Sunday 28 July 2013

Are there too many breweries?

From a beer drinkers point of view there has almost never been a better time. I don't know the exact number of breweries in the country, but I am lead to believe it is well over 1000. There are literally tens of thousands of beers to choose from. Imported beers are also becoming much more available. This is great, and as a beer drinker I love it.

As a brewer though it worries me. I know it also worries other brewers. The total volume of beer being consumed in the country has been declining for some time. Despite this there has been a steady increase in the capacity of micro-brewing. Yes, this is partly driven by an ever increasing demand from drinkers, which in turn, it could be argued, has been inspired by the increasing choice that has occurred.

Locally to me there continues to be a disturbing increase in the number of breweries. I'm not even going to quote a number, as to be honest, I'm not sure it is possible to count.

Here you see I'm starting to be negative, having started this post on a fairly positive slant. I find it disturbing because I do not believe it is commercially sustainable. Really, I simply don't believe it is.

Locally to us here, not Cumbria in fact, but Lancashire, a brewery had been flooding the market with cask beer at below a sustainable price. They were part of a bigger wholesaling company, who in turn was competing at below a sustainable price point. They supplied into Cumbria and made it difficult to compete at a price we were comfortable with, a price that would maintain our margins and enable us to keep up our VAT, duty, staff wages and paying suppliers. The business went into administration owing VAT, duty and several brewers. Not us thankfully, I could see which way they were heading.

What really saddens me is that this business seems to have gone through pre-pack administration and are back up and trading again. Quite legal and above board, at least to the letter of the law. Personally, I think it's a bit out of order. All the depts wiped out.

Now, I'm all in favour of a free market. Every brewer has to make their own choice about where they want to sit in terms of price versus quality. So on the surface you could quite rightly accuse me of being scared of a little competition. And yes, perhaps I am. Because we're working harder than ever, growing the business and investing like mad to make it work, to make sure we are strong enough into the future to survive and be viable, rather than ending up bankrupt.

Many of the brewers who sell beer at below sustainable prices are able to do so because of the progressive beer duty scheme. The scheme is in place to allow small businesses to start up, invest, and become sustainable; to get over the problems of being small.

What in actual fact is happening is that there are a number of breweries, not all I hasten to add, but enough who are dropping prices so low as to drive down the value of beer to the point where by it is not sustainable. Ultimately, the lowest wholesale price of beer has barely risen in 10 years, this is despite significant increases in the costs of brewing.

Now, as I said above, I'm talking about a few breweries, coming in new to the industry and probably not properly costing out their business. Equally, it also bothers me that many don't really seem to know what they are going to do different that will make them stand out amongst all the other small cuddly breweries. I feel the time has long gone where a brewery can survive just because they are a small, local, traditional cask brewery.

There are plenty more who are doing a splendid job, making great beer and selling it at much closer to what I would consider a sustainable price point. Many who are doing something different, have a firm and robust business plan, know what they want to do that is unique and put effort into image and their story.

Even so, I personally feel that there is a danger that the micro-brewery bubble will burst. I even think there is evidence that this could happen soon. Of course, the same could be said about "craft beer" and we need to all watch out for that.

I am often asked for advice from people who want to start a micro-brewery. I always start by saying that they shouldn't, and point out all the long list of pitfalls. If their enthusiasm can get past my discouragement then perhaps they stand a chance.

It seems clear to me that the increase of micro-breweries cannot continue indefinitely. Something will have to give, sometime, and at some point. There simply has to be some casualties, and we can't just blame the beer tie for all of it.

Anyway, all of this came to a head when we were sorting out communicating to the press our recent bronze medals from our little trip to Dublin. As is my MO, I added a little bit to the story. I'm still unsure if I did the right thing, or if the tone of our press release was right. It did however get into the press and get us noticed, good enough perhaps.

I guess some people will be upset at what I'm saying. Some people might disagree with my thoughts that we're at, or near to brewery saturation. But I do firmly believe that the beer world needs better beer, not just more of the same. We are working hard to improve what we do, and will continue to do so.

What does the reader think? Go on, tell me. My views here are, to some extent, opinion, and you are welcome to disagree.


Curmudgeon said...

Well said, there are more and more breweries chasing less and less trade and at some point something has to give.

When it does, a reputation for quality and dependability will be vital.

Justin Mason said...

The bubble will burst at some point, however when that will be very much depends on whether the market is currently saturated at the moment. Have people had enough 'new' beer and are new breweries offering the consumer something different? Is there an army of beer drinkers constantly searching for new beer or are people settling down to drink dependable beers from established breweries?
I'm sure there are statistics somewhere to prove or disprove any theory that you may have, but we have seen a huge growth in both breweries and beer available at the same time as a growth in the amount of people drinking cider, so surely there is some scope there. I don't believe that we have reached the pinnacle of growth quite yet as there are new markets to explore, however I believe that the strong and prepared, producing good flavoursome beer at a good price will be the ones who survive.

Anonymous said...

I can't disagree Dave. Been saying this myself for a while. Too many brewers in the marketplace.

The 'bubble' is certain to burst soon and unfortunately, may take some talented brewers with it, leaving some mediocrity behind.

I'm just enjoying this brief "Golden Age" whilst it lasts.

Zak Avery said...

The market will decide when there are too many breweries. One would hope that quality will determine who succeeds, although access to receptive markets is probably more important.

Curmudgeon said...

Marketing skill and reliability are also key factors. Even the best product in the world won't sell or deliver itself.

david said...

When we got to 700 micro brewery's I thought the same with then beer duty escalator and pubs closing down at high rate and price war supermarket selling beer at cost, plus rising manufacturing costs something has to give the only way I can see Micros going forward is brew pubs.

david said...

When we got to 700 micro brewery's I thought the same with then beer duty escalator and pubs closing down at high rate and price war supermarket selling beer at cost, plus rising manufacturing costs something has to give the only way I can see Micros going forward is brew pubs.

Anonymous said...

I agree, Dave. It's funny, we spend years trying to get people to enjoy and choose beer, then realise that perhaps it's gone a little too far! The beer drinking scene in cities is changing; more bars, more expensive pints, more choice. Outside of cities? I'm not so sure. Breweries are popping up everywhere, and you have to worry where they are going to sell.
But as Zak and Mudgie say, the cream will always rise to the top. The people who just see brewing as a business and churn out high-volume, low-quality beer will simply vanish in a few years - when the bubble bursts, perhaps.

SLA said...

As long as kind of people who drink cask ale are the kind of people who like the idea of supporting their local businesses, then there will always be room for a small brewery to make a living supplying beer to local pubs. As such there are room for 100s of these little breweries around the country.

The number of craft breweries who keg their beer is a different matter. The expense of kegging tends towards increasing returns to scale and hence the number of keg breweries will probably stabilise at a lower level.

Curmudgeon said...

It would be interesting to know how many of the 1,000 breweries are actually viable commercial enterprises

StringersBeer said...

Good points Dave. It's pretty clear that the ratio of free trade outlets to microbrewer is lower than it was a few years ago. Personally, I'm surprised that anyone can put together a convincing business plan for a very small brewery at the moment. And amazed that anyone can raise the money for a bigger one. The brewpub model seems to be a stronger one - which makes me wonder why anyone would voluntarily give one up and choose to set up a standalone micro in a "saturated" area like Cumbria ;-)

Pastey said...

There is almost certainly a brewery bubble, and it's almost certainly going to burst. And I don't think it will be that long before it does, maybe a year or two.

The last bubble burst back in the 90's saw the loss of a lot of good microbreweries, you just have to look through a few old copies of the Good Beer Guide to see who's no longer around. And mostly you can then look at their beers and see why. Although as has been said, you can have the best beers in the world, but if you don't push them then you'd better have your own very busy outlets to sell them in.

Which is a way I can see several breweries headed.

In and around Manchester especially there are a lot of new breweries cropping up, and the brewers are usually pretty good, often having done their time at another brewery and now starting out on their own, or having made the leap from home brew to professional.

The problem they really face is the one you describe, larger companies selling below cost. These are, I think, possibly the largest risk to the smaller brewer, as long as the smaller brewer can keep brewing good beer. A publican still has to make money, so they're almost certainly going to chose the cheaper beers when they order. But not all pubs do that. Some pubs specialise in the really good beers, in the variety and the names they trust. The more of those pubs there are, the safer the smaller breweries will be for a time.

Perhaps then the smaller breweries should get together to promote these pubs, highlight the best places to get their beers, and possibly get some extra sales out of it?

StringersBeer said...
This comment has been removed by the author.
Cooking Lager said...

you could argue that the governments progressive beer duty sends a signal to the market to go small, creating a market of many small producers rather than few large producers.

Neville Grundy said...

Gosh! The glass really is half empty on this thread. Give beer drinkers the best choice they've ever had, and they'll start moaning, "Oh, it won't last!" Yes, some micros will go bust, but that happens in all areas of business: shops, hairdressers, garages, even good old Woolies.

Real ale sales are the most buoyant part of the declining beer market, and that is of course what micros make. One major factor in the micro boom must be that the big breweries are disappearing: Warrington, where I was a student, had three: Tetleys, Greenalls, and Burtonwood. Only Burtonwood remains. Tetley Leeds closed down recently, only a couple of years after Tetleys was claiming that its bitter was the biggest-selling real ale in the land. The closures of large ale-producing breweries has created room for micros to occupy.

The growth of micros has also affected the regionals, with Youngs merging with Wells, and other regionals setting up their own small breweries within breweries (e.g. Thwaites) to compete with the threat from micros. It seems to me that micros collectively are a significant influence on the brewery business as a whole, or at least the ale part of brewing.

Obviously, expansion cannot continue forever, but I don't see there is a bubble to be burst. More likely the micros producing less interesting beers will fall by the wayside, as always happens in business. The better will survive, although I understand that being better demands a lot of hard work.

The glass is half full, chaps - in which case it needs topping up.

Benjamin Nunn said...

RedNev is right - new micros (and nanos?) are primarily taking up the slack created by the dwindling volumes from the big boys in a market where consumers want more quality and variety.

There's probably room for a further 1000 breweries, maybe more. Whether any of them will ever get beyond micro is another matter - clearly the market can't support lots of big breweries, but for those whose output is a tiny drop in the ocean, there is plenty of room.

A lot of these 1000 are so tiny and obscure I know I'll never see their beers on sale anywhere, even though I drink almost exclusively in micro-forward pubs with constantly changing ranges.

I can understand why Dave would be worried though. More micros might not put Hardknott out of business, but they might hinder the opportunities for expansion and make it harder to get onto the bar at ticker-oriented pubs in particular.

steve thack said...

This side of the penines id say the market has plenty of room to expand. The brand loyalty to tetley died as they left Leeds leaving room for quite a few more micros yet. I do suspect we will, nationally, see another regional or so go under (or become a multi national's brand name) . At the high end (and lets be honest Dave is selling a premium product at a premium price), the competition is hotting up. One thing I do predict is the big boys starting to fight back, how long till Ab inbev are brewing say goose island in the UK? and seriously undercutting everyone?

Mark said...

I'm all for a drive towards better beers rather than more, and calling a halt to the endless obsession for new beers, brewed almost entirely to satisfy the curiosity of beer geeks and brewers, would be a good start.

When I walk up to a bar and see a bewildering range of beers I've never heard of, and have no idea whether I'll like, I think yes, there's too many breweries, although in reality it's more the pubs fault. I just want something outstanding, but just as important, something I 'know' will be outstanding.

In t'old days, it was important that every regional/local brewer produced the full range of beers that discerning customers might want because local monopoly meant you may have to travel to another village or part of town for a different choice. Now, where micro beers jostle on the bar with each other, why the need for 'every' brewer to attempt to brew 'every' beer. The result is that every brewer is in effect brewing the 'same' beers. I recall working my way through the pale hoppy selection of a well-regarded beer pub, and thinking, these all taste the same. This is sadly all too common now, the only real difference is who is brewing them better. Sticking to what is effectively one house style can be done very effectively, as Oakham Ales have shown. They brew pale hoppy beers better than almost all of the local competition, and unashamedly brew to their strengths. More breweries is absolutely not bringing more choice IMO, and I'll be happier when there are fewer different beers to supposedly choose from on the bar.

BeeryPerson said...

The problem with a lot of the micros is that they aren't taking a business approach to this, as many of them aren't business people. When you start a small business, you will have a bit of loss leading to get your product out and in the know, but then you have to know how many pints you need to produce and sell to turn a real profit to keep your business sustainable. I think many don't based on the price of ales in big cask pubs/Wetherspoons. What's happened in many of these pubs is that you're trying to out compete other brewers. Who's paying for this, not the customer or pub, the small brewery building up the losses or turning unsustainable profit margins.
I think we are getting towards saturation and the reasoning makes no business sense due to there is so little difference between the new brewers, there is so little differentiation between the product. Where I am in a small city, there about 20 micro brewers, 17 are pretty much the same, outputting the same 3.6 to 4.4 best bitter, mild and stout. Then one or two which could compete regionally in terms of differentiation and quality and then there is one which is genuinely good on a national level. Logically all the 17 won't survive. Most new brewers seem to run out cash or steam after a few years, when people have moved onto the next new brewer.
Ironically, with the pub market the way it is, it seems brew pubs have the best business model of delivering beer to a consistently required market at a price to the consumer that will undercut most others and still turn a good profit.
Interesting comments also about the brewers doing key kegs, will the extra capital investment I believe is necessary to deliver these mean they are more exposed than the cask only brewers? Or will the longevity of the product when compared with cask, along with the premium price that is currently willing to be paid, mean they are less at risk as they delivering to a more niche market which has less supply and therfore more potential profit?
Once micro brewers start acting more like business people, by charging the full economic cost of the product, we will see how many micro brewers the market can support.
We have also yet to see the big brewers react to their declining market share due to the micro brewers and the lucrative growing key keg market. We are starting to see it, but undoubtedly there will raised competition and reduced prices being paid for beer. Although like USA, I don't expect them to take much from the key keg market, as the market is too loyal/informed I think.
Next few years not looking good I think for brewers, but for beer drinkers probably just the same as now, if not better.

Unknown said...

I have given serious consideration to opening a micro brewery over the past 6 months, having recently taken early retirement. The problem is exactly as you say, the financials don't add up, and are not sustainable, certainly at anything less than a 5BBB process. I reckon people who are opening micro's currently have a romantic notion and cant be considering a proper business plan. Ultimately they are going to contribute to the meltdown as they set prices that are not sustainable.

Unknown said...

Yep, it's saturated, and quality will shine through as publicans learn that a 45quid cask of ale from 200 miles away isn't as profitable as the 75 quid cask from down the road. I'm waiting for the flood of second hand micro-breweries to hit the market, driving down cost, before setting anything up, if I still fancy it when it happens.

Unknown said...

Having most probably been the last person to ask your advice (at Birmingham Beer Bash), I was grateful for some clarity of vision and honesty with a 'like it or not' set of reasons NOT to start a new brewery. As you say, if the enthusiasm outweighs the harsh realities and many many pitfalls, it might still be worth a shot. I think my rose tinted's were definitely lifted after our discussion, but I would still hope to become a part of the cream that rises one day. Although it does look like a lottery win may be essential to kick start it...

Unknown said...

Lots of really great comments here. Not really much else for me to say.

I do feel I owe Terry a small apology however. I knew, as I stood enjoying a really great beer festival that was BCubed, my comments were going out to the press. I simply couldn't let Terry, as he'd asked the question, carry on with his plans without letting loose with my built up knowledge.

It was probably the most aggressive response I've ever given to the question "I'm thinking of starting a brewery, what advice would you give?"

If, despite my advice, he still goes ahead then I wish him all the best.

Perhaps one day I'll actually document the advice in a blog post.

Benjamin Nunn said...

Interesting points about the lack of business acumen amongst some of the micros... I've been toying with the idea of starting a brewpub and restaurant for a few years now, and it's the 'business' side of things that utterly scares me off.

When I think about everything that would be required I dismiss the idea as too risky and too much hard work of a non brewing, non creative nature, which is why I'd be doing it in the first place.

Maybe it's *because* I have experience of working in 'the real world', managing budgets and risk logs and that sort of thing that this rational caution takes precedence over my romantic notions of starting the best brewery in the world.

Unknown said...

Ill be interested to see if breweries continue to supply what consumers want, or will we see more and more brewing beers they want to brew and falling by the wayside. Will demand for strange new brews die off leaving those breweries with quality accessible beers available in most pubs to thrive?

Richard said...

Further up the county, it appears that a couple of breweries are very possibly selling their beer at below the average cost, as it appears to be everywhere that has a handpump. The quality of the beer reflects this unfortunately.

For a county that was such a cask beer desert for so long, we are now awash with breweries, especially in your neck of the woods, I don't envy the market you have to compete in.

Lizard Seer said...

I don't know who that peculiar below-cost-selling firm was, but I imagine the creditors that have been crossed are now baying for blood.

StringersBeer said...

In related news, I hear that one small Cumbrian brewery has closed recently. The beers are still to be seen, brewed out of the county by a related firm. I'm sure the same high regard for business ethics will be applied there as in their other operations.

Richard said...

Firstly can I say what a great blog.
Phoenix companies are an infuriating but almost inevitable part of the Limited company model that we have in much of the western world, but trying to legislate to make people more liable for their debts would lead to genuine honest people ending up in terrible positions or becoming very reluctant to venture into business and the usual sharks/conmen and their sharp practice accountants will always find ways around any new legislation.
I think you're right about reaching saturation point with regards to "microbreweries", I see many of the more business minded ones are already purchasing pubs or going to joint ventures with pubcos. I'd imagine things might be a come a little more cuthroat and the seemingly friendly relationships between local competing breweries a little strained. I suppose the nightmare scenario would be the larger microbreweries with their own pub estates becoming a smaller version of the "big six", seliing predominantly their own brews and if demand for real ale doesn't expand at a rate that matches their ambition deciding to also brew and sell something akin to the bland watery ice cold stuff overpriced stuff that the remaing big breweries thrive on.