Brexit’s been an “unmitigated disaster”, rail strikes have struck a “big negative impact” and inflation has been “tougher for hospitality than Covid”. On the flipside, June was BrewDog's best ever month of trade and the brewery is storming ahead on its upwards surge into a global craft beer superpower.
Challenges impacting the Scottish brewery are balanced by reasons to celebrate. For Watt, good leadership is all about managing these contradictions.
His two cents on Brexit? “It’s just made things so difficult.” The company has always had a really strong European export business, he said.
But leaving the European Union has made it much harder to trade with the swathes of customers in mainland Europe. BrewDog’s sites are dotted around Germany, Belgium, France, Spain, Italy, Sweden, Estonia and Norway, and it’s now much more expensive to get beer into those locations.
“It’s taken all these buyers to make a small but decent profit to make on a loss, just because of Brexit,” said Watt. “It now means we’re having to do things like use our facility in Germany to make beer for some of these places, when we would have wanted to make that beer in the UK.
“It has given us so much more paperwork, bureaucracy and cost hassle, and the net result is we’re not able to do as much as we’d like – we’re not able to create as many jobs in the UK as we’d like, as our cost base has gone up.”
Did he think the EU was perfect? “No”. Were there issues with the EU? “Absolutely” Could these issues have been solved as part of the EU without damaging businesses? Watt thinks so.
Brexit impact
The UK is currently on track to be the worst-performing country in the G7 this year, with experts at the International Monetary Fund warning that the UK economy will shrink by 0.3%.
“That’s a direct consequence of the impact of Brexit,” according to Watt. “That’s why we’re suffering with a worse cost-of-living crisis than our European neighbours: we’ve handicapped business, we’ve handicapped job creation and we’ve handicapped experts.”
The whole thing had been an “unmitigated disaster” for UK businesses. But BrewDog, fortunately, is continuing a strong path of growth in the UK, the US, Australia and Asia.
“As a business, we’re doing really well,” said Watt. “But it’s just so frustrating how much European business has suffered, [as well as] the fewer number of jobs we’ve been able to create in the UK because of Brexit.”
And it isn’t the only obstacle facing the brewery. For Watt, the challenge of inflation and soaring energy bills has been “far tougher for hospitality than Covid”.
He explained: “You’ve got this perfect cycle of doom between your cost base going up rapidly, [and] at the same time, consumers have got less money to spend, because the cost base of their mortgage has got more expensive and their supermarket shopping has got more expensive.”
“The contradiction in our business at the moment is it’s a tough time for hospitality, our cost base is up massively but, at the same time, we’ve got fantastic sales momentum in key channels and we’re growing stronger"
This forced many operators into tricky positions. It was “really sad” to see the number of businesses shutting down, and unfortunately, the chief executive believed closures would continue, or even accelerate, through to the end of the year if the Government didn’t step in.
A VAT holiday for hospitality, telecom and electricity bills would give hospitality a helping hand. Watt’s wish-list for the Government would also include the normalisation of input costs and a loan fund for smaller operators.
Best ever month
What’s more, the overall cost of making a case of beer has soared by 40% in the past 18 months. Watt admitted, “that’s been tough”. But there was a silver lining, which was that costs could be absorbed by the sheer scale of the company: “we’re able to fight our way through it due to the growth of our business,” said Watt.
He also slammed rail strikes as having a “big, negative impact” on hospitality, which he estimated cost BrewDog more than £1m in lost revenue during December alone. As a hospitality operator in London, it had been an “incredibly difficult thing”.
But Watt also makes crystal clear that it’s not all doom and gloom at BrewDog. He often tells his team that great leadership is all about managing juxtapositions and contradictions.
BrewDog reported an operating loss of £24m in Q1, despite "record-breaking" revenues of £320m in 2022.
“The contradiction in our business at the moment is it’s a tough time for hospitality, our cost base is up massively but, at the same time, we’ve got fantastic sales momentum in key channels and we’re growing stronger,” he highlighted.
Last month (June) was the company’s “best ever month” in terms of sales by a significant distance and the last week of June was its “best ever week”: BrewDog shipped the equivalent of 11.5m cans of beer.
Black Heart Stout had been “phenomenal” for the brewery since it was launched as a Tesco exclusive, almost doubling the initial forecast for sale, and Lost Lager was also growing “fantastically well”.
Raise a glass
Punk IPA and Hazy Jane variants are performing strongly and new BrewDog bars have launched across the globe – spanning a broad map from Gatwick, to India, to Las Vegas and Atlanta.
Lost Lager had actually outstripped Punk IPA as the brewery’s best-selling beer, with Hazy Jane coming in at third place. “Then Black Heart came out of nowhere to become number four,” said Watt.
A well-made lager, for the founder, is an “amazing thing”. In fact, Lost Lager was crowned the Best International Lager at last year’s World Beer Awards. “It’s a liquid that customers love,” said Watt. “[I’m] excited to see that evolution of lager being the number one beer for us.”
He added: “There’re some tough challenges we need to lean into. At the same time, we’ve got more momentum than we’ve almost ever had at the core of our business, which is really exciting.”
Growing as a business can also look like adapting to changing consumer trends. “Since Covid, we’re seeing less late-night drinking, we’re seeing less vertical drinking, we’re seeing increased dwell times and we’re seeing people buying a lot more food when they’re going out,” explained Watt.
Building momentum
This meant the shape of the business had changed. “We’re now busier in the afternoons and earlier evenings while quiet in the later evenings,” Watt continued, but the increased dwell time meant the brewery’s food percentage had risen from around 18% to 32% as more guests opted for a bite to eat.
“There’re some tough challenges we need to lean into. At the same time, we’ve got more momentum than we’ve almost ever had at the core of our business, which is really exciting"
There are certainly exciting plans in the pipeline for the Aberdeenshire-based brewer. Fans can look forward to BrewDog’s first foray into the ale category in September, with new amber brew Shore Leave promising to deliver “delicious, biscuitty, toffee American hoppiness” to the category, which is a “little bit stuffy and kind of dated”.
And how is Watt feeling for the future? “Very, very, very confident.” He added: “What we like to do is be confidently optimistic that we can lead into the challenges that we face on a day-to-day basis.
“Any time you’ve got your best ever month, you’ve got momentum, and that momentum is a precious thing in business so we’re really excited to build on that momentum, continue to make fantastic beers and see how far we can take this thing in the UK, in the US, and internationally as well.”
