Thursday, 28 September 2017

A sign of decline

Many years ago, when I was a young man,1 I was introduced to a local Cumbrian brewery called Yates. Their bitter was at the time an interesting addition to an otherwise well established traditional base of cask beers in Cumbria from the likes of Jennings in Cockermouth and Hartley's in Ulverston. Subsequent closure of Hartley's and the selling of Jennings to Marstons effectively made Yates the oldest independent brewery in Cumbria.

Yates has a place in my heart. In 1986 when it was first established there was very little in the way of microbreweries in Cumbria, if any at all. As a young man it awakened my interest in the brewing industry and was probably an important, if subliminal influence when I considered my own brewing career.

I was saddened to hear a few weeks ago that the current owners, after trying to sell the brewery as a going concern, have decided to simply close the brewery. Having heard on the local grapevine I was waiting until I saw an official word before comment. This brewery closure does sadden me somewhat for a number of reasons.

Quite apart from the fact it is a shame the oldest and most established independent Cumbrian brewery is closing, for me it is something of a weather-check on the state of the industry and the market for independent beer. Moreover, it is an indication perhaps of the likely value of such breweries should any owner wish to find an exit strategy. I feel this is a significant issue for anyone looking to invest in any brewery operation.

Profits for most breweries in receipt of full duty discount is tiny. Indeed, I have some data2 that shows  the average brewery below 5,000hl annual production will be lucky to break even. Some will make a profit and some will make a loss. If it is not possible to sell a brewery upon retirement then it is highly likely an overall loss will be made on exit from the industry in most cases. It seems to me that if Yates cannot sell, as a well established business and known brand, then what hope is there?

Caroline and Graham Baxter, who wish to retire
and cannot find a buyer for their brewery.
Of course growth to a bigger and more healthy business might be an answer, but if a significant number of the estimated 1,4002 breweries under 5,000hl were to grow to an average of say 10,000hl  annual production, which is where I believe we'd need to be to see significant value in the brewing business, then this would represent an increase of their combined share of the beer market from around 3%2 to over 30% of the total beer brewed.

I cannot see how this is even remotely achievable without a much greater revolution in the beer industry. Total volume brewed currently by breweries under 200,000hl is about 9%3 of the total beer brewed and of that about 7%4 is brewed by SIBA full brewing members. To move a significant number of current sub 5,000hl breweries into a strong position we'd need to take significant volume away from the global giants, and although I'd love to see that happen, I doubt it actually ever will.

It remains for me to wonder what the future is. Personally some rationalisation and combined business collaborations would be a sensible move. I did approach Yates when I heard they were up for sale to explore how we could work out a deal. We couldn't afford the freehold, but might have been able to work out how to find value in the brand and the equipment and work out a deal. Apparently our approach wasn't welcome.

I think more innovative business solutions need to be explored if the current micro-brewing sector is to thrive. I've looked at a few options, and with only a few exceptions owners of micro-breweries don't seem to get it and seem determined to plough a lonely and pointless furrow.

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1Indeed, it was a very long time ago.

2Data has been confidentially supplied to me by SIBA.

3Combined SIBA data and BBPA data

4Estimates by SIBA

6 comments:

Ed said...

I've heard they were trying to sell the brewery with a six bedroom house, which made the price over £800K.

Dave Bailey said...

I think originally it was £850k.

Yes, supporting that level of capital outlay could only really be justified in the current climate by someone who wanted the house more than the brewery. It would have to be some rich person who wanted a vanity project and did't really want or need to make money.

Curmudgeon said...

Being honest, a lot of breweries of this scale do not really provide anyone with an adequate full-time living, and their owners tend to also have some other form of income.

And realistically, unless the brand has very strong local support, retirement of the owner is going to mean the end of the business.

Sic1314 said...

Although it's not the original owners though, is it? How has the market changed since it was last sold?
Of the 70's / 80's breweries which have lasted this long, many have changed hands, either to larger breweries (Ringwood) or not (Butcombe), generally for decent money.
How well have Yates been run for the last decade, how much sentiment for them exists locally? How much local value does it have?

goose-entity said...

perspective from the USA.

I live in Alabama, which has a rapidly growing brewing industry. We went from 2 breweries in 2010 to mid 20s today. Every brewery has a taprom where customers come in and drink beer they buy direct. We also have the 3 tier system, which means that small breweries have equal market access as the big boys (well, mostly anyway...).

The lack of a 3 tier type system seems to me to be a huge factor in the lack of profitability of UK breweries. Equal access to market means there is no incentive to sink massive amounts of capital into tied houses.

These days even sports bars have at least 5 taps of craft beer produced by small, independent breweries!

Market access is the barrier to entry. Something needs to be done to address that barrier to entry, or you will see more cases like this over the next decades.

Dave Browne said...

Craft beer in this region is going stale, apart from Hardknott and Hawkshead. Too many breweries being far too average. The days of the cask is going, embrace the changes and you can flourish, don't, and you will sink. Been a CAMRA member since 18, took a long time to realise my mistake.