Beware the craft beer hangover…

Standard

The list of craft beers just keeps growing

In the beer world, craft brewers get all the attention – and for all the right reasons. They have shaken up the world of beer from one where seven large producers largely controlled the UK market leading to laziness and non-existent new product development as they focused solely on cost-cutting and increasing profit margins.

The craft beer revolution was the antithesis of this money-oriented focus, with effort going into sourcing high-quality ingredients and creating rich flavour profiles. Why be Scrooge-like and use one hop when you can put six into the mix and end up with a multi-faceted beer that smashes the insipid brands of the big beer companies out of the park?

Beer-drinkers were thirsty for something different and a new group of brewers – over-indexing on young males with beards – were more than happy to learn the art of brewing and set themselves up in a railway arch or industrial estate unit to slake this growing demand for tasty beer. There is no doubt about it, brewing combines a heady mix of romanticism, coolness and satisfaction in being able to produce something that induces people to state their undying love for each other following its consumption.

The only downside to this combination of a lack of focus on the money side and appeal of being a brewery owner has been the deluge of new businesses. In London alone there were only four breweries at the start of 2010, now there are more than 120.

Crowdfunding has given many of these brewers a helping hand, allowing them to appeal to the growing army of craft beer drinkers and asking them to stick money into a good cause. This has been massively helpful in getting these businesses off the ground.

The crowd has certainly been a much better proposition than paying interest on bank loans – if the banks were willing to lend, of course. The problem is this has been “cheap money” raised with little due diligence and scant expectations from “investors”. This ability to tap into such a great resource has also been a component in driving overcapacity in the market. All but the very best of the brewers have found it increasingly tough to get repeat purchases from pubs, never mind permanent lines.

The obvious solution has been to reduce the price of the beer but for this to work financially it requires economies of scale. Brewers need to bump up capacity through adding employees, installing more kit and cranking up production. To fund this they return to their old friend – crowdfunding.

In doing so these businesses have opened their books to potential investors to reveal the majority of them are unprofitable. Many have their own bars and taprooms in which they can sell a decent amount of their output and keep a chunky amount of margin, but even with this guaranteed channel to market it has seemingly failed to improve the financial situation many small craft brewers face.

This is worrying because if these businesses were having trouble selling their beer before then, what is going to happen following the industry’s widespread cranking up of production as it seeks the necessary economies of scale?

We might be heading for some serious financial woes and failures in the ranks. While the increased competition on pricing might be great for bar owners and drinkers, it doesn’t look too clever for the growing army of small brewers. The craft beer revolution has been tremendous for beer drinkers. I hope the brewers that have produced these great beers for our pleasure also manage to get something positive out of it too – and not just a hangover.

Glynn Davis, Editor of Beer Insider

 

4 thoughts on “Beware the craft beer hangover…

  1. Tom

    I agree with you completely on the above, however there are certain behavioural mistakes that both large and small brewers make on a daily basis. Regardless of ones individuality and ‘anti establishment’ persona, the fact remains that all businesses want the shining light of big companies offering wide and national distribution. This beacon is offered by both the large pub groups and grocers, and seems to be the focal point for the majority of suppliers – to your point these deals allow for further investment, new kit,improved efficiency etc. The issue comes however not with distribution but with rate of sale – too many brands have fallen victim to exponential distribution coupled with poor execution and thus poor rate of sale. For draught brands this is a much bigger problem then any other category due to the decline in quality as soon as a keg is tapped. There is an enormous amount of trust given when we sell a keg of beer , months, weeks, days and hours of passion commitment and time are given to producing a fantastic liquid, but that same dedication is often not shared by the retailers and instead a financial bias comes into call – many General managers, and rightly so, will refuse to dispense beer if it is not capable of clearing a keg per week (if not, line cleaning results in that tap costing more than it delivers) regardless of how many weird and wonderful hop varieties are contained in the brew process.
    In a world of fierce competition, what all brewers need to do is come together and align on strengths, qualities and best practice. There is no doubt that the quality of beer production has increased significantly, however there is still work to be done to ensure that these fantastic products reach our customers in the same, uncompromised and fantastic condition that a paying consumer demands and rightly deserves.
    The future is not gloomy, instead it is one of opportunity, but in the same way that we have seen breweries move from huge polished monolithic industrial parks to tiny quirky unique railway arches, we need to deliver the same thought process and attention to the delivery, training and execution.
    We are living in a world where it is fashionable to be ‘anti stuff’ it is so easy and amusing and in some cases self fulfilling to criticise others and mock our competitors (lets be honest now is there a craft brewer in the world that wouldn’t give their finest secrets to have a tenth of Carlina or Fosters Rate of sale!)
    The future needs to be a commitment and move to support and work in collaboration as an industry , be demonstrative, give praise to others, accept our limitations and share the wonderful pool of opportunity with regional cousins and partners.

  2. Glynn Davis

    Many thanks for your thoughts. I’m overall positive but there are concerns as I detailed – and you did too. There is a lot of goodwill but that does not necessarily pay the bills.

  3. Mojo

    Coming from a retailers perspective there are too many bad craft beers (both badly executed and by far our biggest bugbear badly packaged beers (both keg and can)), charging prices they don’t warrant, added to the charging over £120 for a product just because you put IPA in the title (Mate – Its an American brown, not a Brindle IPA), And the just because you fancy making a Lemon & Lime Coffee Berliner Weiss dosn’t mean you should crowd.

    From a serious business perspective – the financial miss-management and then over reliance on borrowing to start and then crowd funding to bail themselves out by certain breweries (some skate perilously close to fraud) I suspect we will see quite a few breweries fold (with the better ones just simply acquired) in the next 3 years (and some of the more established ones too), and subsequently quite a lot of cheap stainless doing the rounds. As a hobby i have been watching the SIBA classified and noting the number of kits for sale increase dramatically over the last year.

    On a side note i have noticed the serious lack of understanding of how business works (especially brewing which is essentially small scale food manufacturing (i would take a cheese production line packer over a ‘avid homebrewer’ from a business perspective) ) by people in early stages of starting a brewery – Buying expensive brewery kit is not a business, making beer is not a business – Getting paid for beer is a business. There is a huge amount here that can be sorted (correct and timely invoicing, actually delivering on time, actually delivering a product thats saleable, )

    By all rights when starting a brewery from a HR perspective a brewer should be probably about the 5th person hired (after several sales people and a dray) and buying a big shiny kit should probably be one of the last things you buy (even after your own fleet of kegs and a decent canning line when cookoo brewing is so available and increasingly cost effective)

    Throw all of these things in the mix and you end up with businesses with no margins, and are badly run

  4. Glynn Davis

    That all sounds pretty much aligned with my thinking. I knew of an Alt IPA that was actually a brown ale but the brewery knew that those three magic letters would sell the beer whereas any reference to brown would not.

Comments are closed.