Independent, But Not Small

In early April I wrote a blog piece about Small Brewers Duty Relief, and the calls to change it. Since then I’ve had the chance to not just chat, but to work with people that were perceived to be at opposite ends of the argument from us. I’ve been contacted by many brewers and many more drinkers and have had the opportunity to gain more of an insight into the overall health of our industry, and it’s quite worrying.

This piece is a follow up to the original one (please read it before carrying on), and a way for us to put down our thoughts and views. They are also influenced by the panel debate during Manchester Beer Week that we unfortunately won’t be able to take part in. We did really want to be there, but we’re a very small brewery and we were working.

A lot of the information I was given was done so “off the record”, and I will fully respect that and not name names where I’ve been asked not to.

For the last few years beer sales have been in decline, big brewers may have seen their share of the market increase, but their overall sales have reduced. A lot of these multinationals aren’t as bad off as it first appears though as they don’t just sell beer, but also wines and spirits. So as drinkers move away from cask ale or keg to gins and rums, the spirits brands in their global portfolios pick up the slack.

Regional and family brewers have been hit even harder. It’s not just a case of less sales, but the knock-on effects. One family brewer I’ve had a conversation with was selling about 100,000 barrels of beer a year in 2002 when SBR was introduced and they were able to command a discount on the price they paid for their malts and hops. Now they’re selling about 60,000 barrels, and aren’t able to get those same discounts. So not only have their sales reduced by 40%, but they’re having to pay more for their ingredients, more on their rents and more in staff wages.

Some family brewers have managed to offset this a bit by sales through their tied estates, by offering contract brewing, or brewing beers for their tied estate under licence on their own equipment. These breweries have done their best to reduce their overheads, and the idea of reducing the amount of Duty that they pay would naturally be appealing. Other medium size breweries are struggling, especially without a large tied estate. One in particular has invested in a small (for them) pilot kit to try and break into the craft market in a last-ditch attempt before throwing in the towel and folding after not making a profit for the last 3 years.

The middle breweries are being squeezed, but while they think it’s from both sides it’s really only from the top. Craft beer only claims a 6% to 7% share of the total UK beer market, that’s less than 1 in 10 people who drink beer are drinking craft. And the definition of craft is still rather wide and includes a lot of the breweries that feel they’re being squeezed. Craft beer is still a niche, and those that qualify for the SBR are a niche within that niche. Whereas the global corporations, Big Beer, command 58% of the entire world’s beer production. The largest beer company in 2016 was Anheuser-Busch InBev, commanding a whopping 28% of the global market, with second place Heineken only managing a meagre 9%. Roger Protz recently wrote a great piece on Heineken’s purchase of a share in Beavertown which included some figures that are relevant to the SBR discussion, in particular that Big Beer enjoys 40% lower costs, purchasing grains and hops in vast quantities. These corporations are huge and have a massive political influence where they operate, and are a much harder target to get a level playing field. In 2015 a brewery owned by Heineken was in court in Greece after being fined £23m for abusing competition laws over the previous 16 years, in Africa they have been accused of close ties to dictators, authoritarian governments and war criminals, and have used a Belgian operating company for tax avoidance, as well as its ties to human rights violations and high-level corruption. Bringing Big Beer under control would not be an easy task, it’s far easier to try and reduce the smaller competition in a hope to survive.

But this can’t be a sustainable way forward. Business is business, and I can’t fault anyone for wanting to succeed, but there need to be rules and they need to be adhered to.

 

So how can we, as small breweries survive in the world of global corporations? By working together.

I fully agree that SBR needs to change, it needs allow for all breweries to have the level playing field needed to encourage growth and innovation. Keeping the 50% for the lower levels needs to stay, this is what makes it possible for people without large amounts of money to open an independent brewery, but as breweries get larger they need less of a discount. Perhaps also once a brewery is above the current top level there could be a higher rate to offset the discount for the medium sized breweries, with 40% less operating costs there’s room for extra Duty. These are just a couple of ideas that could be looked at.

 

But unfortunately the Society of Independent Brewers (SIBA) has chosen a different path. When SIBA first campaigned for SBR, it was the Small Independent Brewers Association, now it has decided that “small” shouldn’t be relevant to its operations. It’s campaigning for a change in SBR that will see medium size breweries get a tax break originally designed to help small breweries start up and grow, and it gets worse.

In March SIBA members voted to reject a proposal to increase the maximum size of a brewery allowed membership from 200,000hl to 1% of the UK beer market, currently approximately 430,000hl.  This morning SIBA members received an email informing them that their vote was ignored, that the limit was going to be raised anyway.

Several reasons were given for this, mostly focusing on the “independent” aspect of breweries, and SIBA have removed the Associate Membership level that allowed much larger operations to be involved. But how can this be trusted when their own email says “And, most importantly, we’ll continue to listen to our members”, when it’s informing their members that it’s ignoring what they said?

SIBA is repositioning itself to include, and be funded, by bigger breweries, at the expense of the smaller ones. It’s setting its stall out to campaign for tax breaks for large companies, at the expense of smaller ones.  It claims to be the voice of Independent British Brewing, yet running the very real risk of closing down a lot of its small members, driving away a lot more, and not attracting even more. SIBA has around 830 members, less than half of the almost 2,000 British breweries there were in 2016, yet still claims to be the voice of the industry. It states itself that the majority of its members produce less than 1,000hl, yet its actions don’t represent them.

Previously I’ve thought that SIBA needed to work with its smaller members more, help bridge the gap between small and medium breweries, work together to increase quality across the spectrum, to raise standards and increase the market for everyone.

But today I can only say that SIBA is no longer representative as an industry body. Its using its funds to cosy in with larger breweries, runs the very real risk of putting a lot of its members out of business, and in doing so decreasing the choice for the drinker and opening up the market to less competition and higher prices.

SIBA is not the voice of British brewing, it’s its demise.