Brewdog: Off the leash
The numbers say it all. In seven years, BrewDog has gone from selling small batches in farmers’ markets to shifting the equivalent of c.22 million bottles, with two-thirds of it for export to 42 countries. This year it expects turnover to grow from £10.8m to £19m. Its third Equity for Punks crowdfunding scheme netted £4.25m within months, with £1m raised in just 24 hours.
Last summer the Zolfo Cooper Profit Tracker, produced in association with M&C Report, rated BrewDog as the fastest-growing privately-owned firm in the eating and drinking-out sector, with a compound annual growth rate of 193.3% over three years.
BrewDog is a phenomenon; far and away the most high-profile and successful of the recent new wave of UK craft brewers determined to shake up the British beer (and pub) scene. Speaking to M&C at the firm’s brewery at Ellon, Aberdeenshire, co-founder James Watt is adamant the rate of growth can be maintained, if not accelerated.
“Why not?” he asks. “If you look at [US craft brewer] Sierra Nevada and the size it has got to, if you look at its growth rates, I definitely see the potential for us to continue and potentially strengthen and enhance our growth rate in the next three years. That’s what we’re focusing on doing, rather than slowing down. That’s a challenge for us but I think it’s something we can do.”
But first some background. BrewDog was founded for “selfish” reasons, explains Watt, a former law and economics student who launched the venture in 2007 with friend Martin Dickie, a brewing graduate who had worked for Belhaven. “We make beers that we want to drink ourselves, we make the styles that we want to drink, and hopefully we can convince different people to enjoy them as well,” Watt says.
It wasn’t a roaring success from the off. “One year in we were going nowhere,” he adds. “We weren’t paying our small bank loan back and were almost out of business.”
Business breakthrough
The breakthrough came thanks to Britain’s biggest retailer. BrewDog triumphed at a Tesco beer competition, its beers finishing first, second, third and fourth. The supermarket Behemoth wanted the brand to go into 400 stores nationwide. That required the delivery of 1,000 cases a week.
“I didn’t mention that it was two guys and one dog filling bottles by hand,” Watt explains, sheepishly. “We managed, I think you could say, to tell some lies to the bank to get some asset finance to get a small bottling machine in.”
Orders met, BrewDog picked up listings with Sainsbury’s and other retail chains, and also began exporting to Sweden (the country remains the firm’s biggest export market, and its Punk IPA has become the biggest-selling IPA in Scandinavia).
In 2008 BrewDog had its first taste of controversy after producing the UK’s strongest-ever beer, the 80% ABV Tokyo. Watt recalls: “The media reaction was amazing. There was a headline in The Sun that had my head and a bottle of Tokyo and it read: ‘Binge drinking: blame this man’. It undermined everything we believe in.
“It cost £15 per bottle, so per unit of alcohol it was about eight times more expensive than vodka. We made 1,000 bottles. It was going to be enjoyed by beer geeks, connoisseurs and aficionados.”
The episode didn’t stop BrewDog from pushing the boundaries, however. Memorable releases since have included the 55% ABV End of History, which was packaged inside a stuffed squirrel or stoat.
“We’ve never seen them as a marketing ploy,” says Watt unconvincingly. “We want to challenge people’s perceptions of what beer is and how it can be enjoyed. Most people in the UK think beers are light, 4.5% ABV, highly carbonated beverages with not much taste to them. We want to try to shock them.”
Whether it was the clever marketing or the quality of the beers, BrewDog was in danger of being a victim of its own success and, as orders flooded in, the company launched its first Equity for Punks scheme to generate cash for new beer tanks.
“We couldn’t get the banks to lend to us,” explains Watt. “We’re a small company, we had no security, not much assets. The banking crisis forced us to come up with this alternative concept, which was to ask the people who enjoy the beers we make to invest in the company.”
Around 15,000 people have invested under the three Equity for Punks fundraising schemes and together hold a c.13% equity stake in the business. In return for a minimum £95 spend, they get a 20% lifetime discount at the BrewDog shop and 5% off bar purchases. It’s as much a loyalty scheme for fans as an investment opportunity.
“For us, this new business model is really cool because it shortens the distance between ourselves and the people who enjoy the beers we make. It’s not just about raising finance, it’s about building a culture and a community around what we do.” Funding was also secured from HSBC to supplement the money from the share sale.
In 2010, an exciting new phase kicked off with the opening of the first BrewDog bar in Aberdeen. “The reason for opening a bar, again, was completely selfish. We couldn’t find any bars we wanted to hang out in and drink beer in,” says Watt.
“I think most of the bars in the UK offer the same generic, industrial, lowest-common-denominator beer served by dispassionate people who don’t care what they serve you. We want to create an environment that showcases not only our beers but a selection of the best beers on the planet where staff are knowledgeable, passionate and evangelical about what we’re selling.”
Currently numbering 12 in the UK, Watt reveals BrewDog has “almost secured” its fourth London site, in Clapham, with an opening planned for May. Launches are scheduled for Sheffield in March and Liverpool and Cardiff in April; that month will also see the unveiling of its first site in partnership with Danish brewer Mikkeller at the former Chatterbox topless bar on Farringdon Road in the City of London. Trading performance has been strong at the bars, with average like-for-like sales growth of 17% last year at sites where comparables are available.
Last year saw a shake-up in the senior team behind the bars division, with Caroline Morris, a former senior executive at Mitchells & Butlers, departing as operations director after only a few months.
“She had great experience but the skillset that she had didn’t quite match what we needed at that time of our development,” says Watt. “It was almost a case of right person but wrong time.”
The division is effectively run by Kerry Allison and Martin Keith, former BrewDog bar managers who are now area managers for the north and south respectively. “For the past nine months they’ve done a fantastic job of the bars. Those guys can definitely handle a few more units and it’s my job to make sure they get a few more units to handle this year.”
The bars have been evolved by, for example, the addition of booth seating and audio panels to dampen the noise. The latest UK opening at Shepherd’s Bush, west London, points at one way in which the bars are changing. It includes community pub touches, with comfy seats and a modern take on traditional gaming machines via vintage arcade machines and pinball. This year there are also plans to introduce a certified beer sommelier in every bar.
Overseas growth
Meanwhile, overseas expansion is developing at pace. Two BrewDog bars trade outside the UK – at Stockholm in Sweden, and, most recently, São Paulo, Brazil. Openings planned for this year include Tokyo, New Delhi, Gothenburg (Sweden), plus Berlin in May. Paris, Tokyo, California and Finland are on the cards.
Most sites are run in partnership with local operators. Watt says a member of the BrewDog team is on hand to give guidance and the pub staff will be trained at BrewDog’s HQ.
Back to the UK, and Watt is enthusiastic about the explosion in specialist craft-beer bars in recent years. “To go back to the mid-2000s, if you tried to find good beer in London, it was tough. Now in London you’ve got the Craft Beer Co, Draft House, loads of smaller bars.
“The same is happening in cities all over the UK and I think it’s just a kickback to the fact that, for 20 years, there was a massive lack of choice. I think that’s down to the market structure, where the big beer companies owned the bars, they were tied to what they could serve, you had the same beer made in the same place with different badges on it and that was all that was offered.”
Big players have taken note. A number of major national and regional operators, if not aping the edgy look of BrewDog and others, are at least adding craft-beer lines. Watt has reservations...
