Why so many craft breweries went bust in 2022
The number of craft breweries going bust jumped to catastrophic heights in 2022, according to sources detailing the challenges.
According to Steve Dunkley, head brewer at Beer Nouveau who has been keeping a comprehensive list of brewery closures, over 80 breweries went bust in the UK in 2022, making last year the highest yearly total on record.
With the number of breweries in the UK having fallen, the issues are being outlined as a myriad of rising costs and weakening consumer demand.
Dunkley told db: “The problem with a lot of lists is that they pick a singular source of information, such as Companies House, or insolvency applications. A lot of breweries aren’t registered with Companies House for instance. A lot don’t go through administration or insolvency. This list pulls from multiple places including direct from brewery’s social media posts.”
Speaking to the drinks business, the Society of Independent Brewers (SIBA) head of communications, Neil Walker, said: “Independent breweries have seen raw material, utility and energy costs rise across the board and without the economies of scale of the global companies many businesses have found it incredibly difficult to remain profitable, for many breweries the combined financial burden has proved too much and we have seen a number of closures over the last twelve months.”
Analysing the businesses going bust, accountants Price Bailey identified that the independent brewers are being squeezed by a convergence of factors, including rising material, labour and energy costs combined with falling sales as consumers switch to cheaper, multinational brands. The firm also observed how since draft breweries produce beer in small batches, they are less able to benefit from economies of scale of larger brewers, leaving them disproportionately exposed to demand and supply side headwinds in the economy.
Matt Howard, head of insolvency and recovery at Price Bailey, also explained: “The growth in brewery startups has slowed in recent years and we are now starting to see a significant number of business failures as the market becomes increasingly saturated and brewers face stronger economic headwinds. Soaring inflation is leaving consumers with less money to spend on premium products. This is reflected in the shelf space retailers allocate for craft beers. As consumers trade down to cheaper global brands, supermarkets reduce space for craft beers which leaves some products with very little market exposure.”
Howard identified, similarly to SIBA, that “while many multinational brewers have seen profits surge over the past year, smaller independent brewers generally operate on much tighter margins with minimal exposure to foreign markets. They produce smaller batches of beer and cannot leverage economies of scale to offset inflationary pressures”.
The firm also made pains to point out how trading conditions for small brewers are likely to remain challenging as prices for many of the core ingredients used in brewing remain “stubbornly high” and, added to this, the Russian invasion of Ukraine and the summer heatwave in Europe exacerbated shortages of grains, causing prices to spike.
However, Dunkley, speaking candidly on Twitter, explained that the issues are really a little more complicated than that. He told db: “Craft/micro-brewing isn’t the same as the larger businesses, it’s often individuals doing it themselves… I’d point out is that market isn’t saturated. The market is controlled. A few large multinational corporations use whatever tricks they can to tie up what used to be free lines in pubs. Without those free lines, the smaller breweries don’t have anywhere to sell their beer to. We have bars that were previously free houses getting cellar installs from the multinationals in exchange for their keg lines selling a proportion of beers from those multinationals, which are almost always the faux craft like of Camden and Beavertown” and lamented: “Most consumers have no idea about their multinational owners, possibly even fewer care. But craft, micro, independent, whatever we call it has never traded on those large scales, but on the small sides, and access to those is being removed. There aren’t too many brewers or beers, there’s too few free of tie lines.”
As interest rate rises have added further pain on what is a heavily leveraged sector and the transitional business rate relief – which was cut from 100% to 66% from 1 July 2021 to 31 March 2022, was cut again to 50% from 1 April 2022 to 31 March 2023 – is all taking its toll.
Walker also reassured that, despite how bad things seem for the beer industry right now “there are signs of recovery for the industry” and said that there were “new figures due to be released by SIBA later this week covering the first quarter of 2023” and hinted that these would show “net brewery numbers in some regions of the UK now in growth” which, on balance painted a picture wheich saw “overall numbers relatively stable”.
According to Howard: “Breweries are very capital-intensive businesses” and “the sector tends to be highly leveraged and therefore vulnerable to interest rate rises which push up the cost of servicing debt” indicating that brewery owners need to stay wary.
Dunkley outlined how he has additionally compiled a list of brewery closures for 2023 so far, which is being added to as the months pass and makes for solemn reading for any beer-lover.
He added: “I’ve been monitoring and covering the changes to the beer industry for craft/micro for a few years now, and it’s not been good. And it’s looking like the new Duty system is actually going to cause a lot more harm too. I’m currently working with several breweries to see how it’ll realistically affect them, and so far for a moderate-sized brewery that was sitting below the 5,000hl threshold, that these changes were supposed to help expand by removing the Duty cliff edge, I’m seeing an immediate increase of between £5k and £25k a year. Whereas the larger family brewers are set to save money. There is change coming though, and I think there may be some hope on the horizon. But it’s only really due to a possible massive shift on our drinking culture, and more around the venues that we can drink in. It’s going to be an ‘interesting’ few years.”
Howard warned: “Even in benign economic conditions small breweries can struggle to turn a profit for a few years but with higher borrowing and raw ingredient costs, coupled with weakening consumer demand, many startups are likely to fold before they get out of the red.”