have proudly proclaimed the fact that there are now over 2,500* breweries in the UK as a significant achievement. However, if most of them are chasing a limited pool of free trade rather than being brewpubs it does rather suggest a dysfunctional market.

Sadly, there are likely to be further casualties in the microbrewery sector in the coming months. And anyone tempted to enter the market needs to be well aware of the harsh financial realities. And, if you enjoy tinkering about with metal pipes and vessels, you might be better advised to take up a career in plumbing.

Tandleman has also recently written about the problems of the small brewery sector here.

* 2,500 is the figure quoted by SIBA themselves. Other sources give a total of as many as 3,000 - see the discussion in the comments below.

24 comments:

  1. I'm a homebrewer and, back in 2009, I posted on my website the cost of the ingredients for me to make 40 pints. All of the different malts, hops, yeast etc. The only thing I didn't include was the cost of sterilising solution, electricity and my time. It came to £11.39, or 28.5p a pint.
    I did the same exercise today. It came to £12.93, or 32p a pint - a 13% increase in 13 years. Some things had actually gone down in price (pale malt and some of the hop varieties). The only things which had significantly increased in price were Munich malt and Safale SO4 yeast.
    In 2009 I mentioned that the price of a similar pint in my local pub was £2.85, so I was saving £2.56 by making my beer at home.
    A pint in my local is now £4.20 a pint, so I'm saving £3.88 a pint by making my own beer at home. The price of a pint in a pub has gone up 47%, the cost for me to make it has gone up just 13% - meanwhile my savings are actually losing money. And you wonder why people aren't going to the pub?

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  2. In my cellarman experience (which was pre covid), there was definitely a race to the bottom in terms of price and quality. Too many home brewers pushing out mediocre beer at less than £60 a firkin. Also the practice of endlessly tweaking recipes slightly to create another stupidly named guest ale. Even then I thought that there was no way that this could be sustained. Don't start me off on extortionately priced murk though!

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    1. These practices were rife, back in the early 2000's, when I was involved with the licensed trade, so I am surprised that it's taken this long for the fallout to begin.

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  3. We have CAMRA to thank for turning a formerly successful sector of the UK economy into a cottage industry of indifferent amateurs churning out commodity pale ales. When cost pressures hit, only the most efficient survive in a commodity market. There will be a greater ability to raise prices on branded keg products. Energy efficient macro brewers are better for the environment so after the shake out, we’ll have a more resilient and sustainable sector, hopefully free of all the amateur CAMRA homebrew.

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    1. "...free of all the amateur CAMRA homebrew." I'm not sure that it's correct to associate CAMRA with homebrew, but more importantly there is little if any correlation between beer quality and brewery failure. I shall miss the likes of Kelham Island and Great Heck. I don't think we should be congratulating market forces or welcoming (pretty moderate) environmental gains from the demise of top breweries like these.

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    2. I agree with Will that it's unfair to label the microbrews as "amateur homebrew"; they can be very good (or not, the difference is still largely beer turnover or basic cellarmanship).

      But regular readers of CAMRA Discourse will know that the contributors to that are champions of variety, independence and small brewers, with a tendency to slag off the established brewers like Marstons at every opportunity.

      The loss of Kelham Island's beers is very sad. One Discourse comment that "their beers aren't what they were" received no support and since moving to Sheffield I've had fantastic pints of their Best and Pale Rider in the Fat Cat, though I can't remember their beers anywhere else.

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    3. Of course some microbreweries produce high-quality, distinctive beers, but many of those engaged in a race to the bottom on pricing produce very ordinary generic brews, and that's being charitable. And you've often referred to beer tasting like homebrew on your blog, Martin ;-)

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    4. CAMRA pond water in its place. Geeky Micropubs. Keeps it out of the pubs of the gentleman or professional drinker. If Pubaggedon achieves this, creative destruction will have succeeded.

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  4. You can add Wigan's Martland Mill and Prospect (though oddly owed via a Chinese interest *shrug*) to the list, I'm sure there are others.

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  5. "The immediate trigger for this has been the wave of cost increases resulting from money printing to fund world-wide Covid bailouts" come again?

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    1. What was so difficult to understand?

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    2. Looks like someone needs a lesson in basic economics. During the period of Covid lockdowns and restrictions, governments borrowed or created vast amounts of money to fund furlough and business support and to keep public services going. Once economies had returned to something like normal and demand had recovered, this was inevitably going to feed through into higher inflation. Most of this was already baked in well before Ukraine – that was just the icing on the cake.

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    3. Thanks for the economics lesson. Yes, fiscal stimulus leads to inflation -- fair. But to attribute the immediate trigger of closures to inflation is a stretch. Inflation made things harder but it was the same underlying dynamics hurting the pub trade for years that ultimately did them in, accelerated by the dynamics of Covid (much more about less trade than inflation).

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    4. Er, that’s the definition of “trigger”, the straw that broke the camel’s back, not the underlying cause.

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  6. A quick reminder that introducing an antagonistic personal note is in violation of the comments policy. And anyone wishing to engage in extended discussion needs to identify themselves as a recognisable person rather than hiding behind a cloak of anonymity.

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  7. Basically what Mudgie said. I've been yakking on about oversupply for years. Combine it with all the economic factors and the reduction in demand from free houses, the edge which was always beckoning for some, has inevitably been reached. And there will be more to come.

    Perfect storm of rising costs and falling demand due to economic downturn and squeeze on disposable income, plus a viable alternative, be that supermarkets or JDW. You don't have to be a fiscal genius to see it doesn't add up to success for small brewers.

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    1. The brewers which specialise in cask conditioned beers seem to have the most difficulties particularly when they lack their own outlets such as a tap room. Those brewers which are able to offer packaged beers and/or keg beer as well as cask beer can exploit a much greater market and appear to be surviving better. Existing breweries are expanding in Bristol and South Wales and new ones continue to open,if a brewery is flexible and prepared to consider new markets the position is not as bad as it may appear.

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  8. but that was one of the aspects with Kelham Brewery I didnt understand, as surely their outlet was via the Fat Cat, and not just the Sheffield one, Pale Rider was near permanent feature at the Fat Cat Norwich, and often featured in the other local Cats as well as Riders on the Storm and other beers they made, so they had a guaranteed route to market which alot of these micro breweries dont have hence the race to the bottom of the market in costs of a cask to pubs, to get that foot in the door.

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    1. If I had never visited Sheffield, I would never have heard of Kelham Island Brewery, they may well have known their local / regional market, but beyond that they did not have any reach. Putting all their eggs in the local market proved their downfall.

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    2. It was quite well-known in the North-West as well. It was one of the few microbreweries that developed a recognisable brand. And surely it makes sense for small breweries to concentrate on a local market where they can build up personal contacts rather than slugging it out on a national scale with 3,000 others.

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  9. SIBA have never said there are 3,000 breweries. I think you may be getting confused with the report fromaccountants UHY Hacker Young which quoted that number. It's nothing to do with SIBA and not a number we agree with or champion.

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    1. See this article by your Chief Executive in which he says:

      "we can celebrate more breweries since the 1930s, the highest number of breweries per head of any country in the World"

      Yes, he doesn't specifically mention a figure of 3,000, but the basic point stands. The specific number isn't really relevant. Happy to change the figure in the post to 2,500 if you feel that would be a more accurate representation.

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  10. We are actually doing some work on brewery figures to get a more accurate picture moving forwards, but for now, the article you mention quotes HMRC/BBPA figures which show 2020 as 2500. So yes I would suggest your figure needs changing if that is your source.

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