State of the Brewing Industry Address

By Rob White. Head Brewer

There are a lot of doom and gloom articles in the press at the moment about how bad things are for the brewing industry and hospitality in general. I seem to hear about a new brewery deciding enough is enough almost every week; but there are also success stories of people looking to expand and taking on staff. I think the reasons that some are doing well while others struggle are nuanced – some are beyond anyone’s control, some are industry related, and some due to choices made by individual businesses. Normally my blogs are fairly factual, but if you’ll permit me the indulgence, I thought this month I’d talk (at greater length than usual) about what I think some of the issues facing the industry are.

Perhaps the most obvious issue at the moment is the economy. For us as a producer, everything is more expensive – inflation is happening all the time, but a number of our essentials have outstripped that in increased cost. Grain got more expensive at the start of the war in Ukraine four years ago; fuel price is increasing precipitously which means every delivery we make (ourselves or by courier) has become more expensive. Energy prices are high, the cost of wages and national insurance increase annually, and all these things mean production costs go up. What does not increase at the same rate as all of these things is the price we can sell beer for. These issues affect us, but they also affect our customers, both trade and individuals, which means they struggle to absorb cost increases in exactly the same way we do. This is reflected in the way people are spending their money – in the years after the COVID pandemic I felt there was a real lean towards people being happy to spend a little more for a quality, local product, while understandably in a recession people look to more affordable options. In order to stay competitive and therefore appealing to customers, we can’t simply pass on our price increases, which means there’s less profit in every pint.

Consumer preference also plays into this. Working day in day out for a small brewery, talking to people who buy from small breweries, drinking beer from small breweries in our free time; it can feel like a bigger slice of the market than it actually is. It’s important to remember that by (very very) far the biggest selling brands are macro lagers, and even those businesses will try and appeal to people looking for something a bit more artisanal by mimicking the marketing of smaller entities. SIBA (The Society of Independent Brewers and Associates) has in the last couple of years launched a campaign which highlights this, but this will only change the minds of the people who are unknowingly drinking beer produced by a multinational brand – many people are simply happy with what they’re drinking and don’t want to spend any more. Extolling the virtues of shopping small and independent is essential if we’re looking to convert new customers, not just assuming that fact alone will change people’s minds.

On the subject of macro (as opposed to micro) breweries, another big issue facing the small independents is access to market. Historically in the UK pubs were more commonly owned by breweries, and by the eighties the majority were owned by the big six – Allied, Bass, Courage, Scottish & Newcastle, Whitbread and Watney Mann. These brewery owned pubs only sold their own beer, which made it very difficult for anyone else to get a foot in the door; and so the Beer Orders of 1989 sought to fix things. This law limited the number of pubs that could be owned by one brewery to 2000, and forced them to allow landlords to offer a guest beer. The benefit of this was undeniable – by 2020 there were five times more breweries operating in the UK than there had been in the nineties – but they also had an unintended consequence. The founding of pubcos in the wake of a flood of pubs hitting the market, while holding a smaller proportion than the big six had previously, created a different type of monopoly. These companies typically give landlords a list of beers they can purchase and then buy it on their behalf, which crucially means they can decide the price they’re willing to pay breweries, and a second higher price at which they sell it on to the landlords. This means that small breweries sell to them for below market rates – but they represent such a significant section of the industry, to decide not to sell to them would rule out a large proportion of your potential customer base. We then have no control over what a pub actually pays, which means our beer could be too expensive for them to consider while we actually make less money. On top of this, these companies often do still have relationships with breweries (such as maintaining their cellars in return for a set volume of beer purchased), which means it is not in their interests to make independent beer more affordable or accessible. Factor into this that larger breweries have greater economies of scale, meaning they can afford to sell to pubs for cheaper in the first place, and the obstacles soon start to add up.

Legislation can also often be skewed towards the desires of larger breweries. When the government comes to reform the laws around alcohol production and taxation they will consult with the industry – by sheer virtue of their size, brewers with a large market share often have a similarly outsized voice in discussions and obviously will try to look after their own interests. Industry bodies look to get the voices of smaller brewers heard by representing their combined market stake, but even these businesses may have conflicting interests when you represent both breweries that sell nationally and those that only sell to a few local pubs. I make no judgement on whether small brewers needs should be met disproportionately to their market share, but this is certainly another issue they face.

As I mentioned previously, changes to the law, as well as the proliferation of “craft” beer in the 2010s, led to a huge increase in the number of breweries operating in the UK. For some, the increased access to points of sale combined with a new public interest in more diverse beer styles meant they could follow their passion and start producing the kind of beer they wanted to see more of in the world. For others, this represented an opportunity to cash in on a rapidly expanding new market. It’s fair to say that if you want to become a millionaire, brewing’s probably not the industry for you, but that time was arguably the best in history to give it a go, as companies like Brewdog and Beavertown proved. The sector may have continued to grow at that pace had it not been for COVID, which suddenly saw breweries cut off from a huge part of their customer base. Those who were already well positioned to pivot to an entirely direct-to-customer business model were able to withstand that hit, but a number of businesses overinvested at a difficult time in order to make the change (a bottling or canning line is not a cheap thing to purchase) and were never able to recover. Even of those that didn’t, due to what was arguably an unsustainable number of breweries operating, many simply weren’t able to make ends meet. It is never a good thing when people lose their jobs and customer choice is reduced, but I am hopeful that these closures represent a return to a sustainable mean rather than a declining demand for craft beer – only time will tell.

Finally, a point on the nature of the brewing and hospitality industries. Having worked in a bar before starting brewing, I am aware that few people who come into hospitality see it as a career. For this reason, businesses also treat them somewhat as disposable – there’s no point investing a huge amount of training in someone just for them to leave. This means that the staff never become invested in the products they’re selling, and it in turn becomes difficult to be enthusiastic about them. When beer goes to pubs or shops we are relying on the staff selling the beer directly to the public – if there is no impetus or encouragement to try something new from them, many people will stick to the beers that are always available (because you don’t want to waste money on something you don’t like), which means interest in guest beers is limited. Rapid staff turnover can also be a difficulty when trying to build relationships with pubs – we’ll contact someone and leave samples, they try the beer and really like it, but then leave before ordering anything and the whole process over has to be started over. Beer (particularly on cask) also still faces identity issues, as many people think of it as an “old man’s” drink. This is perpetuated by the fact that a huge number of the people producing beer are men. It is up to breweries to find a way to show people that their product is for everyone (and preferably not just by making it pink…), and promoting the fact that this industry is for everyone is a good start.

So, this is all very depressing. Higher costs, access to market struggles, fewer people drinking (did I mention fewer young people are drinking?)… Surely there’s some good news? Well actually, yes! Although a number of small breweries are closing, the ones that continue to weather the storm and stay open are increasingly still there for the right reasons. This means that the quality of the average pint should be increasing, so people should be more able to take a risk on something they’ve never heard of safe in the knowledge it will be well made.

Another thing improving the quality of beer industry-wide is the brewing apprenticeship run by The Opportunity Provider (formerly HIT Training). Brewing had for some time been a slightly impenetrable industry, with experience required to get any brewing job and no way to gain the experience short of volunteering your time for free. I was on the second cohort of the apprenticeship back in 2020 and Tommy is on cohort 27 – which means in the last six years there have been a huge number of qualified people coming into the industry. The apprenticeship provides both a much-needed entry point to the hands-on brewing jobs and also creates a pathway for underrepresented minorities into the industry, which as I mentioned earlier will hopefully mean more people can see themselves both working on and drinking the beers we produce. The Opportunity Provider also run apprenticeships focused on pub management and kitchen roles, which could go some way to both employers and employees seeing hospitality as a career rather than a stop gap.

Another bright spot is the hugely increased breadth of hop varieties now available. Historically, macro brewers have been happy with the traditional hops on offer, as besides some light floral or herbal character in their lager or bitter they were typically just looking to add bitterness. Since the explosion of craft beer however there has been much greater demand for a range of fruity hop characters, and over the last decade Charles Faram in the UK have been working hard on their experimental hop varieties. As a brewer trying to take advantage of more modern flavours to create traditional beer with a craft twist, this increase in options has been a huge benefit when coming up with new products and iterate on existing recipes; for those who do not exclusively use English hops, hopefully the wider range will present an opportunity to switch a couple of varieties and reduce their carbon footprint.

Finally, from a personal perspective, our one-off seasonal beers have been a great success. On a guest line pubs will often want something new every time they order, and creating a range with new beers every three to five weeks has seen great results catering to this. I feel like we’ve built up a reputation for quality with the pubs we sell to over the last couple of years and am grateful they continue to trust us and buy beers without being able to try them beforehand. Some, such as Tetra which we released last summer, have been so well regarded by customers that we bring them back, and we’re now experimenting with seasonal bottles, so our off-trade customers have some variety as well! In fact, our direct to customer sales are growing, something reflected in the wider industry according to research by SIBA. This perhaps suggests that while day-to-day people may be turning to cheaper mass-produced options, when looking specifically for beer they are still happy to engage directly with local producers to find a quality product.

This October The Hop Shed will turn ten, four years of which I will have been here. There have certainly been difficulties on that road, but also a lot of great times, and the business continues to grow in the face of adversity. This is a hugely rewarding industry to work in, and that’s due to every one of you who buys a pint, bottle or case, or even recommends us to a landlord or friend. Nothing worth doing is ever easy, so here’s to the next ten years!