Curmudgeon's "Opening Times" Column - May/June 2019

* The Squeezed Middle *

If we are concerned about their long-term survival, mid-sized brewers deserve a little more love

THE SALE of Fullerís brewing interests to Asahi underlined the exposed position in which many of the established, medium-sized firms find themselves. As a mid-sized brewer, Fullerís said, it was being squeezed between the global giants and the 2,000 smaller brewers across the UK. The tax breaks given to microbrewers and the power of the big global drinks firms have left little space at the bar for those in the middle.

Progressive Beer Duty was introduced in 2002 by Gordon Brown with the aim of stimulating the number of small breweries in the UK. It has certainly succeeded in this objective, with over 2,000 now in operation. However, as with many such well-intentioned measures, it has had unintended consequences. The 50% duty relief on offer starts to be clawed back above an annual production of 5,000 hectolitres (3,055 barrels), and entirely disappears at 60,000 hl (36,661 barrels). Many of the established family brewers are above this figure, or only just below it. Fullerís, who were one of the biggest, were producing about 200,000 barrels a year.

In practice, some of the new small brewers have used the duty relief not to bolster the finances of their business, but to sell beer more cheaply, putting the established brewers at a severe price disadvantage. The overall market share of these small brewers is relatively small, and to the likes of AB InBev they are no more than a pinprick on an elephantís backside. But they have a much higher share of the market for cask beer in the free trade, and if you go in any pub that is able to buy beer on the open market it is likely that most of its cask lines are from microbreweries. Many of these beers are very good, but the main reason some of them are there is that they are cheap to buy.

The mid-sized brewers found that the general decline of on-trade beer consumption and the rise of lager greatly reduced the amount of beer they were producing from their own breweries. But, at the same time, the rise of up-market dining provided an opportunity for some of the pubs in their tied estates, and many of them bought more as cast-offs from the debt-ridden pubcos. This essentially turned them into pubcos with an under-utilised brewery as a sideline. Fullerís reckoned that 85% of their profits came from their pubs and hotels, so it is perhaps understand≠able that they decided to concentrate on that part of their business and accept an attractive offer for the brewing side.

Itís also debateable whether you can make such a clear distinction between the brewing and pub sides of the business, as to some extent they support each other. If you separate them, both will be diminished and their viability undermined. A brewery produces a unique, identifiable product that is recognisable to customers and may command a great deal of loyalty, but a pubco is, well, just another pubco, and in the long-term that must make them more vulnerable to takeover. Fullerís stood out from the crowd both because of the high profile of their beers and the valuable redevelopment potential of their site. But the announce≠ment of this deal will certainly have given many directors of family brewers cause for thought about their long-term future.

Itís often the case that people attract warm tributes when they die while having a much more equivocal reputation during their lives, and itís hard to avoid the feeling that some of those shedding crocodile tears over the sale of Fullerís were happy a year before to dismiss London Pride as ďboring brown beerĒ. Maybe if we want to help the prospects of the family brewers, beer enthusiasts should give them a bit more love as upholders of a unique British tradition, rather than constantly chasing after the novel and trendy.

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