Liberation Brewery: The freedom to grow

The Channel Islands might constitute a relatively small land mass, but to visit 65 of its pubs three or four times each during a four-month period is an impressive achievement for even the most committed pub-goer. To do it without having an alcoholic drink on most of the visits is highly unusual.

Strange it may be, but when Mark Crowther undertook his pub crawl in 2008 he had the serious objective of seeing at first hand whether the business plan he had hatched for each pub would stack up.

The reason for his clear-headed number-crunching was because he was working on a take-over of the 65 pubs, the Jersey Brewery, and a major drinks wholesale business from then-owner Sandpiper that was generating £60m of revenue per year.

The numbers clearly stacked up because, in July 2008, the former boss of London Town and his private equity backers, LGV Capital, completed on the deal. He declines to reveal how much was paid for the business, however. He was installed as chief executive and, since he has a 15 per cent management stake in the combined business, re-named Liberation Group, he has plenty of reasons to deliver on his turnaround plan for the business.

Two years down the line, things are going pretty well, according to Crowther, who spends four days a week on the island: "The business has performed really well with year-on-year growth in year two and we're ahead in year three. We've had a 15 to 20 per cent uplift in profitability in our second year and we're half way through year three and the pubs are 22 per cent up and wholesale is up 9.5 per cent."

Starved of capital expenditure

He says the drinks businesses had been "starved of capital expenditure" by Sandpiper and management had probably become a little complacent from their position of controlling 40 per cent of the Channel Islands' pub market, which in addition to Jersey includes Guernsey, Sark, Herm and Alderney.

His grand plan at Liberation Group has included switching 20 of the pubs from management to tenancy agreements, which has made them more profitable and stabilised the income streams.

"We've also invested in painting and upgrading them, and we've got the tenants to invest too," he says, revealing that the group has spent £800,000 on sprucing them up.

What has also made a big difference is moving the tenants on to UK standard eight-year tenancy agreements compared with the existing six-month rolling arrangements that Crowther recognised as making it unlikely that any licensee would invest a penny in their pubs.

The same sum has also been spent on the managed estate, with major works taking place on a small number of sites including the St Mary's and the Halkett pubs. This has dramatically enhanced their appearance and driven up earnings by significant amounts.

Taking a tour around some of the pubs in Jersey highlights how the expenditure has given them a sparkle. It has also provided a lift to the teams who are genuinely enthusiastic about the changes that have been made by the new management and their own roles within the turnaround of the overall business.

Another factor that has helped fire up the team has been the rejuvenation of the brewery.

"As a private equity-backed company we could have simply shut the brewery. It was doing 2,500 barrels per year of mainly keg beer and this was declining in double-digits," Crowther says.

With a background of 20 years managing pubs and restaurants he reasoned that "having the only brewery in Jersey must be a unique selling point".

He adds: "The sales force must want to sell local beer and the finance boys working on the islands must want local beer. It gives us a good competitive advantage and has helped galvanise us as a company."

But work needed to be done on the brewery to turn around its fortunes. Paul Hurley, head brewer at Liberation Group, agrees it was a dying business and reckons it had no more than three or four years to survive at its rate of sales decline before Liberation appeared.

The plan was to focus on cask ale, which at the time accounted for a mere five per cent of total production, the rest being Mary Ann Best and Mary Ann Special keg beers.

The cask ales were brewed on a small eight barrel 'test' plant that had previously been the off-shoot Tipsy Toad Brewery, whose output reached only a couple of the group's pubs.

Six years ago this bit of kit was moved alongside the main 40-barrel Jersey Brewery plant when the two were combined following the closure of the brewery's original site and its move to the present location just outside the Jersey capital St Helier.

"When Liberation came in they were very keen on real ale," says Hurley. "We launched Liberation Ale in May 2009 on the eight-barrel plant. But volumes increased as it took off and we quickly moved to also brew it on the 40-barrel plant."

Having originally "foisted it on landlords and cajoled them into stocking it" they soon started to ask for it as CAMRA and customers gained a taste for the four per cent ABV beer, which Hurley describes as a "refreshingly balanced" golden ale whose floral zesty finish is derived from 70 per cent of the hops going into the hop back and only 30 per cent put into the copper. Typically these percentages are reversed by other brewers.

Seasonal cask beers - Ambrée, Blonde, Rouge, Noire and Christmas Ale - have since been added to the portfolio, but the flagship Liberation Ale represents 80 per cent of cask production. One of the aims for Crowther is to make it a million pint brand - it currently sells 500,000 per year after only 16 months - and he expects to hit this target next year.

Other important figures are that cask now accounts for 40 per cent of total production - and is continuing to grow - and that keg sales have been stabilised with a hard core of drinkers still favouring the dark and drinkable 3.6 per cent ABV Mary Ann Best.

Exporting Liberation

These numbers will be enhanced by Crowther's strategy of exporting the Liberation range to the UK mainland. This follows a very successful decision to present the range at the Great British Beer Festival in 2009 and 2010, which Hurley says "put us on the map and got people talking about us".

Orders have flowed in since the export programme began in earnest in the summer and deals have been done with the likes of JD Wetherspoon, Mitchells & Butlers, Fuller's and Wadworth. Although this is not as profitable as selling through the group's estate (helped by the fact there is no VAT to pay on beer in the Channel Islands) Crowther says it is sold at a sufficient margin to make money.

It also gives the group a much greater visibility on the mainland, which for Crowther must be of great importance because he and LGV will - at some point - look to exit their investment and the pool of buyers will all likely be UK-based operators.

But as good as the brewery's figures appear, these buyers will be mainly looking for a strong pub estate with a solid record of recent growth. These are the real assets that will generate the valuation multiples that Crowther and LGV will be looking for when the time comes to sell.

To ensure that the pubs continue to deliver on the early promise they have shown, Crowther takes every opportunity to visit them - no doubt often retracing the steps he took during his many days and nights of due diligence.