Breweries pushed into insolvency due to rising interest rates

The figures, obtained from the insolvency service firm under the Freedom of Information Act, showed 35 breweries became insolvent during the first six months of the year, compared with a total of 38 throughout the whole of 2022.

Price Bailey head of insolvency and recovery Matt Howard said: “The craft beer market was already oversaturated before the economic fallout from the pandemic tightened its grip.

“Many breweries were walking a balance sheet tightrope and have been plunged into the red by a combination of soaring overheads and falling demand for premium brands.”

Price Bailey explained a rising number of firms had been “pushed into insolvency” due to being unable to make payments on loans, which many breweries rely on to finance equipment, raw materials and operating costs, as debt payments increase with interest rates.

Market risks 

Earlier this month, the Bank of England announced interest rates would remain at 5.25%​ in a bid to meet its 2% inflation target.
Regarding the update, Bank of England governor Andrew Bailey told Sky News interest rates would be kept “high enough for long enough” to reach the inflationary target.

“Even in benign economic conditions small breweries can struggle to turn a profit for a few years but with higher borrowing and raw ingredient costs, coupled with weakening consumer demand, many start-ups are likely to fold before they get out of the red.

“While many multinational brewers are seeing bumper profits, smaller independents generally have much higher exposure to market risks.
“They struggle to respond to inflationary pressures by leveraging economies of scale and usually have minimal exposure to foreign markets. It is likely that insolvencies will continue to rise into 2024”, he continued.

Increasingly difficult 

Nevertheless, it’s not just interest rates piling pressure onto craft breweries, Howard added supermarkets had been allocating “less shelf space to premium brands” due a drop in consumers spending and a “shift towards cheaper global beer brands.”

In addition, the record number of pub closures this year had “limited options” for many breweries, Howard stated.

On top of this, a convergence of other factors has squeezed margins, the insolvency firm added, including soaring overheads, driven by raw material and wage rises, coupled with a squeeze on consumer spending power.

Founder and CEO of alcohol-free beer brand Big Drop Rob Fink said: "The independent sector is now sufficiently loud that trying to make yourself heard is increasingly difficult.

“You've got to have a really compelling reason for why retailers should take one of those big names off the shelves, because shelf space is limited.”