A Beer For That - a brewer's view

"It’s a great time to be a beer drinker"- this, if anything, is a statement I have a huge amount of agreement with. The "Let There Be Beer" campaign has recently re-launched itself because the veneer of justification on its original incarnation was so thin as to be transparent. The campaign is mostly funded by large multinational corporations who's logos appear by default on the new site. There are then a splattering of smaller organisations which include national pub companies, regional brewers and some industry bodies. Unfortunately for me, it almost doesn't matter if everything they say I agree with, the sponsors are after only one thing; a return on the investment they are putting in, the agenda will be the same, irrespective of the thickness of pretence hiding the motivation.

Let's look at the statement that I agree with, why is it such a good time to drink beer? Is it because of these organisations? No, absolutely it isn't. It is the microbrewer that have nurtured and championed diversity and a move away from bland, homogeneous offerings. Even the "family brewers" who may well have helped keep cask beer alive, would much prefer to make a narrow range of beers as the economies of scale this affords gives a better return for share holders.

It is clear to me that even the family brewers would, if given a choice, use much blander and cheaper run-of-the-mill hops. It is only the actions of us micro brewers, and the support that the beer enthusiast has given us, that has enabled this explosion of great beer in the UK. It is us that have imported the idea of using much more flavoursome and exciting hops from the west cost of USA or New Zealand hops to create beers with stunning flavours. It is us that have brought forward those flavours as a major part of the beer, rather than as a blend to just spice up very slightly Fuggles and Goldings.

Over the last 10 or so years, since I've been involved with the beer industry, things have moved a long way. There is much more choice, much more diversity and some real changes have happened. This would never have happened without us micro brewers, independent pub owners and of course a good discerning and genuinely curious beer drinker. A demand for more diversity and interest from drinkers has in turn helped micro brewers flourish in a spectacular way.

This enlargement of drinkers curiosity and desire for something new and different has hit the big beer producers a double whammy. The much more interesting and diverse arena of wines and sprits, as well as RTDs¹ have seen the consumer turn its back on less aspirational big brand beers. In turn micro brewers have also been eating at this market share.

We should look more closely at why beer is seeing a decline in overall volume. Although we could question if measuring success in terms of volume is a good thing, that is possibly another topic altogether. Beer, generally, is seen a a dirty, cheap mass produced commodity. Whether we like it or not this is probably the view of the vast majority of people. Beer is also still perceived as a masculine product, by and large. Yes, I know moves have been made to some extent in this area, but largely it remains the domaine of the microbrewer to even look at that subject, and even then, not all micro brewers look at it that way.

Make no doubt about it the chase for volume by big brewers and some smaller ones alike has cheapened beer to the point that it has no aspiration for a population that is nowadays much more educated and ambitious than we were 30 years ago. When I was in my teens around 10% of the population were gaining University degrees. It is now approaching 40%² - we are an upwardly mobile population and we no longer want the offering of the big brand beers. The micro brewers have taken part of that market share and wine and spirits other parts. We can't turn the clock back, the future of beer is small batch producers like us. We can grow the beer market by ourselves, we don't need the help of the big boys who have messed it all up anyway.

Beer is now viewed in a poor light by many a demographic, and this is backed up by many a alcohol related harm article in papers featuring a picture of beer. Of course we can suggest that its all the fault of the press for this, but I'd not agree, and I shall try to explain why.

For many years the bigger beer producers have been interested in one thing and one thing only; volume. Look in the supermarkets, there are products from those big producers often brought in on pallets to sit in great big stacks on aisle ends. Apart from potatoes, I'm not sure there is any other products that are pilled quite so high as cut-price big-brand beers.

The advertising campaigns are largely macho imagery that does nothing to encourage discerning drinking. The big boys are now seeing that the hard work done by the craft beer producers, the micro brewers, the small batch breweries, is actually catching the imagination of the public. Now they want to jump on our bandwagon. Well I for one am not letting them on my bandwagon.

But we know that the sales volume of these beers is decreasing, and let us make no bones about it, if it wasn't for us smaller brewers making an impact there would be no way they would set to on an otherwise apparently altruistic PR campaign. Sorry, but I don't buy the "we're all in this falling beer volume mess thing together" story.

We're absolutely not in it together. The big brand multinational brewers have repeatedly and consistently ruined any variation, interest, aspiration, kudos or self respect for the beer industry. They have found that their volume chase tactics are now finding a backlash with punters who prefer something a bit more sophisticated. Punters who are disliking the macho orientated advertising and turning to craft beer, wine or artizanal spirits. Luckily for us, and other more refined areas of the drinks industry, we are seeing the benefits.

I also don't buy the idea that if we support this initiative the benefits will ripple through to us. For the big boys a few percent change in sales is a massive multimillion pound benefit. To us, supporting this initiative will be benefits that are lost in the noise, at best, and more likely representing us turning our backs on our core values.

Key to all of this is not to increase volume of beer sales overall, no, to me it is much more important to develop aspiration, interest, excitement, and a true added value that is tangible. Chasing volume will inevitably see a return to much more bland and uninteresting beers. We don't need people to drink more beer, we need people to be more discerning about what they drink. I am not interested in a few percentage points of sales growth off the back of a cynical "we're really interested in you little guys" sort of nonsense. We are looking at genuinely growing our business into a sustainable future, and we're doing that off the back of genuine concern to create genuinely stunning craft beer.

I haven't got a problem with people liking the campaign. Indeed, if you are the sort of person that thinks all beer is good, and there is no such thing as a bad beer, then go ahead and like the campaign. Just don't ask Hardknott to endorse it. I believe it is a trojan horse delivered in a way that says you mustn't look a gift horse in the mouth. Except these days, a horse that is only fit for the knackers yard will probably cost you more to get rid of than its worth as dog meat.

It seems there are a few people being hooked into its false promises. We mustn't loose sight of the fact that there is one motive and one motive alone that is driving this campaign. It is the desire of the big brewers, brewers much bigger than us, to drive their volume upwards. They are trying to convince me that if I get on board my volume will go up too. I don't agree, what will happen is we will see more "craft" brands from these bigger brewers once you have all taken the bait, and the big fluffy rug will be pulled from under our feet.

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¹Ready to drink - you know, alchopops etc.
²It is hard to be sure of a citation for the figures I give here - for a start, Polytechnics converting to Universities have caused blips in the figures. Figures from the 80s are anecdotal from my memory back when I was considering degree education myself . However, there is a report that shows that in 1992 17% of the population were graduates compared to 38% in 2013 - that's more than doubling in 20 years. http://www.ons.gov.uk/ons/dcp171776_337841.pdf

Growing a Brewery to be viable

The beer market is incredibly sensitive to price. It might well be possible to sell a very limited amount of beer at an increased price, but basically, the vast majority of beer can only command a price that falls within fairly tight limits. The off-sales market seems to show significantly greater variation as a rule, than the on-sales market, but even so, these limits are in my view quite tight. For the purpose of this discussion I'm not intending to criticise that position. It is a fact, and one that has an influence over the economics of businesses that make beer; the breweries.

I guess beer is a bit like bread, they are both made from grain and yeast is an inherently important part of the processes. But they also share other traits on an economic level; bread is a staple food and as such its price has upper limits beyond which demand drops to zero. Of course the same could be said of potatoes, carrots, onions, rice, milk.....

Beer has one great benefit, much the same as bread; it can be made at industrial scales. Massive plants, with massive tanks, in huge buildings can ensure highly efficient processes. This has always put micro-brewers at a disadvantage. We have small brewers beer duty to help us out in that respect. The key reason for the proliferation of micro-brewers is as a result of the small brewery beer duty. Without it a brewery of the size of Hardknott would just not be economically viable.

Actually, as we currently stand, our brewery isn't really viable anyway. To make enough beer to earn an honest living we need to make more beer. We don't actually need to do very much to what we already have, but we still need to make and sell more beer if we are to make any profit. It's all to do with overheads.

Progressive beer duty starts to reduce rapidly when a brewery starts to sell more than 5000hl of beer. That's about 3000 barrels a year or about 230 firkins a week. Putting it into context that's an exclusive VAT turnover for the brewery of around £700k per year. About 24% of the turnover goes out in beer duty - £170k, and an equal or greater amount goes on raw materials. There are then some variable overheads in the form of energy, costs of ownership of the building and plant¹, rates, transport and for a brewery of the size indicated there would have to be employees and so a wage bill. To achieve and maintain the level of beer sales there would be essential cost of marketing the products. It is highly likely that net profit would be less than 10% of turnover. Perhaps a £50k per annum profit is reasonably achievable, and is an above average salary, although conversely it is unlikely that a business of this size is owned by a sole individual. By today's standards this is in no way a large business. Indeed, many successful town centre pubs turn over much more and probably make much more profit than a brewery under 5000hl production.

This probably represents a sweet-spot of operating size. Above this there is a steep drop off as Progressive Beer Duty is increased steeply. Below this size overall margins can shrink due to dropping efficiencies of scale and simply because percentage net profit for any brewery is unlikely to increase above the 10% mentioned above. Reduced turnover represents reduced profit.

With the stainless steel I have in my brew house I probably have a maximum achievable turnover of around £100k. At an overall net profit of 10%, the maximum we can reasonably expect to achieve, we might earn £10k a year between us. I don't know about the reader, but I think this is insufficient for a reasonable standard of living in the 21st century. This is dependant on us successfully and efficiently brewing to capacity and selling every last drop. Bearing in mind the fact that any business person is risking financial ruin should it all go very wrong, the fact that actual disposable income available is achieved due to a determined and consistent dedication to the operation rather than just turning up 9 to 5 and doing a bit.

I don't want to appear to be complaining too much; running a business has many rewards beyond financial recompense. Some of us do it because we have tried the working-for-someone-else game and don't get on with the concept. Additionally, brewing beer is extremely rewarding. Positive comments from people who drink my beer almost, and note I say "almost", compensates for the poor rewards that today's modern competitive market creates.

It does baffle me, as a result of the key financial issues above, why there is an inherent misunderstanding of the need for breweries to grow. When I have discussed the BrewDog growth or our own plans for growth there seems to be objection to the plans.

I'm aiming for the 5000hl sweet-spot. Going above that would require world-domination plans of BrewDog proportions. However, at that level there are key problems that could reduce the overall profitability. I want to use more hops. If I increase my hopping rate by 1kg per hl, which is not overall a great increase which may seem a lot to the reader, but is what I need to do to compete with the best breweries, at current prices it would represent an increased cost of £40k per annum at this proposed level of trading. That would eat away at my profitability. The only way to negate this would be to increase production and sales, by quite some quantity, overcome the initial disadvantage of the hump caused by the onset of variable beer duty.

My chart here has a logarithmic scale for production. It makes it easier to show the full range of sizes of brewery from nano to regional breweries. It does however mean that the effect of the variable duty rate across the range 500hl - about 2000hl looks less steep than if shown on a linear scale. Either way it can be seen that any increase of capacity above 500hl is going to be incredibly significant for any expanding brewery.

BrewDog are now in this range. In a recent document, sent to me by James Watt, they state that their prices are going to have to increase to account for this increase of beer duty.

"In 2010 our production increased from 8700 HL to 14500 HL meaning the beer duty we have to pay increased by, for example, £5.50 on a 50L keg of Punk IPA."²

As the company gets bigger the increases of beer duty will become less significant therefore I would expect further economies of scale to cut in and help to counter the effects of the duty. From a business point of view, having broken the 5000hl barrier it makes sense to carry on growing.

When talking about specfic problems with the operation over the last year; things that I've also heard customers complain about, BrewDog state:

"The positive thing is that all of these is caused by the demand for our beers."

Again, more reason to carry on growing their enterprise.

So, I hope the reader might now see why the most successful breweries have to grow.

In fact, if Adnam's have their way, those that don't grow will fall foul of proposed changes to progressive beer duty anyway. However, that particular issue is another blog subject.

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¹I don't owe any money on the stainless steel I currently own, however, it represents capital tied up. If I had not bought the plant and put money in an ISA instead then I'd earn some interest. We rent the building and so there is a cost there. We are likely to have to borrow money if we are to grow, this will have a cost implication.

²If my readership is as clever as I expect you all are you will realise that BrewDog turnover for that level of brewing doesn't match my earlier figures. At 14500hl, from my model, they should be turning over less than £2m rather than the £3.7m. I expect the main reason for this is that a large volume of their beer is stronger and bottled, both putting an acceptable increased price on the product.

Additionally the company also now has retail outlets, further increasing gross margins.

The ever-fragmenting beer-world

Just over a year ago, the other side of his 50 week reign as beer writer of the year 2009, Pete Brown complained about fighting within the beer industry. I could see why he felt it was a problem, although some weeks later he then accused us bloggers of becoming complacent and boring. I notice that in that post I was number 7 in the Wikio rankings. I'm now 13th which is simply due to a much lower number of postings this year. I could blame Pete for confusing me and creating my reduced frequency of blogging, after all, one minute he wants us to stop arguing about the issues and the next he wants us to start again. I'm kidding of course, I've just been busy and now I am trying to ramp up my blogging frequency.

I've always been more interested in writing about the issues surrounding beer rather than writing about a specific beer and how awesome it might be. I do sometimes think about writing a bit about beer and food matching; I think I could be quite good if I only put my mind to it. But, the things that are bound to get me most fired up are the various issues surrounding beer, beer drinking, brewing, pubs and the way various people perceive all of this.

This post was inspired by the piece in The Publican by Caroline Nodder which seems to be somewhat scathing about the current phase of modern brewing. BrewDog are of course named, and as much as I don't wish to be labelled as another BrewDog fan club blogger, they are going to feature in this post a little as well. Tandleman posts in response to Caroline too.

When Pete complained about the beer industry fighting with itself I understood what he was saying. At the same time I felt a little worried that some of the issues he claimed we shouldn't be fighting about were the very issues I myself was concerned about. We all have our own perspectives on these things and being able to discuss them is no bad thing. So its good that he later said, we should tackle issues again.

This is the thing; we have to be able to be open, we have to be brave enough to discuss what we feel about our own view of the beer world. Caroline of course does that with her attack on the beer geek world, I don't agree with her particularly, but perhaps I'll come back to that later, as certainly there are some points to pick up. To me, and this is the key thing, it highlights a broadening of the beer industry in a most exciting and provocative way, that can only be a good thing, providing we can all learn to get along rather than feel the need to get the digs in.

BrewDog has had a go at SIBA¹ earlier this year. I'm with them all the way. It is perhaps something that comes out on this blog from time to time; the fact that I have a suspicion that the organisation has matured into something that is less than entirely useful to the micro-brewer. SIBA, as one commentator has put it to me, the Society of Increasingly Bad Acronyms. It would seem the club likes things the way they are and new comers are not particularly welcome, especially if they seem to be having some success. Even worse if they question what is happening.

So it seems to be the case across the industry. BrewDog find themselves in a fight with SIBA, the beer geeks run hot and cold about them and many ask why they want to be as big as they are getting anyway. This comes from the same people who support similar larger breweries who would fail were it not for the tie system. Or the same people who fight for the survival of long since milked-to-death brands that would be better off left to pass into history with dignity. The same people who fight to keep pubs open despite the fact that it is obvious that the market is shifting and some will inevitably shut as a new wave of Indie Beer Bars open up in Sheffield, London, Aberdeen and Edinburgh.

I love cask beer and I love the old fashioned country pub. I don't particularly care for the type of pub that manifests itself in town and city centres. Some are still good I'll grant you, but it takes an exceptional one to impress me. The reader might like them, that's fine, good for you, but beware of hanging onto a bygone age that has a limited future. There is a danger, and it worries me, when observations are made about the beer world having too much reverence for the very substance that we care about. Is it really just a low down drink that shouldn't be described with passion? Is it really just a middle of the road drink suitable for the common man only? Does it only deserve to be found in seedy places, so low is its self esteem? Are we, the writers who care about it, not allowed to use whatever language we want to describe it to the very people who we believe should be able to understand it well: educated intellects with refined palates who may well like home-made scotch eggs, but would never dream of putting ketchup on them? Or perhaps we are too scared that we might actually end up being bettered?

Of course the vast majority of beer made will be made by the large brewers. I don't care about that. Some of them actually prove to me that they care as much as I do, and I hope I give them a nod when I think they deserve it. Even if it is not by making great beer, but caring about me the beer drinker - although normally caring about the beer drinker does result in better than just acceptable beer.

This brings me to promotion of the product. Many beer communicators complain about the way that beer is promoted. Perhaps it is done in a sexist way, perhaps it is silly childish puerile fashion that undermines the seriousness that beer deserves. Or perhaps, as BrewDog does, it is brash and sensationalist and sometimes even offensive. The fact is, it is not good enough just to brew great beer. I know many brewers who brew beer better than me but are stuck because they can't, or perhaps don't want to promote more than they do. If they are happy that way then great, leave them be. However, building a brand is about making a good product and telling people about it, somehow and in the most cost effective way. BrewDog might well be sensationalist with their marketing, but they also make beer that is good, and because they don't actually spend much on advertising their brand, they have more money to spare to make the product good. Why do we hate that so much?

What of the brewers that want to make bigger waves? Like BrewDog, perhaps like me? Are we somehow wrong to want to get our names out there? I don't think so. Publicity stunts are the best and probably only way to do it. I bet many in the music industry hated Richard Branson when he started Virgin Records, but look, whatever you think of the brand now, it probably wouldn't be where it is without the occasional record breaking balloon flight.

What is wrong exactly with making the strongest beer in the world? Or for that matter any other gimicky product enhancement. Every industry does it, like for instance, putting bubbles in confectionary? Why do we think we shouldn't have a bit of exciting diversification in the beer world, we don't have to believe it will ever become mainstream, but if it adds interest then why should we be scared of it?

I like the increasing diversification and the challenging of perceptions that we are seeing. I like the fact that some regional brewers are scared that at least some of the "breweries in sheds" kick out some good stuff and are taking part of the market share. It is also good that some long established brewers understand this and don't join in with the try-and-kick-the-new-idea, but instead go for the I'll-have-a-bit-of-that-too approach.

So, by all means lets have the discussions, it's good. The sparklers argument and the cask verses keg argument will continue for ever I suspect. The best way to describe a particular beer is perhaps a more important one but we will never agree and choosing between good quality and imaginative beer descriptions, accessible beer tasting notes or simple and condescending pictures of noses, eyes and mouths I'm sure will divide us for some time to come. What we expect from a pub or bar, how to market beer and many more important discussions should take place. But why do we have to have a delineation across the beer world and keep falling out over it? We're on the same side are we not? Are we not all beer enthusiasts in some way or another? There is another type of beer drinker, I call them pissheads.

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¹There is background to this on the BrewDog blog.

Shed Breweries

I often get asked where I learnt to brew. People assume I had some home-brew experience or did a course, or perhaps both. No, none of this is the case. I used my tenacity and thirst for knowledge and the very helpful advice of my friend Stuart to get me going. One day brewing under the supervision of a knowledgeable brewer and then let loose on my own plant.

In hindsight I think I was extremely lucky. I followed the knowledge I was given and good beer generally resulted. I built up a model in my own head of why I did certain things and as I gained more knowledge modified that model in pursuit of better beer. Inevitably better results did follow, in most cases, but not without some errors along the way.

Up until a week ago I was still regularly finding information that contradicted my own knowledge about the making of beer. I very much doubt that this will ever stop but I felt on occasions unable to make rational decisions as to the information presented. What I did know was that some of it, especially from home-brewers, was based on inaccurate handed-down knowledge. And the sum total of my skills was no better.

I needed a course. A brewing course that would get me some authoritative information on the science behind the art of brewing. Making beer is a combination of chemistry and microbiology and doing the same thing each time, by rote, does not necessarily produce reliable results. The ingredients being largely natural and the environment changing from batch to batch, without measurements and adjustments variable product will result. Some might say this is what makes micro-brewing interesting, but it can also give breweries-in-a-shed a bad name.

Some members of SIBA have been less than kind about very small breweries, the ones in sheds. To some extent this is clearly sour grapes as we small people are making good in-roads to the market place. There is though some justification to the charge as the outputs from amateur-turned-pro brewer are much more variable. In my view this is a charm and to a beer geek like me an interesting beer is one that makes me sit up and take notice, not one that is an in offensive balance of boringness. But if I want to make a statement with my beer then I need to know how to control the outcome. If I were a painter who wanted a painting full of clashing colours then knowing how to mix that exact tone of colours is vital. If I want a beer that is going to be able to give a smack around the hop-head or one that might well have a bit of yeast bite because I've pushed the boundaries of ABV then I should understand what is happening.

After some research I came to the conclusion that many of the more successful consistent brewers I know have engaged the assistance of Brewlab in Sunderland. They do several courses but I decided that the most suitable for me was the Brewing Skills Development course. This is a 5 day course, nearly completely classroom based and heavy on chemical and biological theory. Very useful for existing brewers who need to know exactly why they do what they do and perhaps to learn why they should not do some things that they do. I went on said course last week.

I could go into great length here about the detail of the course, how the lecturers were witty, engaging and very knowledgeable. I could tell you anecdotes about my frequent good natured arguments about just how much hops can go into a beer before it becomes unbalanced, and how tolerant Chris was of my deliberate contrariness. I could also stress how important it is to engage in the learning process to maximise understanding. But I'll just confine my comments to saying how jolly good the course was.

I would say that having an "O" level in Biology and Chemistry is also handy. If you are a whipper-snapper then I guess GCSE's will do, the fact that you did them more recently should counter the inferiority of this newfangled qualification. You see, I can side with the traditionalists sometimes.

It did get me thinking; shed breweries do produce more interesting and innovative beers. Brewing beer that is nothing more than a carbon copy of a mainstream traditional ale seems a little pointless. "Brewed with traditional English malt and hops" is oft the proud marketing caption. In my book traditional equals boring. An over emphasis on balance and consistency from within the brewing industry may well be contributing to the lack of innovation discussed on Tandleman's blog.

In conclusion, I'm glad I brewed beer before going on the course. I'm also glad I went on the course. I know that brewing 4% session beer, irrespective of the innovation I put into it, is never going to make me any money. The lack of any economies of scale at 2 barrels brew-length does not permit making money at the price level that people are prepared to pay for normal session beer. I think if I had gone on this course before I started to brew I might never have started. I would have believed that making money out of beer is all about consistency and selling volume to the boring masses.

Having a small brewery I have to be different. As they say, it's not the size that matters but what you do with it. Now I am not only equipped with the experimental tenacity that got me this far and the willingness to break with tradition that governs boring 4% session beers, but now I have gained great leaps in my science knowledge surrounding brewing. This in total enables me to push a few more boundaries and make great beer that will satisfy any beer geeks that drop by, hopefully still keeping enough of an eye on balance, tradition and mass appeal.

At least that's the theory.

I still might not make any money, but if I'm not going to make any money doing something, I might as well enjoy not doing so.