Wednesday, 4 January 2017

Looking forward

The start of 2017; how the hell did that number get so high? This is now the 54th year in which I have been alive (I was conceived at some point in 1964) and I have seen 53 New Years brought in, although admittedly for the first one the only thing I might have seen was vague pinky-red light through the walls of my dearly missed mother's abdomen1. I guess perhaps there might have been some contemporary music of the time that filtered through, which might explain a strange attraction I feel to much of the music originating around that time.

What do we have in store for us in 2017? Where am I going and where is Hardknott going? I have to say at this point I'm very unclear, other than knowing things really have to change drastically. 2016 might have seen a few bad things happen, like Brexit2 and Donald Trump, and what does seem to be an inordinate number of celebrities dying3. It has been a little bit of a contraction for Hardknott, if I be truthful. Our bar on Millom station just wasn't working, for so many reasons and it simply had to close after two years of operation, rather regrettably. We have shed several members of staff, for various reasons and to date have not replaced themTurnover has shrunk slightly, although what is nice is not in proportion to the shrinkage of staff.5  Early indications are that with reduced staff, reduced production and careful choice of sales we are perhaps not in loss so far this financial year.

It is highly possible that this represents a re-group. A chance for us to reconsider and contemplate where we are and where we should go. It gave me great pleasure this week to see that Cloudwater have posted about their future. It is impossible to ignore this mighty force in the craft beer scene and there is a lot to learn from their forward-looking vision. There has already been various questions raised about their plans to cease cask production and Boak and Bailey as ever thoughtfully consider this.

These things inevitably feed into my own considerations. We've been brewing at Millom now for just over 6 years. We have yet to make any significant profit. Indeed, although somehow we make ends meet, just, we have seen our wealth actually decrease as we fund this mad-capped idea, and lose out to various bad choices we've made.We've effectively been stuck since about 2013 due mainly to lack of funding to invest and the difficulty in up-scalling any further. We are plateaued and are somewhere between a rock and a fucking very, very hard place indeed.

This effectively means we've been paying to keep Hardknott alive. For the past 6 years Ann and I7 have been managing to keep it afloat. We had a dream, we believed we could make it work and we still believe that, but it has cost us dearly. This is set against the knowledge that many other brewers feel that there simply isn't the money in the job and several have either stopped brewing or even gone into administration.

The thing that really gets to me is that the one format our beer goes out in that loses me most is cask. I am majorly pleased to see Cloudwater effectively make the same point. We are literally paying for the privilege of putting our beer into cask, the price point in the market being so damn low. It costs us more to make, sell, distribute, get back the empties and fund the cash flow lag created. Then we have the fact that there is office staff time spent chasing all the bad payers out there I have no idea why we still do it.

I have continually made the point that we sell our beer way too cheap, and we are way too small to be viable as a craft brewery making really great beer. Beer that has more care, more time in tank, better ingredients and more wastage due to dry hopping etc. However it seems that in Cumbria there is a continual downward pressure on prices created by there being an oversupply of beer and far too many breweries.

Cloudwater rightly manage to command a premium. Good, they deserve it. Even so they have not yet made a profit even though they now turnover more than £1m. We manage around £230k on a really great year. We cannot achieve higher than that without upgrading the brew-house and potentially relocating8.

To make the next move we require around £100k investment, and probably more, just to get our brewery efficient enough to be competitive. Raising money when the accounts look so poor is no mean feat. Even if we secured funding from banks or other financial institutions I expect the interest rates alone would negate the cost-benefits of any investment right now. It seems to us the only thing that might help us to make a go of it would be to sell our home, downsize and in so doing release some capital. I'm going to be honest, this scares the living shit out of me, not least of which because although we will release capital our house is really efficient and low-cost, our bills are low, should we move into a draughty house we might see bigger bills, which we cannot afford on our none-existent earnings.

Our house is on the market, and I'm hopeful that we will find a buyer this year. Our plan requires that we move and so I can no longer hide the fact that a move out of Millom is essential. I understand it is possible to find some quite nice caravans and this sacrifice will be worth it to save Hardknott. What if even that doesn't get us on an even footing? We will have risked everything to secure a future for what we believe is Cumbria's very best craft brewery.

Apart from downward price pressures and upward coststhere are some very scary noises being made by the big boys in the beer industry. This week I find out about an FT article where it is claimed that there is a squeezed middle represented by brewers above the small brewers relief threshold. I have known about this for some time due to involvement with SIBA's policy committee.  The bigger breweries are claiming, the ones that say they are in the "squeezed middle", that they get no benefit of economies of scale. Clearly this cannot be true, but are in any case pissed off with us little guys for getting a duty discount.

It's a pity they are rocking the boat as I quite liked breweries similar to Moorhouses. I think it is time for a gloves off approach to these breweries myself, and to the larger breweries that no doubt are using these small pawns in their master plan to prevent great micro-brewed craft beer from becoming more the norm. The trouble for me is I know quite a lot about the threat created by the combination of oversupply and these big boy muscle flexing activities and worry about continuing viability and the sense in investment. They are threatening the small brewer's duty relief. If they take that we are doomed.

Of course it's not small brewer's duty relief that is the cause of their problem. It is the over supply and a decrease of value of beer in general. A crowded market where the product is largely seen as a commodity, when there is over supply, the price is bound to see downward pressure. If there are also upward pressures on costs eventually something has to give. From my perspective I have to look very carefully indeed at the situation.

"Looking forward" said the title. Indeed, and this is what I should do, but this post isn't doing that very well. So, let us formulate a plan. I think the options look a bit like this;

1. Look very carefully at our pricing and consider a significant increase.
2. Look very carefully at cask and either put up the price or stop producing it10.
3. Look very carefully at our operation and consider if we should just wind up what we are doing.
4. Do something very, very different.

What is very, very different? Is that not the same as giving up? No, definitely not.

I do not believe what we are doing here at Millom, the way we are doing it, has a long-term future. It might be possible to make it work in Millom, but only by achieving both significant inward investment and a significant increase of locally based sales. I do not believe either are possible in the short term11.

Investment is needed, and this cannot come from traditional sources. What I can promise is that if we do manage to sell our house and do manage a relocation plan we'll be approaching The Crowd, i.e. you, to help match what Ann and I are planning on risking.

More importantly any move will have to see a brewery that looks a lot different to not only what we are doing now, but different to anything anyone has ever seen in the UK before. It has to truly be audacious. It has to not only has to look different, and be different, it has to sell in a different way and  provide our drinkers with a different experience. Everything about it has to radically change the perception of brewing and make a change to the beer landscape of the UK.

Well, that's the plan anyway. I have many great ideas, some of them very exciting indeed. They will need to be honed, massaged, and beaten into shape. They need to be realistic and achievable, but only with blood sweat and probably a lot of tears. They will take a huge amount of effort, some conviction, support from many people and an understanding from some of my critics in the industry that we have big fish to fry. There will be some big personal risks to be taken and we will not be able to afford to take prisoners, big or small.

There are some big brewers out there after my skin, and yours. It doesn't matter if you are a local brewer, or a brewer further afield. Perhaps you are just a drinker, and don't see the danger. Perhaps you are a naive brewer who thinks that you are not part of the big beer market. Perhaps you are happy with us moving back to a beer industry with fewer players, which is what the FT article is really saying. Which ever way your motivation is, get on board, be part of what we want to achieve, and see a real change to the way micro-breweries can operate. Come along with us, if nothing else just for the giggles. But remember we represent the little guy fighting against those old established doctrines put out by many bigger and more powerful entities than us in the industry.

I think we represent the future. It might be a difficult one for sure, but if you want diversity in the beer industry and want a future that isn't the same old homogenous line of predictable beers lining every bar then come on board, support us and be part of it.

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1It's not specifically my mother's abdomen I miss, of course, but just the person in general. Conversely, there are an increasing number of days I feel a return to 1964 might well be a great idea. A reboot if you will. But this post is supposed to be about looking forward, so let us try that shall we?

2Yes, I am a remoaner. I feel strangely proud to be so, considering there was a time I was mildly Eurosceptic. I know, if you are a Brexiteer you'll be shouting "It was democracy" and all that. We should just shut up and accept the will of the people. However, if it had been 2% in the other direction I'm damn sure Nigel wouldn't have just fecked off and he would probably be shouting about how damn close it was. Hey ho.

3My kids don't seem to know who half of them are, and I remember my mother often saying things like "Gracie Fields has died" and me having no idea of who the hell she was talking about. There is an idea that as you get old you notice more people dying who you used to know, or know about. Cool, there is so much to look forward to in life.

4As a part of our New Year review I am pleased to say we are tentatively considering increasing our staff numbers, but will only do so if we feel we can afford to hire exactly the right people.

5For which I have huge thanks to extend to Scott who has worked incredibly hard to make sure the beer continues to get brewed and ensuring that actually this train didn't get derailed in that incredibly difficult year.

6The bad choice there was to agree to let a rogue have any credit what-so-ever. That man effectively stole £2000 from me. Actually, not just from me but from Hardknott, which I think is bigger than just me. It has left a huge dent in my enthusiasm and trust of people. It has left a huge dent in the motivation of the team here. He has effectively stolen from what I believe is the heart of what should be a strong driving force of great craft beer in Cumbria. He still owes it to us, just in case anyone is wondering. And no it is incredibly unlikely that I will let the subject drop until he pays me back plus interest.

At this point I am also going to mention the builder who's negligence wrote off our van. I'd also like to mention his insurer for failing to make appropriate payments. This is another event that has been rather crippling to me in more ways than one. Apart from it being perhaps the scariest moment of the year. Apart from the fact that every time I go out delivering myself in the van, which I have to do more often now due to staff shrinkage, I think about that big builders van apparently reversing towards me at great speed, and the subsequent impact into my side of our van. I fret about the insurance claim that is still not properly sorted, because the insurance company (NFU) refuses to acknowledge that there were significant issues brought about regarding our ability to deliver whilst the van was sorted, and that fact that my shoulder is still not really right, and hurts terribly at the end of a delivery run. The fact that they didn't offer me enough money to be able to replace the van so we fixed and made do (thanks Ryan for the door, you are a star in many ways) The fact that to replace the van, with its sign writing, would cost a lot more than the figure offered. The fact that every time I go out in the van now I hate it and strongly suspect I have some form of PTSD. This collision was in no way my fault and was the obvious negligence of the other driver failing to put the handbrake on in a fully laden 3.5 tonnes transit complete with driver's door buckling extra industrial tow hitch. I often think about the poor biker lady who's frantic arm waving attempts to warn me of impeding doom were to no avail. Added to this one troll on twitter questioned my sharing of the difficulties of delivering beer to sometimes extremely financially unviable locations. That particular idiot added significantly to my stress.

7I cannot understate Ann's incredibly hard work at keeping the ship together. Fighting off suppliers who almost never extend as much credit as some of our customers expect. The phone calls incessant from suppliers who want paid, rightly so, but who inevitably distract us from making beer. Or finding enough cash to pay suppliers because they rightly have us on stop. And yet if we dare to phone up some places for them to pay the bill they conveniently don't have the right people to talk to, or more often think we are being unreasonable despite the extent of the monies owed or time it has taken to pay. Oh, and the lies, them lies, why? Because they are making money out of the credit we extend to them, that's why.

Ann has absolutely been a bedrock of support to me. Even when I've had my worst days of wondering why the hell I'm trying to fight for this dream, she's been there through my foulest of moods. Knowing that there are days when she absolutely has to insulate me from some of the difficulties she has keeping the finances right. I do love her more than ever.

8We have identified that we rarely travel for the business without going through junction 36 on the M6, irrespective of the trip. Be it for deliveries, be it for sales calls, be it for meet the brewer events or for some trade event or other it is just about 95% of all our trade goes that way. Being in the south west corner of Cumbria puts 270 degrees of our immediate radius in the sea. The other 90 degrees consists mainly of mountains and the beautiful, but obstinate Black Combe standing defiantly in our path leaving only two narrow corridors from which to escape.

Of course there are ways of making a name for oneself from a far flung corner of the Universe and in doing so getting sufficient sales into more lucrative markets. Breweries have done it in the past, but generally it involves some sort of awesome, outspoken, audacious and game-changing noise making on the Internet. It can even help to bring along those friends who decide to ride with it. Unfortunately my own appetite for such things has been very severely dented by Internet trolls who I used to think of as my friends. This is a bigger problem for me than I expect they appreciate. 2017 will be different, it has to be. It is important whatever I do to get our message out and to ignore and perhaps even censor childish, irresponsible, distracting and mischievous noises off. They are the biggest reason I refrain more and more form blogging, and in turn sees my business suffer.

9Again, I have argued in the past that our costs are going up and as a result we need to put our prices up. This year in particular most of our suppliers are trying to put up prices, which of course we are resisting. It has been disappointing to me that some Internet trolls, that appear to me to be the sort of people that should be finding ways to help us all to increase the value of beer, have shot me down in a most un-useful and self-defeating way. Why are there people in the brewing industry that want to depress success and want to argue for a below cost supply of beer? These are people that are not doing very well themselves, so why drag everything down?

10I personally think that this amounts to the same thing. Cask has a price point. We can't make it for the price point demanded by the market. If we put up the price it won't sell in sufficient quantity to justify making it.

11We should note the phrase "I do not believe" - it might be possible should we invest significant amounts in both brewing equipment to increase efficiency and a major promotional push into the local environs. Perhaps some sort of crowd funded investment program could see the local fans we have both invest in the brewery and help us to push stubborn local licensees to stop buying shit, knock down priced beer. I have my doubts, but there is a little bit of me lives in hope, and I do know there are a significant number of fans out there who would like to see us stay.

4 comments:

Brewery assistant said...

Hi Dave
Interesting and thought provoking stuff. I'm just making my way into the industry having started as an assistant at a 12bbl plant last year who recently upscaled from a 5. .
Our owner only supplies to his own pubs of which he has a few and swapping with similar breweries with their own pubs where you don't have the hassle of chasing for invoices or getting casks back, because if you don't return mine, I don't return yours!

We are also lucky to have a contract with a high end chain to provide all the beer they sell in their stores. It makes me question whether I should peruse what I thought would be my dream job as it may soon become a nightmare

I still have an email from you I received 11 years ago where I was asking for advice about getting a brewery started and you basically said it was not worth the hassle. I only learned today the price of a bag of hops and nearly fell of my step ladder. Not to mention water, electricity, rates, duty, malt etc etc.

All the best for 2017 whichever route you take.

Real Ale Up North said...

Dave, a very enlightening and candid post. Your beer is excellent. And I wish you all the very best in the future.

Paul Bailey said...

A truly excellent article Dave which makes compelling reading. It also provides real insight into the trials and tribulations of running a brewery in 21st Century Britain. I have run my own business in the past, and whilst it was not on the same scale as yours, I know only too well how perilous things can often be. Sometimes it takes just one bad debt to tip things over; and my wife has seen this with a couple of the companies she has worked for in the past.

Looking at possible solutions, have you considered looking for someone prepared to invest in the brewery? I realise this would mean sacrificing your independence, but if things take off you may be able to buy back the “investor’s share” at a later date.

You also mention “crowd-funding” as a means of financing future expansion. Could you not do that now? As that way you could stay in your current premises and take your home (surely your most important asset?), off the market.

Perhaps I am being a little naïve here, particularly as I am not in the “thick of it” like you, but it obviously goes without saying that I wish both you and Ann the very best of luck. Hang on in there and look to your instinct and your sub-conscious mind to provide the answers, as they must be there somewhere.

Dave Bailey said...

Thanks for the support everyone, really heart-warming.

Paul, your suggestions are certainly not silly and indeed inward investment has been sought for some time. We've had a couple of people seemingly serious and then pulled out when they realised the potential risks. The trouble is I do not believe in over-selling a job so I've always been honest and frank with people I think I can work with. I think that then comes across as defeatist. However, these experiences end up being a waste of time and further dent my own enthusiasm.

I think Hardknott has a lot to offer the UK beer scene. We have experience and knowledge that should not be thrown away. I believe we can make a go of it if we can just capitalise the job without over-onerous interest rates.

To that end we do have a potential partner, but he's sort of getting his act together in various ways and that can take some time. If that really does happen then there might be some very exciting things ahead. However, it probably won't prevent us having to release equity in our own property for various very good reasons.