Wednesday, 19 September 2018

Letting go

It is often difficult to accept defeat. Indeed, when one has been working on something for a long time it can be almost impossible to actually make that final decision that the end of that road has finally been reached. However, until that ultimate decision has been taken it can then also be difficult to move to the next phase; that part of life that doesn't contain the thing that is holding everything else back.1

One of our tanks - new value now close to £7k
We only want around £3k
I have been working on various solutions to keeping Hardknott alive. Mostly these consist of trying to find a partner, a brewing business that has holes in their makeup that we can fill, and in turn perhaps they would bring something to us that we lack. We have followed various leads, offered to talk and we've also approached some who we feel likely to be a good fit. Sadly this has not worked out and largely has lead us down blind alleys wasting time and resources we can not afford.2

I am certain that there are now too many breweries in the UK. There are some successes and those that have managed to get everything right will continue to flourish and grow. However, I firmly believe that the vast majority of breweries below the 5,000hl mark will find it difficult to find true sustainable success, that is unless there are some significant changes to the culture within the industry. My recent experiences searching for a solution to our own position I feel is proof of certainty of this.

Let me explain this in a little more detail. Below 5,000hl annual production profitability is extremely slim3. It's a sliding scale and closer one gets to this important number the more likely a brewery is to make profit, but that profit is still likely to only really satisfy an owners short-term living requirements. Below 2,000hl my research strongly points towards a loss making operation. What this means from a business valuation point of view is that within the range of brewery sizes we are talking about any exit strategy for the business owner looks poor. Making return on investment is highly unlikely without some sort of growth.

Consolidation is in my view the obvious answer to this. Critics of progressive beer duty as it stands points to a "cliff edge" at 5,000hl which it is claimed creates a negative incentive for mergers and acquisitions. I dispute that for various reasons. In actual fact the real barrier to such "normal" business activity seems to be in the very psyche of the owners of microbreweries. "This is my baby, we think we'll make this work all by ourselves" is a paraphrased and slightly exaggerated message I've heard now from the majority of people we've talked to.

Meanwhile there are also talents and passion being lost from the industry as people like me become disillusioned with the hopelessness brought about by the massive over-supply of beer and undervaluation of hardworking micro-brewers.

There are around 2,000 breweries in the country, the vast majority, around 1,400 of them, are below 5,000hl. Their total volume of production is currently around 1.3 million HL per year. If every single one of them were to produce 5,000hl per year we'd see them have to increase their total share of the market from around 3% to a whopping 16%. This stark and fairly scary thought omits to include that fact that if all 2,000 breweries wish to grow, as indeed we assume they do, then massive share of the market must be taken from both multinationals and regional brewers alike. This simply cannot happen as despite attempts to the contrary, and bluff from some quarters, the shape of the beer market hasn't really changed as much as we'd like to think it has.

In actual fact pointing a finger at those under 5,000hl is a bit unfair and it seems to me that no one in the brewing industry is really terribly interested in mergers and acquisitions until we get to the very biggest. Massive publicly listed breweries are snapping up some of the more successful brands, but unless I'm missing something very little is happening other than that.

My prediction is that most breweries will struggle to grow and therefore leave the owners without a plausible exit strategy. If you couple this with the realisation that no one is going to be laughing all the way to the bank, why then does anyone still plug away with the dream when the probability of burnt fingers is so high? It all leaves me somewhat confused.

Me, as a climber, free and happy
I spent 3 weeks in the French Alps this summer, something I would have failed to be able to do if I was trying to put in the effort I'd need to to make our business work. I achieved a life-long goal of reaching the summit of Mont Blanc, a story I shall get around to telling on here I expect4.

I have other life goals, and I'm working very hard on one right now which hopefully will realise itself in the next 6 months. However, to be able to fund these things I need to find a job that has nothing to do with beer. There simply isn't the money in this daft job to even survive, let alone make a decent living, unless I went to work for the enemy and I can't see me coping with that. So, my CV has been dusted off and is being sent out, back to engineering for me I hope.

This post is something of a "goodbye" to the beer industry. We really have had enough. The above description, be it inaccurate due to my jaded point of view or not, has lead me to the decision that all there is left for me to do is sell any remaining stock, of which there isn't much left, and dispose of assets for the best I can get for them, which sadly won't be anywhere near as much as I would like.5

This blog will remain, but is likely to wander completely off the subject of beer and pubs. I've been here long enough, seen the same old arguments come back around again and again and although things have changed, and I hope I've helped change things for the better, there is still an incredibly depressing inertia to new and radical things.

Leaving the summit of Mont Blanc (4810m ASL)

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1Yes, that's right, we have given up completely. We're breaking down the brewery and selling everything we have. Look out for listings on the SIBA website and my eBay account. The best things we have are 6 x 2000 litre gross conical closed tanks which apparently costs close to £7000+VAT to buy new. We also have a 661 bottling line which hasn't been worked hard. We have various other bits of tanks and stuff, although with stainless steel being £900 a tonne to weigh in at my local scrappie some of it will be going that route.

2With due apologies to the businesses that we have actually started dialogue with and it has been us that have decided to walk away. There are numerous reasons why deals can sometimes fail of course. Sometimes it's timing, and where we chase one possible lead at the expense of another only to find the fist is a blind alley it can get very frustrating for everyone involved.

The point is that without enough businesses thinking truly about sustainability and personal long-term gain it becomes impossible to find suitable partnerships and I believe for the micro-brewing industry to prosper and fight much bigger foes a concerted effort to work together must be found.

3Of course there is always the brewery business that manages to also own pubs. Be it a brewpub style operation, a brewery with a tap room or a brewery that owns an estate of pubs, they all have powerful advantages over the stand alone brewery. My current advice is don't own a brewery unless you want to also own a route to market.

Why don't I do that? Put simply, been there and done that. The licensed retail is tough too.

4Indeed it was epic. After 14 years of being my own boss I've learnt a lot and I don't regret it for one minute, but many things have suffered and my passion for mountaineering has been left unsatisfied until now. Why climb? Because the emotions of reaching the top are incredibly powerful, especially when doing so without buckling to the increasing pressure to hire a guide.

"Dave, why am I crying?" asked Fran, which of course was a rhetorical question; when you've planned and dreamed and trained for such a thing for so long the happiness of achievement is incredibly emotional. I spoke to my GoPro, for the sake of the record "The summit of Mont Blanc" as I panned around to show that everything else within visible distance was indeed lower than us. There have been times I have questioned if I'd ever be there, and so I myself found it impossible to fight back the tears of happiness.

5"If our business spends £1 million on a pub the following day we will still have a pub worth £1 million pounds, and that asset is likely to appreciate" a well respected brewery director expains to me "If I convince the board to spend £1 million on brewery kit the day after installation it is simply has scrap value"

Actually, I'd say that there is a risk of brewery installations becoming liabilities as the costs of removal can sometimes be greater than value of any of the installed components. Although this is a smaller risk with microbreweries as second hand brewery equipment can easily be removed and normally has a better realisation of value on selling I know we have some significant costs to deal with to be able to hand back our building to the landlord.

6 comments:

The Beer Nut said...

So sorry to hear this Dave. All the best to you and Ann with whatever's next.

David said...

Sad to hear. You brewed good beer.

Curmudgeon said...

A key problem here is that a high proportion of those 2,000 brewers are what I have described in the past as "hobby brewers", who are not dependent on brewing as for a full-time living. They are either retired, have rich parents or working partners. Nothing wrong with that as such, but it inevitably means that they take a slightly less commercial approach to the whole business, which leaves those who are looking to earn a living from brewing at a disadvantage.

Tandleman said...

First of all having been out this morning, I am pretty surprised that I am the first to comment on this. I'd have thought since you have chronicled your ups and downs for many years on your blog, that more of your erstwhile colleagues and over the air aquaintances, might have chipped in with at least some kind of comment, or even words of sympathy. Perhaps I'm being unfair, though as you may not have got round to moderating them. Maybe they are still taking it in?

Still, I am so sorry that you have arrived at the position you are in. I know from your blog and chatting to you from time to time that you have indeed fought the good fight. I am sorry that you have reached the brick wall. I have always enjoyed both your beers and your company. Your enthusiasm will be very much missed.

You make some fascinating points about the industry, a lot of which I agree with. There is quite a fall coming for many small and maybe not so small brewers, though I'd likely add that those at the small scale end who are "hobby" brewers are likely to continue as the "need" to make money is not as acute. I think there are quite a few of them around.

There was also a fascinating article today by Glynn Davis which provides an interesting insight into crowdfunding with its underlying assessment that there are many problems in the up and coming breweries too (http://beerinsider.com/theres-no-fun-in-crowd-funding/)

Too many breweries chasing too few customers against a declining mmarket means some kind of correction will surely happen.You won't be the last casualty, but to my mind, you are one of the good guys who did a lot of good things.

PS (This has the makings of a blog post. You might see it again.)

All the best to you and Ann, - Peter

Paul Bailey said...

Dave, I’m surprised no-one has commented here yet, so let me be the first.

You’ve obviously had to make a tremendously difficult decision, but for what my opinion is worth, I feel you’ve made the right one.

There does come a time when you have to weigh everything up, and from what you’ve reported, you weren’t achieving that all important work-life balance. The fact that you had to cast aside your passion for mountaineering, speaks volumes for all the sweat and toil you put into trying to make your business not just work, but be successful.

The many and varied trials and tribulations you list, which are faced by small brewers, encapsulate just how strongly things are weighted in favour of the big boys. The obstacles and difficulties which smaller outfits, such as Hardknott face, just to survive, let alone prosper, again illustrate the tremendous obstacles you are up against, trying to compete in one of the toughest commercial environments imaginable.

I know this must be a tremendously difficult period for you and your family, but eventually you will be able to put all this behind you, and move on to better things. You will even get your life back!

So now, having reached the end of the road, you can be honest with yourself, safe in the knowledge that you gave it your all, your heart, soul your everything. As the saying goes, better to have tried and failed than never to have tried at all.

Congratulations on having conquered Mount Blanc, and may there be many other such triumphal moments in your life.

Wishing you all the very best. Paul Bailey

Dave Bailey said...

Thanks for all the comments, and apologies for failing to moderate these good comments.

As far as "hobby" brewers are concerned I'm personally not really worried about them. I really don't see a massive volume of those beers and they don't seem to really impact on the bigger scale of things. Their volume is tiny and really no threat.

The people who shout out about "hobby" brewers are generally the so called "squeezed middle" - they a real troublemakers and are causing true in-fighting in the industry. The call to change PBD being a massive hindrance to true concentration on the big issues.

The big businesses are the problem. Or perhaps just part of the inertia. No one is happy to give up market share, of course they aren't. Everyone whose market share is being risked is fighting back with vigour. The globals, who have absolutely no moral empathy with anyone. They are fighting very, very hard to maintain market share. Real effort by everyone to fight this corner would reap benefits. Looking at hard ties that rob genuine people of their life savings through churn because of pub companies and simultaneously barring many micros from having decent routes to market. But more importantly looking at the various soft ties that exist and are largely ignored is a fight that could reap real dividends for consumers and small brewers alike. But no, we'll all get distracted by the shouty "squeezed middle" that is tearing SIBA apart.

Moving down from that we have the UK based publicly listed companies. Many of the regionals and a couple of nationals fit in here. Cask beer producers given credence by their careful but to me cynical PR game of pretending to be cute and cuddly. The enlargement of the SIBA membership is a massive hit that is certainly set to cause huge shake-up in the industry in the coming years.

Below that there are various companies over 1 million pound turnover and much more likely to be profitable who equally are fighting for survival. It's getting nasty. The "hobby brewers", who some would like to lump me in with, are mostly my friends.

It's not fun anymore, it just isn't. In fact it has got to the point of being a nasty industry to work in. Unless that is you can have a bit of fun as a hobby brewer and not have your hobby cost too much.