Could contract brewing save craft beer businesses?

The craft beer sector has struggled of late, with brewery closures being reported amidst rising costs. But there is one model that could assist in saving beer businesses from being completely eradicated — contract brewing.

Contract brewing, also sometimes known as cuckoo brewing or gypsy brewing, is a model where a brewery business operates without a fixed premises and instead rents another brewery’s kit at an already-established site.

In February, Bedlam Brewery, which had been based at a site in Sussex, entered administration and was set for a pre-packaged sale of the business to Renatus Brewing Company – a newly established firm set up by Bedlam director Robert Shepherd.

Speaking about the ordeal, Shepherd told db that despite an offer of a sale at a hugely reduced price, it still felt more compelling to retain the brand than have it undervalued. Bedlam, which has been a much-loved brand, has also been a longtime supporter of eco-values and has always been hugely conscientious about sustainability. Looking to contract brew as a way forwards has now simply become part of its story. 

Shepherd revealed how “the administrators and their advisors marketed the business extensively but only received one offer from another brewery that I and a number of directors felt significantly undervalued the brand and certain assets so we took the opportunity to offer more and purchase them.” He explained how “cost pressures remain across the board” and “the most significant was electricity, which more than trebled overnight to over 12% of our turnover” and added that “although we have seen the price of energy coming back slightly, it continues to be a significant impact on the commercial model”. 

Additionally, “the prices of ingredients have increased significantly (malt production is very energy intensive), as has the cost of packaging (cardboard, cans and bottles), deliveries during last year and so forth” said Shepherd and noted how all of this was taking its toll.

So how might contract brewing help? As Shepherd said: “The main attraction is about keeping beer brands going that customers love” all while “doing it via cuckoo brewing” which “gives us tighter visibility on costs”.

Yeastie Boys founder Stu McInlay agreed that here are benefits to the model, but warned that communication is key if a brewery is to make it work for them. He mused: “I’ve often considered that a shared brewery model could be a way of the future for smaller brands but, in most situations, a single brewery with one or several contract partners is probably a safer bet and is far less capital intensive.”

He explained:  “We’ve been contract brewing for 15 years and it is a key part of our brand,” but pointed out that “for people moving from having their own physical site to contract brewing there will be significant brand communication that has to take place.”  McInlay said: “A lot of people think contract brewing is as simple as telling a brewery what you want made and then designing a label, but there’s a hell of a lot of work that goes on behind the scenes if you want to create anything that’s unique in a very crowded marketplace.

He added: “I think of our contract partners as our team and, as such, we’ve always found that it’s best to work with people with a shared philosophy around beer and business.”

Similarly, Big Drop Brewing Co founder and CEO Rob Fink said: “Contract brewing has worked well for us up until now as we have not required capex to increase volume each year as we have grown.” But, he stated that it is not best as a long term plan and explained  “at a certain point (about now) running a contract brewing model simply gives you all of the complexities of owning a brewery, with none of the benefits” and revealed that this is why he has recently partnered with IGC so that “operational complexities are absorbed into their existing brewery and by working together on sales and marketing synergies we can continue to grow our brand”.

Shepherd also revealed that contract brewing is only Bedlam’s “intention for the near term” but the business will still “continue to look at the opportunity to move to a new site in the future”.

As stop-gaps go, this route to market is still a good way for any brewing company looking to reduce costs while still retaining a pulse among consumers. As Shepherd looks back at what the team could have done differently, he said: “Probably the single biggest lesson for me is that we were at the wrong location. We moved some years ago from a beautiful Sussex vineyard to a farm where we ended up spending £6k a month on wastewater transportation and had no taproom space or event-based income”.

He insisted: “We worked really hard at Bedlam to be ‘good corporate citizens’ by for example becoming members of 1% for the planet, being one of the first UK breweries to join the Brave Noise campaign, supporting Pride, brewing a kelp-based porter to support the Sussex rewilding project and supporting various other local projects” and added, simply, “we want our customers to once again feel that they’re drinking great tasting beer from good people” — this is a way to do that.