May/June 2019

The Squeezed Middle

If we are concerned about their long-term survival, mid-sized brewers deserve a little more love

THE SALE of Fuller’s brewing interests to Asahi underlined the exposed position in which many of the established, medium-sized firms find themselves. As a mid-sized brewer, Fuller’s said, it was being squeezed between the global giants and the 2,000 smaller brewers across the UK. The tax breaks given to microbrewers and the power of the big global drinks firms have left little space at the bar for those in the middle.

Progressive Beer Duty was introduced in 2002 by Gordon Brown with the aim of stimulating the number of small breweries in the UK. It has certainly succeeded in this objective, with over 2,000 now in operation. However, as with many such well-intentioned measures, it has had unintended consequences. The 50% duty relief on offer starts to be clawed back above an annual production of 5,000 hectolitres (3,055 barrels), and entirely disappears at 60,000 hl (36,661 barrels). Many of the established family brewers are above this figure, or only just below it. Fuller’s, who were one of the biggest, were producing about 200,000 barrels a year.

In practice, some of the new small brewers have used the duty relief not to bolster the finances of their business, but to sell beer more cheaply, putting the established brewers at a severe price disadvantage. The overall market share of these small brewers is relatively small, and to the likes of AB InBev they are no more than a pinprick on an elephant’s backside. But they have a much higher share of the market for cask beer in the free trade, and if you go in any pub that is able to buy beer on the open market it is likely that most of its cask lines are from microbreweries. Many of these beers are very good, but the main reason some of them are there is that they are cheap to buy.

The mid-sized brewers found that the general decline of on-trade beer consumption and the rise of lager greatly reduced the amount of beer they were producing from their own breweries. But, at the same time, the rise of up-market dining provided an opportunity for some of the pubs in their tied estates, and many of them bought more as cast-offs from the debt-ridden pubcos. This essentially turned them into pubcos with an under-utilised brewery as a sideline. Fuller’s reckoned that 85% of their profits came from their pubs and hotels, so it is perhaps understand­able that they decided to concentrate on that part of their business and accept an attractive offer for the brewing side.

It’s also debateable whether you can make such a clear distinction between the brewing and pub sides of the business, as to some extent they support each other. If you separate them, both will be diminished and their viability undermined. A brewery produces a unique, identifiable product that is recognisable to customers and may command a great deal of loyalty, but a pubco is, well, just another pubco, and in the long-term that must make them more vulnerable to takeover. Fuller’s stood out from the crowd both because of the high profile of their beers and the valuable redevelopment potential of their site. But the announce­ment of this deal will certainly have given many directors of family brewers cause for thought about their long-term future.

It’s often the case that people attract warm tributes when they die while having a much more equivocal reputation during their lives, and it’s hard to avoid the feeling that some of those shedding crocodile tears over the sale of Fuller’s were happy a year before to dismiss London Pride as “boring brown beer”. Maybe if we want to help the prospects of the family brewers, beer enthusiasts should give them a bit more love as upholders of a unique British tradition, rather than constantly chasing after the novel and trendy.

7 comments:

  1. Your article highlights microbreweries are selling their beers ‘more cheaply’ putting others at a price disadvantage.
    What you don’t acknowledge is, due to there being in excess of 2000 micro/small breweries, the market can be cut throat.
    Microbreweries without an associated pub face a real struggle to sell their product. Decisions to sell more cheaply are often dictated to by the market. With the continuing closure of pubs, this is being exasperated.
    Please don’t blame the little folk for trying to keep afloat. Instead look at the underlying problems and expose them.

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    1. I'm not blaming any individuals - everyone has to do what is best for them within the reality of the marketplace. The blame rests more with the nature of Progressive Beer Duty which has led to unintended consequences. And it can't be denied that there's a massive oversupply situation at the moment, which inevitably results in cut-throat competition and aggressive price-cutting.

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  2. How much did the Small Brewers Duty Reform coalition pay you to write this? Words almost seem lifted from the crap they spout about being hard up while making huge profits and expanding, go look at there accounts online and do some real investigation into the matter. Also has a wiff of the CAMRA agm where someone tried the same the speel as this?

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    1. You're fully entitled to disagree with me, but accusing me of being a corporate shill is highly offensive and totally untrue.

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  3. How Do Mudgie ,
    Some good points you`ve made there , I agree about the size and saturation of the market making it a Tad competitive as well ,
    Cheers
    Edd

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  4. Interesting piece by Curmudgeon in last OT. However, I feel compelled to respond. In particular re the following...

    “The Squeezed Middle” – this trope has been peddled by Rupert Thompson of Hogs Back Brewery in his role as SBDRC (Small Brewers Duty Reform Coalition) Co-Chair. In a UK ale context, these brewers are hardly small. Marston’s? And is essentially a direct quote.

    “Progressive Beer Duty...... It has had unintended consequences...” This is a direct copy and paste from the letter from the SBDRC (Rupert again) to Philip Hammond – Chancellor of the Exchequer dated 6 October 2017.

    PBD was NOT introduced to “stimulate the number of small breweries”. It was introduced to address economies of scale enjoyed by larger breweries.

    Re the point about free trade beer lines. How else are micros to actually GET their beer into pubs? Seeing as the cosy cartel of the British Beer and Pub Association is essentially the SBDRC plus the major pubcos.

    As for micros beer being cheap to buy? I pay for almost 100 beers directly. From micros. And that is another false flag waved by the SBDRC. If anything, the reverse is true. As is visible on any Wetherspoon bar top.

    I could go on.... But space dictates otherwise....

    Different opinions are great. The spice of life. But that opinion piece almost looked like an SBDRC advertorial. With the words reordered.

    (Letter published in July/August edition of "Opening Times")

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    1. Well, you wisely stopped just short of an outright accusation, but it is possible to arrive at opinions different from your own without being a corporate shill, you know. I’ve campaigned against the smoking ban for many years, but have yet to see a single penny from Imperial Tobacco or Philip Morris in my bank account.

      Nothing in that article has been directly cut and pasted, but I certainly believe there is much validity in the view of many of the family brewers that they do feel themselves to be “the squeezed middle”, and that helps explain what happened to Fullers.

      Surely the expected result of “addressing economies of scale” would be to improve the competitive position of small brewers and thus lead to a rise in their numbers.

      There have been many reports of cut-throat price competition amongst micro-brewers, and beers being sold, if not below cost, below the level that will sustain a viable business. And isn’t that borne out by the oft-heard complaint that brewers struggle to make a living?

      And not too long ago I remember you penning an article that effectively lumped the likes of Holdens and Elgoods in with “Big Beer”, which comes across as profoundly ignorant and disrespectful of our brewing heritage. It should never be forgotten that, without the independent family brewers, cask beer would have pretty much entirely disappeared in this country.

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