THE GIST
The amount of beer sold by small, British breweries in bars and restaurants dropped by 13% in 2019, undermining the narrative that modern breweries are fueling industry growth.
Research from food-and-drink insight firm CGA shows that the market has gotten tougher in the last 12 months. Most of the data focuses on the on-trade, where choreographed disruption from bigger breweries is starting to show, and where small breweries are failing to find new—and particularly young—customers.
The latest insights from CGA estimate that small breweries—defined as those selling to fewer than 1,000 on-trade outlets in 2019—saw a volume drop of 13% compared to 2018, while larger craft brands grew by 20% (for those with 1,000-2,000 outlets) and 16% (those with more than 2,000 outlets). The slowdown comes against a backdrop of increasing numbers of brewery sales to multinational companies, and the successful launch of several modern keg brands by regional cask breweries, such as Greene King and Robinsons Brewery.
WHY IT MATTERS
The wide distribution and lower price point of larger brands paint a worrying picture for the prospects of small and independent brewers. The scene is a complicated one, however.
Since CGA’s research is restricted to the on-trade, some of the 13% decline could come from the fact that more alcohol is being consumed at home. In 2017, 69% of all alcohol bought in the U.K. was drunk at home—up from 53% in 2000—and the figure is likely to be even higher among small producers because of the high price per pint of high-ABV beer in pubs and bars. The same behavior tracks with beer: Since 2000, the amount of off-trade sales as a percentage of all beer sold in the U.K. has increased from 32.2% to 53.7% of total sales. That shift makes sense for cost-conscious drinkers, as U.K. alcohol duty rates are attached to ABV, making Double IPAs and Imperial Stouts prohibitively expensive to drink once you add an industry-standard 70% markup in the on-trade.
The fact that beer lovers can more easily confine exploratory drinking to the house may also explain why CGA has found draft sales stagnating for small breweries. Those impacts are all compounded by the lack of opportunity in the on-trade, as freehouses commit to contracts with multinationals and regional breweries bring their rotational lines back in house to serve their new “craft” ranges.
According to data shown at the Brewers Congress in London in November, 100% of the craft beer brewed in London was fully independent at the start of 2015. By 2019, that figure was less than 20%—276,000 of a total of around 1,390,000 hectoliters—due to the sale of Meantime to SABMiller, Fuller’s to Asahi, Beavertown Brewery’s acquisition by Heineken, and the fact that Camden Town Brewery’s volumes grew by 216% in that timeframe under the stewardship of Anheuser-Busch InBev’s ZX Ventures. Sam McMeekin, cofounder of Gipsy Hill Brewing Company, presented the data at the event, and says it shows that U.K. brewers without pub estates have it much tougher than brewers elsewhere in the world. For example, Gipsy Hill paid 25 times more alcohol tax per pound of sales than San Diego’s Modern Times Beer did in 2018, paying around £375,000 on a turnover of £2.5 million compared to around £3.75 million on £30 million turnover.
“I think we need to be aware that we’re not America, and we’re not going to follow their path,” says McMeekin. “From a regulation standpoint we’re very different—it’s much harder here with much higher taxes.”
Acquisitions and high tax only tell half the story, though. There is also a clear trend from the consumer side, as the average age of self-identified “craft beer drinkers” goes up. CGA found that they accounted for 15% of drinkers aged 25-34, down from 20% the year before. Meanwhile, the number of craft drinkers in the 45-54 age group has shot up from 15% to 21%. Graeme Loudon, who wrote the CGA report, says the two cohorts’ buying patterns are very different.
“The early adopters aren’t exploring the category in the same numbers that they were,” says Loudon. “They have been replaced by a consumer who is older, more blue-collar and a bit more mainstream in their behavior. They are looking for the bigger brands, which has driven their success [instead].”
Loudon estimates that the craft sector has gained around 1.9 million drinkers since 2016, but this isn’t translating into relative growth for small brewers. Instead, most of those consumers are turning to tried and trusted brands, like Camden and Guinness Hop House 13. That’s great news for multinational and regional breweries with U.K. craft brands, but it’s bad news for new breweries that lack distribution and significant marketing budgets.
But the Society of Independent Brewers (SIBA) says the picture isn’t as bleak as the CGA data implies. Instead, the organization points to an evolution rather than a reduction in drinking habits among the young. Competition from larger, often cheaper brands may make draft growth harder, but small brewers have responded by putting more beer in small pack and pushing it out through their taprooms and other direct channels, as well as through the off-trade. It’s a move that larger breweries can’t as easily take advantage of, and has brought success for companies like Verdant Brewing Co. and DEYA Brewing Company. Going into package for take-out sales also follows the broader trend of at-home drinking.
“Increasingly we are seeing brewers opt to put their beer into bottles and cans,” says Neil Walker, SIBA head of communications. “This not only enables them to get their products into outlets which can't support draft beer sales, but also sell beer online direct to drinkers, something in increasing demand from consumers."
While this is helping brewers reach audiences quicker and increase profit margins, it won’t help them reach new drinkers. CGA also found that the number of craft drinkers under 25 has dropped from 8% to 5% in the last year. This could create a challenge for breweries looking toward the next generation of customers, however they intend to reach them. These consumers are more likely to be teetotal, and those who aren’t are turning to varieties of gin.
All these factors add up to a headache for any small brewer looking to break the 5,000-hectoliter duty barrier, the point at which their 50% beer duty relief starts to taper off. Modest year-on-year growth beyond that point would make a brewery considerably less profitable—in fact, a brewery that grew by 25% to 6,250 hectoliters would see their duty relief cut to just 38.5%. In real terms, that would mean an additional £3.32 of tax on every case of 6% IPA the brewery produced. Most breweries want to grow quicker than than that to account for the larger duty bill, but that kind of explosive growth is exactly the kind that is hard to achieve in today’s busy market. With the backdrop of the beer tie and extraordinary investment from multinationals, the cause of stagnated growth for craft producers is written directly in the tax code.
“For the smaller guys it’s deciding what your aim is,” says Loudon. “If you are targeting that niche consumer there is still a big opportunity, but if your ambitions are to be the number-one player in that market, it’s much, much tougher than it was because the big guys are involved.”
The narrative about what is driving growth might have changed, but that is only going to reinforce the idea that beer is locked in a battle of big versus small. At the moment, in the U.K. at least, it seems big is winning.
Words by Jonny Garrett