The explosion of craft brewers and the trend for venues to have a constantly rotating range of guest beers are creating major problems for breweries in the ‘squeezed middle’. Claire Dodd looks at the downside of the British beer revolution
The British beer revolution. It’s been a fun ride so far, that’s for sure. From the near extinction of real ale in the 1970s through to today’s array of new brewers and beer styles, the contrast couldn’t be greater.
The Cask Report 2015-16 recorded 1,700 breweries in Britain, with an average of four new breweries opening every week. And since Progressive Beer Duty (PBD) was introduced in 2002, providing significant tax relief for small breweries (those brewing less than 60,000hl per annum qualify for a discount, while those brewing up to 5,000hl get a whopping 50% relief) the number of breweries in the UK has trebled.
So, sit back, crack open a beer and let the good times roll, eh? Well, actually, maybe not. The beer industry is now facing a new challenge, and it’s one brought about by its own success.
‘I’m probably not alone in this, but I think there are a lot of brewers that think rotational beers have gone too far, not just for pubs but also for consumers,’ says Rupert Thompson, chairman of Hogs Back Brewery.
He’s not alone. The talk among brewers at 2015’s slew of beer awards judging sessions and presentations was in a similar vein. An appetite among pubs for a wide and ever-rotating guest range is making obtaining permanent regular listings for their beers a little tricky.
Though it’s an issue affecting brewers with any local competition – and that’s now virtually all of them – add in the cost pressures associated with competing with brewers benefiting from PDB and you have a squeezed middle tier of brewers.
‘We have four new brewers entering the market every week,’ says Thompson. ‘But meanwhile, around 29 pubs a week are closing. That kind of tells the story as clearly as possible.’
Four new brewers enter the market every week, but around 29 pubs a week are closing
It’s an issue that – though raised by brewers such as Adnams in the past – is now really beginning to change the shape of both the pub and brewing trade as we know it. Last year, Batemans Brewery announced that it was having to look for new revenue streams outside of brewing, due to the impact of PBD, choosing instead to focus on a managed pub estate.
Speaking to the M&C Report, managing director Stuart Bateman said: ‘I know of a wholesaler that is able to buy beer from a recently established brewery at nearly half the price that it costs us to actually brew it.’
Imbibe understands from industry sources that a long-established Midlands family brewer plans to turn away brewing business over the next 12 to 18 months to drop a grading in its duty levels. Though brewing has been the core business historically, it now plans to focus on its pub estate.
Meanwhile, Yorkshire-based brewer Black Sheep has reported large losses over the past few years, with chairman Paul Theakston saying a business model that chases large volumes through pub companies was no longer viable.
Stephen Martin, category manager at Punch Taverns, says that it has a number of guest beer programmes in place to give licensees a mix of established and new brands. ‘Unfortunately a lot of pubs now want all of their beers to be rotational. Price is king and you’ll see some licensees who stock particular brands because of the pricing.’
It may seem logical then that mid-sized brewers that don’t benefit from duty relief are tentatively speaking out. One mid-sized brewer that didn’t wish to be named said pricing pressures caused by having to compete with smaller brewers meant the best they could now hope for was to break even. ‘We’re struggling to make a profit even though we are selling more beer and we’re investing.’
To the pub
Dismissing these rumblings as merely sour grapes is both dangerous and short sighted, warns Hogs Back’s Thompson. ‘We had a market that was old and tired and needed new blood, and PBD definitely delivered that.
‘It’s been really good for the industry. But the market is now becoming unsustainable. The danger is we go from boom to bust. Industry bodies have to pull together to recognise there is an issue and jointly come forward with an alternative to PBD that levels the playing field,’ he says.
The upcoming budget may hold some news regarding future duty rates, but even small brewers that benefit from the full rate of PBD are beginning to future-proof themselves, which means one thing: pubs.
Phil Hall, from Grain Brewery in South Norfolk, says that even though they’d have to quadruple output to reach the duty threshold, they’re ensuring their future beer sales.
‘We have three of our own pubs now, but the plan is for five,’ he said. ‘Our sales are growing, but we want to have those to give us some security so we always have guaranteed sales and don’t have to sell to too many other people. If the duty model was changed it would make things very difficult for us. But I totally understand where the bigger brewers are coming from.’
The UK beer market in numbers
There are 1,700 breweries in the UK, producing an estimated 11,000 different beers
According to the Cask Report 2015-16, on-trade beer sales fell 1.1% by volume in 2014
However, cask beer outperformed total beer sales with a growth of 0.2%
Cask ale is worth £1.8bn in on-trade sales, growing by 1.6% in 2014 and by 29% since 2010