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