Why Are So Many Breweries Closing?

When we look at the reasons given over the past two or so years a few things seem to crop up again and again, usually “cost of living crisis” and “rising costs” but there’s more to it than that, especially when we see that pubs and clubs are saying that they’ve had their busiest months, yet they themselves are closing too. So what’s actually happening?

Let’s roll the clock back to 2019 and look at what was happening in the beer world. Things weren’t great, but they seemed stable. Pubs had an idea of how many customers they might get in each night, and how much beer they might sell, so knew how many staff to put on shift and how much beer to order in ahead of time to make sure they were covered.

This meant also that breweries were able to brew to a schedule, because they had an idea of how much they might be able to sell a month to two later when the beer was ready.

In short, people were able to plan.

When you can plan you can buy in bulk and purchase ingredients ahead of time, taking advantage of good prices. You also waste a lot less as you don’t have unused goods left over, or stock sat going out of date. You also don’t lose orders and future custom by not having stock ready to supply.

And then 2020 came along and Covid happened.

All the issues we have now aren’t due purely to Covid and the lockdowns, we had already started to see a rise in ingredient prices due to Brexit and the additional import and export costs, and time. And we’d started to see a lot of hospitality workers leaving the UK and heading back to their home countries within the EU where they didn’t have to pay thousands of pounds for a visa to live and work. With the staff shortages already starting to creep in we were already seeing pubs starting to feel the pressure of filling their rotas. A few started to offer more money to people who were willing to work the antisocial shifts and we saw some move between venues, leaving some places struggling even more to fill their rotas. But we also saw a lot of hospitality’s customers leave, so it wasn’t as noticeable at first – other than the lower takings. 

As for the rise in ingredients costs, the breweries generally swallowed those. They were deemed as an inconvenience, but could be worked around. Yeast saw the largest rise, and several breweries started to collect and repitch their yeast to counter that. It led to a higher risk of infection or cross-contamination, but it was a risk that was deemed acceptable. The rise in malt and hop costs just meant that the breweries would be making an even smaller margin on the beer they sold, which led to even more setting up taprooms to take advantage of the growing interest in them, and of the better margins on direct to consumer sales. This actually annoyed a few pubs because all of a sudden they were having to compete with their suppliers, which is a very hard thing to do in the best of circumstances. Some pubs stopped stocking beers from the local breweries who now had their own taprooms, some reduced the amount they were selling. This hit breweries reasonably hard, but the extra margins on direct sales was able to cover that, and still have a bit more income than previously.

But then we had Covid. 

This changed everything, and is arguably where it all started to go wrong.

Breweries were deemed essential businesses and therefore were allowed to remain open, which meant that they weren’t eligible for any government assistance. Yet all their customers, the pubs, were closed. 

When off-sales were allowed a lot of breweries took advantage of the opportunity to shift the stock that had been sat in their cold stores and sold direct to drinkers; often using the salaried staff that would normally be delivering to pubs and shops. This took trade away from those bottle shops that were able to open, making it even harder for them.

All this time during the lockdown and reopening cycle, we were all led to believe it would be short term, and that things would be back to normal soon. So when the government announced its Bounce Back Loans scheme a lot of businesses jumped at the chance. After all, there was no interest for the first year, and then only 2.5% for the rest of the term of the loan. But once things were back to normal, those loans could be repaid quite easily.

Thing is though, things didn’t return to normal.

A lot of people died, even more now suffer from long term illness as a result. And even for those that have remained healthy, there was a lot less money about. 

Lots of people were made redundant, companies saw it as a good opportunity to close branches that weren’t performing as well as they could be, others used it to streamline. A lot of other companies just closed down completely. Lots of people lost their jobs, their incomes. 

Lots more were put onto furlough, a word we all learned. This meant that they were only getting 80% of their normal wage, which for so many people wasn’t enough to cover all their bills, so they leaned into credit cards and overdrafts, and even loans. Because we were all told it was going to be short term, and everything would be back to normal soon. 

But like the businesses, people built up debts.

So even when Covid was deemed to be over, people were still nervous and not going out as much. And when they did go out, they had a lot less to spend. So they only really went out for special reasons. We saw the decline of occasional drinking, being replaced by occasion drinking.

This reduction in money over the bar hit hospitality hard. Venues hadn’t just had several months of little to no income, they also had growing debts. And now they didn’t get the promised return to normal income. Quite a few gave up and closed down, others restricted their opening hours, sometimes closing for two or more days a week, often opening later or closing earlier. If the venue wasn’t likely to be busy, then it wasn’t going to be open. 

We hear a lot about pubs being part of the community, but a lot of that was the early doors and the quiet afternoons, when they were the haven for the locals and the lonely. We were witnessing the heart being ripped out of the local communities. 

We also saw a change in the way that people did drink. During the lockdowns a lot of people started to work from home, which meant that when they finished their day’s work they weren’t just around the corner from the city centre pub. As the pubs started to open, with restrictions, a lot of those who were now working from home went to the venues near their houses instead of heading into the city centres. And they made new friends there, friends who lived nearby rather than worked nearby, and as the restrictions on pubs relaxed, these work from home drinkers stayed at their locals. Their attachment to post work pints in the city centre bars had been broken. And when you drink local to where you live, with friends who live nearby, a lot of people tend to drink less. There’s more conversation to be had with people that you don’t spend all day in an office with. So even though people were returning to pubs, the places they returned to, and the amount they were drinking was different. This had another knock-on effect to the breweries, a lot of whom lost what were previous large,guaranteed weekly sales.

And with less people going to pubs, and those that were drinking less, the breweries were finding it harder and harder to sell the volumes of beer that they previously had. The volumes that they’d based their predicted income on, the income that they needed to repay those extra loans, as well as all the extra debts built up keeping the companies afloat with little to no income while all the overheads remained.

With pubs hit hard there was no room for upkeep let alone investment; which led to a ripe opportunity for the PubCos and multinationals to consolidate their estates. Tenanted pubs were becoming a bit troublesome, especially those that demanded the Market Rent Only option. These tenants were able to suddenly choose to effectively be freehouses, paying rent to the PubCo or brewery, but being able to buy their beer in from whoever they liked. Every pub that chose this option was a large loss of trade to the parent company who more often than not were charging their tied tenants well over market rates for the beer. So as these leases came up, the PubCos and breweries weren’t renewing them but rather turning them into managed houses where they installed a manager who had no choice in where they bought their beers.
And with the debts built up during Covid, and the reduction in trade post-Covid, a lot of these tenants could no longer afford the rents and sold their leases back to the PubCos and breweries. This meant a loss of outlets for the independent breweries to sell to. They’d run up their own debts, and rather than getting back to normal, they had few sales and now fewer venues to sell to.

This was then further compounded as the free houses tried to compete with the tied houses. As pubs were brought back into the managed portfolios, the owners spent money on them. The pubs were redecorated, the cellars were refurbished, and they looked a lot better than they had done for years. They were also heavily promoted on social media and ran in house promotions offering cheap beers and food. 

Some free houses couldn’t compete and closed, a further loss of outlet for the independent breweries.

To try and stay open, a lot of free houses took up offers from the larger multinational breweries. A free cellar refit in exchange for stocking their beers. This usually meant that four of six lines had to be bought in from the multinational leaving a much reduced choice of guest beers. And the beers from the multinationals were on offer too, buy four, get one free. Buy ten, get three free. The independents couldn’t match that pricing, and with multiple brands from different “breweries” on the bar there was the illusion of choice that most customers were happy with. 

Some previously keg only breweries made the decision to start producing cask to try and regain some of their turnover, some folded. 

But the available outlets for the smaller breweries shrank.

And then the costs to make beer went through the roof.

The cost increases have been blamed on many things, but what it comes down to is that everything is more expensive than it was. 

Rent has increased above inflation as landlords try to recoup some of their turnover that they’ve been losing as businesses close and units lay empty.
Fuel went up as the wholesale costs went up, but didn’t come down again when the wholesale costs did. And with a lot of breweries tied into five year contracts it will be a while still before we see a change there, even if costs do come down.

Ingredients costs have gone up, the manufacturers costs have risen and they’ve been passed on.

Duty has gone up. Okay, this is a little bit more complicated. 

For the larger traditional breweries who produce mainly lower strength beers, Duty has actually gone down. But for the modern craft breweries who make the stronger beers, the amount of Duty they pay each year has increased. For a lot of those traditional breweries this has meant that they are able to make up for loss of sales in their own tied estates by heavily promoting their beers into the free trade, again cutting into the amount of beer that independents can sell.

Every aspect of making beer has increased in cost, and there are fewer places to sell the beer too.

Both breweries and pubs have cut their margins to the bone, so while some venues and breweries are saying they’re having the highest turnover they’ve ever had, they’re also saying they’re having the lowest profits that they have ever had.

And it’s those profits that are used to repay loans and other debts. Without those, businesses can’t succeed. 

Through no fault of their own, we are seeing more and more breweries and bars in that situation. And this is why a lot are closing. For others, it’s exhaustion. Running a hospitality business is hard work at the best of times, adding in anxiety about finances day to day and possibly lingering effects of Covid on the body, and it just becomes too much to tread water, hoping that the industry will improve, and things will get back to normal.

2022 saw 83 breweries close. 2023 saw 58 close. This doesn’t include those that have merged, or been bought out of administration, etc. I’ve not started keeping a list for 2024 yet, but there’s already several big names and I know of several more that are planning to close but just haven’t announced it yet.

The hospitality industry is vital to the UK economy, and yet we’re seeing it struggling in very real, brutal terms. And the light at the end of the tunnel is switched off because no-one can afford the electric to keep it on.