Brewery sector balanced by ‘optimism and concern’
According to the Society of Independent Brewer’s Association (SIBA) chief executive Andy Slee, the landscape for brewers is a mixed bag. “There’s reasons for optimism balanced by causes for concern,” he says.
He cites the SIBA Craft Beer Report, which published earlier this year, cites that eight out of 10 people in the UK, believe independent brewers are a force for good in the local community. He says there’s been a move in people wanting to support local businesses of all types, which was a good thing.
What’s more, a quarter (25%) of SIBA’s members’ volume is now sold direct to consumer, which was the “most profitable thing” a brewer could do.
Another cause for optimism, he continues, is cask beer – which being fresh, sold in reusable containers, and “uniquely British”, has all the right features to be successful.
“Trade is better than we feared at the start of the year,” he adds, “people’s expectations in January were incredibly low”. At the start of this year, there were 1,800 breweries, with a drop in only four in net openings and closures in the first quarter.
However, he says it’s a concern that overall beer volumes remain down, and have stayed below pre-pandemic levels. “There is a lot of brewers chasing a smaller overall market,” he explains. The number of visits are down, and this impacts independent brewers, as this has traditionally been their core market.
According to Slee, this makes the need to diversify all the more important. Brewers, unlike pubs, got given loans rather than grants during the pandemic, and these were now needing to be repaid, which were now incurring interest, which is a cause for concern.
The ongoing levels of taxation facing brewers of all sizes is also a worry for Slee. “Brewing is the most taxed sector in the UK economy,” he says. “We will collectively pay 40% of our turnover in taxes, predominantly beer duty.”
What can Government do?
“We’re very grateful for the fact there’s a freeze in draft duty,” he says, but adds being the high taxes weathered by breweries wasn’t fair. “All we need is a level playing field,” is his request to Government.
He continues: “At the moment, beer duty is effectively set for three years. With that there's the scope to increase the differential, the lower duty on draught beer between on and off trade.”
But he says the area in most urgent need of reform is business rates, and calls them “completely anachronistic”. He adds: “It’s not fit for purpose in the online age.”
Scotland’s “chaotic” pushing back of the deposit return scheme also caused a huge level of uncertainty for brewers, but now, Slee hopes the area has moved towards a scenario much more in line with the unified system across the UK.
To tackle challenges, Slee’s advice for breweries is to stay in touch with their end consumer and respond to their needs as they change. Switching things up and trying new things to attract people into beer could also go a long way.
We give Titanic Brewery’s managing director Keith Bott a call to see how he’s navigating the current landscape. He tells us that the biggest issue he’s facing is inflationary pressure on input prices, whether it be energy, food or raw materials for brewing. It’s “really difficult” to try and keep providing value for customers, he added.
“We’ve tried everything we can do, as we always do, to provide the best possible value we can,” says Bott, “but that’s really difficult given the speed at which [prices] are going up.”
Better than expected
Off the back of the pandemic, the brewery had found it more and more difficult to raise the capital it needs to invest in growing the business. But Bott’s sure that the whole industry is in the same boat.
On the bright side, he says that trade has held up better that he’d expected since the New Year. “I have to make an admission that I was one of those Doom mongers post-Christmas,” he confesses, “but we’ve had a reasonable trading period”. This gave him confidence to continue investing and trying to grow the business.
Trading patterns have changed since Covid, with customers coming out less late at night. Bott says it’s important to reflect what the customer really wants, with direct community contact vital. “The pub is societal glue,” he adds. “People have, in times of difficulty, recognised that coming together in the pub is a positive and a worthwhile use of discretionary income.”
All in all, he feels pretty confident about the future. “We’re 37 years old,” he says. “We’ve seen lots of things happen over that time. We’re built on solid foundations, and as long as we keep picking the right places to open, then we can continue to grow the business and head in the right direction.”
UKHospitality (UKH) chief executive Kate Nicholls believes that breweries were facing the same issues targeting the broader hospitality sector: a “toxic cocktail” of input costs, labour shortages and a downturn in consumer demand.
Economic challenges
She says: “There is an acute cost of doing business coming through in terms of energy prices, soaring food price inflation, that is hitting breweries hard.”
There is also the flipside to the story, she says, as you’re seeing failures across hospitality. She adds: “There is a squeeze at both ends. They are losing customers, because you’re seeing closures in hospitality. So, if you want to have a healthy supply chain, you’ve got to have a healthy and robust hospitality sector.”
She continued: “This is why it's so important that the government supports pubs, bars, restaurants and hotels, but also then you've got breweries who are seeing their cost prices increase in energy in particular, and that is hitting smaller breweries over the course of the last 12 months.”
Nicholls said hospitality needed government to put in place measures to support venues in their communities. She says the single biggest issue government could intervene on is help for those who were forced to take out energy contracts at the peak of the market last year, and are now stuck in those very high contracts.
“We need government to work with the regulator and with the energy suppliers to allow contracts to be renegotiated to bring down prices more rapidly,” she says, “and that will help to get both the breweries and the hospitality sector onto a more secure and stable supply chain.”
Annabel Smith, a beer sommelier, beer educator and writer, thinks it’s important to look on the bright side of things. In 2000, there were a mere 500 breweries in the UK, and she says it’s been “fantastic” to see so many sites open, flourish and grow.
However, Covid broke breweries that were on the cusp of survival, and she lists a number of challenges facing the brewing sector now, including high costs of raw materials, debt incurred during Covid, a lack of consumer confidence, and Brexit trading problems.
Competitive marketplace
She also says there are too many brands competing for limited shelf space and limited space at the bar. “It’s just too competitive,” she adds. “Market competition is really healthy, but when you’ve got too many players in the same field, there are going to be casualties.”
But Smith has some words of wisdom for breweries wanting to weather the storm and make their mark. Consistency, price and marketing are key. “Make sure every time you put a batch of beer out it’s as good as the last batch and the batch before that,” she advises.
It’s also important not to be greedy, she continues. The price has to work for you so you can make a profit, but it’s got to work for the consumer as well, she says. Her third piece of advice is to make sure you’re visible and good at marketing. Timothy Taylor’s is an example of a brewery doing everything right, according to the sommelier.
She also encourages breweries to speak to other breweries when in trouble. “Don’t get to the stage where you have to go under,” she advises. “Talk to people. There are solutions”.
She always suggests that breweries should have a flagship brand – something they are famous for. “Everyone knows Landlord with Timothy Taylor’s,” she goes on to explain, “everyone knows Titanic for Plum Porter. It’s a jewel in the crown.”
