Have we passed ‘peak beer’?
We have all heard about ‘peak oil’, the moment when petroleum production reaches its highest level, as it starts to be replaced by some other form of energy.
But now, industry observers are concerned that we may have already passed ‘peak beer’ and that the tremendous boom that microbreweries have enjoyed in recent years may be at an end.
Accountancy and business advisory firm UHY Hacker Young has been looking at the microbrewery sector, and their findings suggest that Britain’s long and phenomenally successful craft beer boom is losing some serious steam.
Their research showed that in 2016, 179 new breweries opened. In 2018 that figure rose to an astonishing 395.
However, in 2019, the total number of breweries in Britain increased by just 8.
On the face of it, this might be taken to suggest that the beer boom is over – but the facts behind the figures might suggest a different story. There are several factors in play that suggest that, while the increase in new brewery openings may have slowed dramatically, the impetus behind the great British real ale revival is as strong as ever.
The independents are being snapped up
The growing popularity of artisan beer means that global drinks companies have muscled in on the craft brewing sector, buying up several of the most successful ‘artisan’ brands. Major multinationals, like the Budweiser Brewing Group, which rebranded from AB InBev in March, can no longer count on their long-standing industrial approach to beer production to deliver a product with potential for growth. With a crowded market offering no scope for further expansion of their mainstream operations, they have no alternative other than to look for new, niche areas with high growth potential to fuel their revenue and profits.
The artisan beer sector is an obvious target. Buying up small brewers and adapting their products for large-scale production (albeit not on the scale of their core brands) can be the simplest way for them to take a share of a lucrative sector.
This means that the total numbers of independents is being dragged down, and that the actual number of start-ups may be much higher than the growth indicated.
But room for growth is tight
But while some brewers are being snapped up, it may be true that it is becoming harder for newcomers to break into the market. The UHY Hacker Young report has, said the greater competition has made it significantly harder for start-ups to break into a crowded market, and more difficult for small and unprofitable brewers to grow their way out of trouble.
The market is becoming well served with brands, which means that - although drinkers' thirsts are not in any danger of being slaked - sales growth is going to be harder to come by. It suggests that a more businesslike approach may be the way forward for many small operations which have relied on an informal approach to marketing and other business challenges in the past.
In a nutshell – your craft brewery needs a sustainable business model, and you need to become sustainable and profitable at an earlier stage in your development.
What does this mean for your business plans?
Peak beer may not have arrived yet. The economy, and drinkers disposable incomes, may be under pressure from Brexit uncertainties, and with more young people becoming discerning customers each year, there could be plenty of scope for growth to continue in the near future.
However, although there may be plenty of opportunity for the very smallest brewers who supply a handful of bars and a few local retailers, supermarkets have limited shelf space and a slow rotation of brands. It means that small craft brewers will need to innovate and to provide sound business models if they are to be to break into a larger market.
The key factor could turn out to be funding.
The funding your microbrewery could depend on
The challenge for many small breweries may be cashflow. Retailers may be slow in paying, leaving little cash in the pot to fund operations, let alone expansion.
Cashflow is a major issue for every small business, and having to wait weeks for invoices to be paid can trigger a cashflow crisis – but there are ways to help.
Many clients have found that, with our help, Invoice Finance could provide the answers.
With Invoice Finance, a lender will use your invoices as the security for the cash advances you need. So, instead of waiting for your customer to pay, which can be a major headache with large retailers and supermarkets, it can mean getting paid as soon as you have brewed and shipped a batch. You have the funds you need to deal with the overheads - and by ensuring your cash coming in always keeps pace with beer being sent, it can mean you always have the funds you need to support further growth.
You simply send a copy of the invoice to the lender as well as your customer. The finance provider will pay you a percentage - usually 85% - right away. They will then collect the full amounts directly from all your customers and send you the remaining balance, less their interest charges and fees. It means outsourcing all the activities of credit control, freeing up your time for brewing.
At Rangewell, we work closely with our clients to understand their needs before we recommend a particular type of finance - and Invoice Finance is only one of the funding solutions we can help with.
If you are thinking about getting the finance you need to get past your own ‘peak beer’ situation and set up or grow your business, talk to our experts. Our service - and their business finance expertise - is absolutely free.