Thursday 11 April 2024

Boom or bust?

Earlier this week, the Guardian published a rather self-contradictory article about the craft beer market. On the one hand, they say:
For the time being at least, the demand is still there. A report from the independent brewers’ trade body Siba, due for release in May but shared with the Guardian, will show double-digit growth in production volumes. Increased output correlates tightly with sales, reflecting Britain’s enduring thirst for the complex and diverse flavours that the craft sector offers, particularly compared with mass-market rivals.
But, on the other hand, they report:
But competition is fierce, customers’ budgets are squeezed and costs associated with Covid-19 – and Britain’s sluggish economic recovery from it – are piling up. “It’s like death by a thousand cuts at the moment,” said Alex Troncoso, co-founder of the award-winning Bristol-based brewer Lost & Grounded. He reels off a long but by no means exhaustive list of factors paring back the industry’s meteoric growth. Amid the inflation crisis, the cost of energy, ingredients and wages has soared. Debt repayments, including on government Covid loans, have become more punishing, as the Bank of England raises rates to keep a lid on prices.
These two statements just do not stack up. And my feeling is that, while a handful of craft brewers may be trading strongly, the second is much more generally true than the first. If the market really was buoyant, there would be scope to rebuild margins through increasing prices. Craft beer is not a homogenous commodity and there should be scope to charge more for well-regarded products. But intense and cut-throat competition in a market that is at best flat is more the reality they have to face.

A distinction also needs to be drawn between brewers mainly supplying cask ale to the one-trade, and those who concentrate more on craft keg and the off-trade. I’d guess the second category are struggling less, and there certainly still seem to be plenty of takers for garish cans priced at £3+.

Brewing differs from most other businesses, at least at the lower end, because most participants enter it to some degree as a labour of love rather than as a purely commercial proposition. The boom in brewery numbers during the 2010s was driven by a combination of low interests and the rise in interest in craft meaning that more wanted to seize the opportunity to give it a go. It wasn’t the case that consumers were saying there was a severe lack of choice when there were only 750 breweries. And, while competition is broadly a desirable thing, there is a law of diminishing returns as to what benefit to consumers an ever-increasing number of producers actually provides.

But the shock of lockdown combined with the increase in interest rates triggered by the rise in government spending to fund it brought these favourable conditions to a grinding halt. While one has to have sympathy for individual brewers left with no alternative but to cease trading, there is still considerable oversupply in the market, and there is likely to be a lot further to fall until some kind of equilibrium is restored.

It also has to be accepted that there are no broad sunlit uplands awaiting just over the horizon. The current conditions of higher interest rates (although still only normal by historic standards) and suppressed demand are likely to persist for some time. This is the “new normal” we were told we had to adjust to. There is also the likelihood that an incoming Labour government, faced with pressure to fund various areas of spending, will return to annual inflationary increases in beer duty, which has been fairly flat for the past eight years.

There are some parallels with the situation at Stonegate, Britain’s biggest pub company, which is currently struggling to refinance its enormous debts. While trading in many cases is reasonably healthy, the company is being overwhelmed by the huge burden of debt it took on to acquire Enterprise Inns just before Covid struck. This situation can be traced back as far as the 1989 Beer Orders, which resulted in the “Big Six” brewers selling off their tied estates, much of which were freehold, to debt-financed pubcos. Debt has been a millstone around the neck of the pub industry ever since, and company failures are in most cases caused far more by excessive debt than by poor trading.

I suspect at the end of the day a way will be found to kick Stonegate’s debt can further down the road. However, even if it were to become insolvent, many of its properties are sound businesses and would find willing buyers, so would not be permanently lost as pubs. But such an event would cast a shadow over the whole industry.


  1. Whilst you correctly point to input cost inflation (energy, agricultural commodities) combined with a higher cost of capital (higher price of money) as pressures facing this sector, there is another factor.

    Craft beer is a maturing sector and all things being equal you’d expect a degree of rationalisation and consolidation as a market matures.

    It’s noticeable at the retail end whilst some higher priced outlets are struggling to increase prices and attract custom, value chains like Timbo’s taverns are rammed.

    The graph you show doesn’t look to me like a bubble bursting, more a market rationalising after a period of significant growth.

    A market for value investing rather than greater fool theory if you’re buying into it, a market to discount if you’re cashing out your chips.

    1. I think the best model for success is

      > Brewery
      > 15 - 30 pubs
      > Tight geographical area
      > Wet based with a limited quality food offer - cobs at all times
      > Great beer and housekeeping
      > Equally appealing to working class non beards and beards
      > Freehold
      > Gradual Growth
      > Family owned
      > Not greed based

      Think Bathams, Holdens, Black Country, Titantic

      I still think there's a few quid in the game yet

    2. Totally agree. These breweries are thriving. Good beer, good prices, loyal customers including me !!!

    3. In an period of rising prices and squeezed living standards, Timbos Tavern's are well placed because more people fall in to their price point from higher spending demographics, than are priced out of Spoons in to (forced) drinking at home.

    4. like an Adnams you mean ?

    5. Not only has craft beer market matured, it is now being taken over by the big boys. Soecialist craft bars aside, practically every bar around here now has some sort of "crart beer" on tap made by Heineken, Diageo or Brewdog. A few years ago they probably had a tap selling some sort of "craft beer" from a small brewery but not any more. The big boys acquired some brands and are now squeezing the market at the expense of the smaller breweries.

    6. No, Stono, not like an Adnams at all, because they embraced the national off-trade many years ago, opting to expand their volume far beyond the demands of their modest tied estate, at much reduced margins.

    7. No, Adnams went for the free trade in a big way and sidelined their own tied estate.

    8. Reg do not forget lower middle class as they are the second biggest socio economic group and also tend to drink beer be it ale, lager or stout.


  2. Whilst welcomed at the time, especially by CAMRA, the Beer Orders have a lot to answer for.

    Whatever else that might have been said at the time, the big brewers looked after their tied estates, and kept their pubs well maintained.

    1. The venture capitalists and money moved quicker than the small independent people. They also had first advantage. If selling off lots of pubs, the most valuable would always have been sold in big parcels to clear them. That involves big money unfortunately.

    2. they might have done at the time, would they in the modern world though ? Ive not heard of a single mainland UK brewery thesedays big or small who really looks after their tied estates.

      as for Stonegate, why on earth did they buy Enterprise Inns and saddle themselves with 1.7billion pounds of debt, what did they hope to achieve by it ? theres leveraging debt to boost your business, which seems the private equity way, and theres making silly decisions that ultimately destroy your business in the process and this feels very much the latter, and doesnt having anything to do with the beer orders, such pubco style business were operating at least a decade before the beer orders and ran in much the same way as they are today still.

    3. There were pubco-type operations in the 80s buying up surplus pubs from the Big 6. Belhaven particularly springs to mind. But they were pretty small in terms of the overall market.

    4. I think that tied houses can be great for small to medium independents to get a foot in the door. Ireland has a cartel problem with the pub trade so abolishing the ban on new licences being created might offer some relief.

      The problem with a number of these new wave small independent breweries is a lack of a core range. Same problem over here in Ireland, DOT, Third Barrel etc have a forever changing range compared to O’ Hara’s, White Deer, Ballykilcavan and Sullivans to give an example. Also beers that can attract a traditional beer drinker as well as offering a better at least in my view to any big two equivalent. Sullivan’s ruby mild is the best in its class here in my view at least in my opinion.


  3. Professor Pie-Tin11 April 2024 at 16:27

    My local is a Stonegate. Very well run by the young couple who lease it and profitable but from what I gather dealing with Stonegate is a constant battle to get them to invest in the fabric of the building and carry out even the most basic of building work to keep the place sound. My sparky drinking mate says the electrics are a horror show.

  4. The garish tins may still be selling at £3 - £5 each but an awful lot of them now seem to be in supermarkets. I don't know what price Sainsburys pay breweries for a can but I suspect it is a lot less than your small beer shop pays for it.

    1. A few brewers supply supermarkets but the number has dropped sharply over the last year. If you look on the shelves you'll see just a handful of names.

  5. Professor Pie-Tin12 April 2024 at 08:54

    The PPT sparkler experiments continue.I take my own to the pub occasionally when it's not busy to show the young bar staff what they are and try beers with our without it.
    Last night the Brains SA came up with a creamy head but with little discernible difference in taste.
    But it utterly transformed a pint of Old Speckled Hen with a chewy creamy head and powerful toffee taste and aroma. It was bloomin' gorgeous.

    1. So if you want a thicker, denser longer lasting head get a sparkler pour.

  6. Professor Pie-Tin13 April 2024 at 13:08

    It's funny how the much sneered at Sam Smiths keeps on rolling along as other upstarts fall by the wayside.
    I happened to be looking at the drinks menu of a trendy jazz club a short walk from our LAX hotel where we'll be staying in a couple of weeks time on our way down to Hawaii.
    There among the pricey cocktails at the SamFirst Bar is Sam Smiths 5% Organic Cider at a very reasonable nine bucks a bottle - flying the export flag for Blighty.
    And our exports do seem to be doing rather well at the moment despite what the mattress-stainers of the FBPE crowd will whine.
    This week saw Blighty rise to become the world's fourth largest exporter of goods and services after China, USA and Germany - a rise up from 7th place in 2021.

    1. The fact they upped the strength of both their Light and dark mild ales shows. Reckon they will continue to do good trade, especially when Humphrey Smith retires.

  7. Professor Pie-Tin13 April 2024 at 17:37

    I'm not on Twitter but I do follow a few interesting accounts including Old Mudgie here and noticed his comment yesterday that " hash browns are really nice and go very well with a cooked breakfast "
    Well, yes and no. Proper homemade hashbrowns are excellent but I dislike those triangle frozen jobbies intensely.
    Funnily enough I've been thinking a lot of breakfast this week after stumbling across a post about 'Spoons breakfasts on one of the more obscure beer blogs.
    I eat the same one every single day.
    One long slice of Jason's sourdough bread toasted under the gril rather than in a toaster for a more even toasting with " buttery " flavoured margarine, Vegemite and topped with a sliced banana that has to be cold from the fridge. After years consuming those cholesterol-lowering marges I find most butters hard going these days although I do like French stuff.
    The coffee is always freshly-ground Mocha Parfait blended beans from the Algerian Coffee stores in Soho's Old Compton Street. I recommend anyone to visit if they're up in the smoke as the aroma inside the tiny shop established in 1887 is the most unforgettable olfactory stimuli of my life - along with the scent of cigars from the giant walk-in humidor at the Partagas cigar factory in Havana.
    When we make our annual visit to the States the first breakfast always has to be two slices of caraway-seeded rye toast, scrambled eggs and home-made hash browns to remind me of the first breakfast I ever had in the US 50 years ago which was the first time I'd ever tasted rye toast or proper hash browns. It was in a tiny Manhattan breakfast joint off 42nd Street before I set off to hitchhike across to Los Angeles three weeks after my 18th birthday. It took me a week and I camped every night by the side of the road.The innocence of youth.
    When my kids come home they expect the same breakfast every time. Streaky bacon, good sausages from a local butcher, black and white pudding and tomatoes all grilled with home-made bubble and squeak, fried mushrooms and a fried egg with the yolk exactly in the middle like the bull on a dartboard.Those one-egg frying pans are ideal for this as you can manouevre the yolk to the middle before it sets using the rounded edge of the shell to avoid breakage. Grilling the top of the phlegmy egg prevents burning the base. Plus a bowl of baked beans ( never on the plate ) and toasted doorstep white toast. And a mug of Yorkshire Gold tea.
    I rarely purchase a cooked breakfast because they generally come with cheap slurry-filled catering sausages. I make an exception for the 'Spoons Egg Benedict.
    On our annual trip to Greece it has to be local yoghurt with drizzled honey and almonds.
    Of course all bets are off when suffering from a murderous hangover when nowt beats a grilled bacon doorstep sarnie with Heinz Ketchup.
    By jove, I'm feeling a bit peckish now ...

  8. The article does not distinguish between real ale breweries that have been around for decades and more recent craft brewers. The latter market is going through a period of rationalisation after over a decade of growth whereas the real ale market saw some small players entering a mature market.


  9. Professor Pie-Tin14 April 2024 at 21:17

    I think I've decided on my go-to drink when the drink I'd normally go-to isn't there.
    Let me explain.
    I paid £16 today to watch probably the greatest English batsman there's ever been play a sublime innings of cricket tapestry woven with cuts,drives,strokes and scoops purely to get in some practice for a summer representing our country on the international stage.
    In front of about 150 people in Bristol as Yorkshire tonked Gloucestershire to all corners.
    Before that, at the lunch interval after a dull first session we'd found a nondescript sports pub five minutes away that had a fabulous real ale selection - of the seven pumps on offer we chose Pride and Jailbreak.
    Bloody superb. We had three fast ones.
    Then the word spread. A wicket had fallen. Joe Root was in. I saw 20 blokes simultaneously down pints in seconds and start hurrying back to the ground. I mean, that's what we were all there for on a chilly April Sunday morning.
    It was a brilliant day and an honour to see a legend in the flesh once again. Working metronomic singles off his back foot like a boss.
    But later, back home and into the local for a fast quart before the Masters all we found in those little hotel jam-jar things in front of the taps were four identical pale ales. I chanced a pint of Gem. Fucking disgusting. So I tried a pint of I can't remember what. Christ All Fucking Mighty.
    Then, like a lifeless botswain cast on the stormy rocks of despair, I chanced on the lighthouse of Leffe. On draught. Cold, crisp and tasty.
    I had found my go-to drink when the drink I'd normally go-to isn't there.


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