Last orders? Craft beer on the rocky road to equilibrium

For decades very little happened in the beer market.  Then around 2010, the  craft beer revolution fueled an explosion in new breweries producing wacky and wonderful beers that were lapped up by young drinkers. But the ongoing economic difficulties and cost-of-living crisis has prompted a serious retrenchment involving numerous brewery closures.

Small got big

Brewery numbers in the UK doubled in the decade to 2021, which comes on top of a similar growth rate experienced in the previous 10 years. This equated to a net addition of almost 1,500 new breweries between 2001 and 2021 taking the total to 1,902, according to The Good Beer Guide.

This growth reflected real excitement in the sector, with craft beer bars, tap rooms and hybrid bars/bottle-shops becoming a welcome feature of the hospitality industry. But the market has cooled significantly in recent years. Many breweries have sadly struggled and buckled under the reality of the harsh economics of small-scale operations. A recent survey from the SIBA (Society of Independent Brewers) found 63% of its members stated that survival was their business priority.

Saturation point?

The wind has also been taken out of craft beer sales by the product becoming all too accessible. The likes of Brewdog, Camden Town and Beavertown are not only becoming ubiquitous in every supermarket across the country but also in the on-trade (pubs), which has contributed to something of a commoditisation of the category.

Another major contributor to the present difficulties is the massive growth in the levels of production capacity, particularly among craft brewers, over the past decade. This has been fueled by crowdfunding. This represented an easy way to access funding during the previous low interest rate environment, which enabled brewers with limited financial controls to raise large sums and invest it in boosting their production capacities. The result has been a saturated market with far too much competition and underused kit.

This massive over-capacity in the marketplace has led to a growing number of failures across all parts of the industry – from traditional cask brewers to small craft operators. These include Jennings Brewery, Skinner’s of Cornwall, Old Dairy Brewery, Beer Nouveau, Cheshire Brewhouse, Canopy Beer Company, Solvay Society Brewing, One Mile End Brewery, Wild Beer Co., Manchester Brewing Company and Crankshaft Brewery.

Wild Beer Co. for instance burnt through the £1.8 million it crowdfunded from 1,900 investors in 2017 at a rather ambitious valuation of £25 million and went bust in December 2022. It was bought by Curious Brewery that has a capacity for brewing as many as 15 million pints a year at its own site so has simply acquired the beer brands of Wild Beer Co. and its customer base. 

Tapping into tap rooms

This is one of many such deals as something of a consolidation is taking place. Particularly active in the market in recent months has been investment firm Breal Group, which has purchased out of administration Black Sheep Brewery, Brew By Numbers (BBN) and Brick Brewery in addition to a number of bars in London through which it no doubt intends to sell the beer from these breweries.

Where they will also be selling these beers is in the respective tap rooms of BBN and Brick that were purchased along with the brewing infrastructures. These tap rooms are one part of the beer market that continues to prosper. They typically sit alongside the actual craft breweries themselves and in many cases represent the bulk of the business’s sales. Not only are drinkers at these establishments tapping into localism but they are also being immersed in the experience. Tap rooms are dedicated to delivering the optimum product, served by knowledgeable servers, within unique surroundings. 

People continue to buy into these experiences, which is something that has not been lost on one of the world’s biggest beer brands. Diageo is spending a hefty £73 million on a development in London’s Covent Garden that is all about emphasising the Guinness experience. It will seek to replicate the model found in Dublin at the Guinness Storehouse but will also feature a micro-brewery producing beers for the site.

Pub playbook

Another beacon of positivity in the brewing sector is Brewhouse & Kitchen (B&K) that is defying the trend for brewery openings as it now operates 23 brewpubs and is planning further openings. The company is operating a pretty much unique model that largely follows the playbook originally created by David Bruce who pioneered the brewpub concept in 1979. He built out the Firkin chain with each pub including its own brewery and these supplied the bulk of the beer for each outlet.

The B&K brewpub model is certainly proving attractive to its core audience of 25-55 year olds, of which 50% are female. They are also popular with some local councils who have been marketing their town centre to the company’s management as suitable locations for the next B&K outlet. 

Last orders?

Although these represent some positive signs in the industry it is likely that the brewing sector will go through more pain before it finds some sort of equilibrium. This is likely to involve more deals being completed as the consolidation phase continues. Wherever the craft beer industry lands after these ongoing upheavals it will still be in a much better place than it was in 2001 in terms of t

Glynn Davis

Glynn Davis is a business journalist specialising in the retail and food and drink sectors. As well as writing for publications including Retail Week, Ecommerce Age, Propel, Caterer and Retail Bulletin, he’s also the founder and editor of Retail Insider and Beer Insider.