Dare I post about this subject again? Everybody is getting fed up of hearing about it. I guess it's a bit like watching a 24 hour news channel when there is breaking news of a big disaster or a major government scandal, all you ever get to hear about is the same story. Additionally, some are highly critical of otherwise sensible beer geeks wetting themselves over this. Ah, that made me think. Oh well, one last post and I'll shut up until there is some more real news on the subject.
BrewDog are arguably the most controversial brewery in the UK. They certainly are unconventional with their approach to both brewing and marketing. Now it would seem they are also being unconventional in their approach to funding expansion plans. Their ordinary “b” shares are valued at no more than around £50, if you are very kind, according to a city source. However, BrewDog are offering them for sale at nearly 5 times that asking £230 each. How can they justify such a high asking price on what would appear to be a balmy investment? James seems to think it's perfectly reasonable.
The first problem is finding people who will buy their shares. With such a high price being asked, when the current intrinsic value appears so low, makes it a bit like asking champagne prices for Green King IPA. To continue the drinks analogy; BrewDog are hoping we will believe they are a good vintage, our shares can be laid down and return good on the investment in a few years time. Even so, people in the city don’t think it’s a good investment so why should we?
The mastermind behind the whole operation, James Watt, is hoping his mastery of viral marketing will work wonders. He and his co-conspirator Martin Dickie are just young lads in their 20’s, not long out of University. Being part of the IT generation you’d expect internet wizardry to feature in everything they do. Certainly to date their beers are the most blogged and twittered about beers in the UK online beer lovers arena. Not always seeking full favour, but these boys are only too aware that nearly any publicity is good, especially if your target audience are punks. Loving every bit of publicity, they are repeatedly criticised by authorities for appearing to use inappropriate advertising, only to find that the criticism brings them more publicity. Giving beers provocative names and making beers outrageous strengths gets you noticed, smart boys. Making the beers taste good helps a whole load too.
These guys are hoping to work their magic on the beer lover’s world, hoping there will be enough people who will buy into the BrewDog dream and ignore the fact that the current value doesn't look good against the asking price. They are hoping that people will believe their promise that they have expanded so much in two years, that they can keep going and in another two will be close to maximum capacity of their new brewery. If they succeed it will make them nearly 10 times the size they are now. They claim their initial business expansion is unprecedented given their original investment and we will see a good return within a surprisingly short period of time.
We of course forget the rumours about a BrewDog/Stone collaboration. The brand is likely to expand with enormous effect in the USA. Watch this space, as the information I have would indicate that something along these lines will be happening.
I travelled by train to London to join the BrewDog party. I was twittering the subject with my beer friends on the way and finding that not many are likely to take up the offer. With threats of being blocked, I wonder if I have lost some friends, such was the apparent hostility from some. Although some are interested in investing, but just think the price is too steep, and others just haven’t got the money “or the balls to tell the wife” what they’d spent the money on. It seems punks have got more sense, or perhaps they just lack vision. This could be a problem for the whole project; one of the risks is the chance that the capital raised would be insufficient to enable the project to go ahead, or perhaps it will but at a greater cost due to having to use banks to finance.
But it’s early days yet. James has a way of making it work. I’ll be surprised if he doesn't pull some magic rabbits out of Martin’s mash tun, although sources close to the management team have hinted that Penguins are more likely to feature. After all, Nick Griffin will need beer in his new all white Antarctic retreat.
I’m intrigued at the responses I've seen around the other blogs. Reluctant scooper has drawn up his own incentive plan put forward as a suggestion. To be fair to BrewDog I think some of the suggestions might turn into reality anyway. It is to be expected that any shareholders meeting would sure be a fine party. A members goody box containing some bottles of a special members beer plus tshirt, glass and bottle opener is highly marketable and could be costed at the £20 Mr Scooper is suggesting. After that, as far as I can see, it's just a change of name and perceived status. The word I get from James is that "we are happy with how it is going so far" so perhaps no repositioning is needed.
Tandleman asks why they need to expand. The answer seems to be straight forward, they are running into capacity problems with their existing plant. That capacity problem occuring despite a doubling of the brew house capacity this year. It is reported that the online shop is nearly bare of product and indeed a quick look myself shows that the beers I'd be interested in are out of stock. You can’t brew any more beer when your fermenters are full.
Impy maltings, not surprisingly, complains about the goth totty being used in the marketing. I'm still trying to work out if I'm a sad old lecherous git for liking it or if it's really just another joke. The punk fashion started when I was about 13 and so for me it is retro amusement. The girls in question, once the party was under way, did seem to look like they felt uneasy and out of place. I nearly went to talk to them, but was afraid of looking like a lecherous old git. Thinking back, my trips to London normally show me just how devoid we are, in this Cumbrian valley, of pleasant eye candy and when I come to think of it, the PunkGirls were unlikely to raise my pulse compared to other sights I saw, sorry girls.
John makes some comments here and here. John is a financial journalist by day. He has experience of understanding good investments and he's still unsure that this one is. I've been through the experience of thinking the same. But if you add the tangible assets1 BrewDog now have, plus the growing brand of BrewDog and everything they stand for, with the growth that they have already achieved it is difficult to compare this to the type of company that has an office in Canary Warf. A company that turns over £1 billion a year is unlikely to grow tenfold in two years. One that has a turnover of £1.5 million a year might, especially if it has a track record of ten fold sales increase in the last two years2.
I was sceptical about the two yanky guys. What is Skyy vodka anyway? I've talked to Keith Greggor and he seems genuine and friendly and more importantly talks confidently about what he thinks of his company's £600k investment. He sees that his investment is in two clever guys who are too young to be that smart. He is somebody who has built successful brands elsewhere and feels humbled at the natural marketing abilities of these guys; he's investing in James and Martin.
Finally though, the fact that they have achieved so much interest so far proves that they can do it. If they can get otherwise sensible beer geeks wetting themselves then I've got confidence that they will bring this new brewery to fruition and carry on to grow the brand. So far it surprises me how few people know about BrewDog. I mention them in my place and the vast majority have never heard of them or Fraserburgh. They have nowhere near saturated their potential market and in this day and age of over-burdensome legislation, risk assessment and cotton wool wrapped society I'm happy to chance an arm on these outrageous guys.
"BrewDog is about breaking rules, taking risks, upsetting trends and unsettling institutions but first and foremost, great tasting beer"
1The site of the new brewery, that will be worth £4 million once planning permission is granted, is not currently shown at this value on the balance sheet.
2January 2008 BrewDog turned over about £20k that month. July 2009 they turned over about £250k. OK seasonality might have some effect, but just look at the graph of sales data in the prospectus.