A silver lining

Managing director Stephen Crawley says the deal with S&N will take Caledonian to the next level. By Mark Stretton.

It was easy to miss among the angst of workers and locals but there was a silver lining to the dark clouds over Edinburgh last week. Caledonian, the Scottish minnow that has managed the meteoric rise of Deuchars IPA, struck a deal with Scottish & Newcastle (S&N) that would take the business to the next level. A partnership agreement would see Caledonian focus on what it does best - getting great beer into pubs - while making the most of S&N's international clout.

"There has been a lot of confusion," says Caledonian managing director Stephen Crawley. "We were quite sensitive to what had happened down the road at Fountainbridge and didn't want to jump up and down about it.

"People thought we had been taken over but now people are starting to realise what a good deal it is for us."

Britain's biggest brewer approached Caledonian, or The Caley as it is known, in January. The serious talks began at the Sheraton Hotel at the beginning of February over a pint of Caledonian 80/-.

The three drinkers at the meeting were Stephen Crawley (pictured)​, his chairman Denis Critchley-Salmonson, and John Dunsmore, managing director of S&N's UK brewing arm, Scottish Courage.

The deal was signed and sealed in a remarkable 16 days. The agreement was structured so that S&N would take a 30 per cent stake in the Caledonian Brewing Company. Caley would retain control and day-to-day management of the brewery and its on-trade business, while S&N would take care of the off-trade and a potentially lucrative export business. S&N acquired the brewery site and its assets too.

The cynics said the deal was one of convenience for S&N as it will allow it to retain a foothold in Edinburgh when it closes its Fountain Brewery this December, with the loss of 170 jobs.

S&N will shift production of some ales, such as McEwan's 70/- and 80/-, half a mile down the road to Caley's Slateford Road plant. The current capacity there is about 100,000 but with investment it could do more. The S&N deal will increase production by up to 300 per cent.

The deal was more critical for the maker of Deuchars as some key long-term shareholders wanted to sell their holdings. "It is better to have a brewer as a partner than a bank or a private equity group," says Stephen. "We are running the business and Scottish Courage understands that little brands are better in the hands of people who are used to running them."

As well as S&N taking a 30 per cent stake, corporate financiers Donald MacDonald and Sandy Orr raised their holdings in Caledonian from 24 per cent to 51 per cent. The remaining 19 per cent is held by Stephen and Denis Critchley-Salmonson.

A chapter closed last week when the original saviours Bill Crerar and Russell Sharp cashed in their holdings. Caledonian is a classic triumph of hope over expectation. When so many brewers have closed down it seems remarkable that it has survived. The brewery site once brewed 100,000 barrels under Vaux of Sunderland and it was threatened with closure in 1987 when Vaux wanted to sell the site to a property developer. A local MP blocked the move and the brewery was bought for £138,000 by Mr Crerar and Mr Sharp. After their intervention sales steadily rose but, like many brewers, it became strategically confused over contract brewing and branded products. It sensibly plumped for the higher returns but harder graft of niche brands.

The real turning point, however, was when Deuchars IPA was crowned Champion Beer of Britain in 2002, since when the brand has gone from 10,000 to 25,000 barrels annually. "We are still coming round a u-bend," says Stephen. "We are holding our own with Caledonian 80/- and have evolved Deuchars. It is arguably one of the most exciting ale brands in the UK."

Indeed it is. Alongside Fuller's London Pride, it is currently making its way on to more bars than any other ale brand. "The concentration on what's in the glass has really helped us," he says. "Quality beer is a great reason to get out of the armchair and go down the pub and one that the licensed trade undersells. Real ale really does a job for the on-trade and those retailers who have focused on it are reaping the rewards."

Despite the rampant success of Deuchars, the brewery does not have a licence to print money. Caledonian is likely to make profits of £70,000 for the year to June 2003 - small beer in anyone's book and only slightly more profit than S&N makes in an hour. But Stephen says sharing overheads and making the brewery more efficient will have a huge impact. "We will make a lot more this year," says Stephen. "We are much further down the track than we thought we would be at this point."

The deal with Britain's biggest brewer will open more distribution doors, such as with the leased business S&N Pub Enterprises, and with Spirit Group, the managed giant that recently bought S&N Retail for £2.51bn. "It is a fantastic opportunity for everyone at Caledonian," says Stephen. "All we had was our brands and our people. That sounds corny but it's true. We have got where we are by everyone wanting to be involved. This deal gives us a lot more momentum.

"As long as we continue brewing the beer to the same quality and do what we say we will, we will be okay. Our existing customers will get the same service, the same enthusiasm. Nothing has changed."

Stephen says that Caledonian and Deuchars is inextricably linked with Edinburgh and that the deal has secured its future in the Scottish capital for the long term. "Edinburgh is a great city with a genuine feel to it - it has what Dublin had a few years ago," he says. "My ultimate aim has always been to make Caledonian to Edinburgh what Guinness is to Dublin. This deal brings that closer."

Stephen Crawley on the rise of Deuchars IPA​

It has the potential to be a small-brand case study in 10 years time - when hopefully it will be selling a lot more than it is now. There is so much flavour - we use full hop flowers, not pellets or oils, and that is a big part of Deuchars and makes a big difference.

It does what a premium lager does in terms of thirst-quenching refreshment but it is easier to drink. We are recruiting drinkers from lager, ale and dark stout. It drinks so well. It is just a drink that people like - it is the chardonnay of beers.

Our problem is keeping Deuchars IPA on sale all night because it sells so well. It really hits the spot.