Crowdfunding should come with a word of warning

Before travelling to Norway in the summer for a family holiday, warnings came from all directions about the extravagant cost of beer. This proved to be exactly the case as I typically paid around the £10 mark for the equivalent of a pint – but it was not a shock as such because it is not unusual for me to pay this same sum at my local pub in North London.

Crowdfunding: seems like a nice idea but is it?

The Great Northern Railway Tavern has one of the most interesting beer lists in the country which includes a constantly changing line-up of unusual brews, global icons, limited availability beers, hyped/fashionable ales and very strong beers. This translates into me often paying around the £10 level for a pint – although I frequently drink in thirds and two-thirds measures for both economic and health reasons.

I’ve been paying what has been the going market rate for these beers, which includes brews from the likes of Verdant and Deya, who produce incredibly popular, in-demand beers and have been able to charge pubs accordingly. And the customers have been willing to pay up in sufficient numbers to justify this premium pricing. But whereas these higher prices were the exception, and a bit of a luxury for a few brewers, the situation has changed markedly over the past year or so as a result of the increased costs of pretty much everything including utilities, ingredients, rent, wages and transportation. Every brewer now needs to bump up their pricing in order to survive.

But this is simply not possible for the vast majority of breweries – which currently number around 2,000 in the UK. Contributing to this inability to increase prices is the economic squeeze and the cost-of-living crisis. It’s not even really about charging a fair price for many – it’s about being able to charge any price, because it is arguably tough to even give beer away for many brewers. What’s going on?

The brewing industry has undoubtedly contributed to its present dire situation with the growth in levels of production capacity, particularly among craft brewers. It has grown significantly over recent years as many companies have drunk from the crowdfunding well. The access-to-easy (no questions asked what you do with it) money has enabled brewers with poorly controlled financial arrangements to invest in boosting their production capacities. The result is a saturated market with far too much competition and underused kit.

This has created a nightmare scenario in the marketplace and contributed to a growing number of failures across all parts of the industry – from traditional cask brewers to small craft operators. It will sadly take a lot more failures in the sector before there is anything like an economically viable landscape where the capacity in the market is anything close to being balanced with the demands from pubs, bars and retailers, including the major grocers. What would undoubtedly stall progress in this rebalancing of the sector would be a continuation of the crowdfunding phenomenon. It has arguably proven to be more of a damaging influence than a contributor to the health of the sector.

Worryingly, the restaurant sector seems to be getting a bit of an appetite for such a funding route. As the banks have become increasingly reluctant to commit cash to hospitality businesses and interest rates have pushed up borrowing costs, a growing number of restaurants are turning to crowdfunding. This should come with a word of warning that things might not ultimately turn out quite as positively as expected. 

Glynn Davis, editor of Beer Insider 

This piece was originally published on Propel Info where Glynn Davis writes a regular Friday opinion piece. Beer Insider would like to thank Propel for allowing the reproduction of this column.