With overall beer sales in decline and the number of pubs in the UK down by a fifth since 2000, the outlook for breweries seems far from rosy. But that does not paint the full picture. We have also witnessed a marked increase in the number of industry trademarks over the past decade; a consequence of the rise of craft brewing and the swing towards what marketing folk refer to as ‘premiumisation’.
The same thing has happened in the distilling industry, as dozens of new brands have made their way onto the market, along with ancillary businesses such as Fevertree Drinks (FEVR). Whether this reflects an increasingly discriminating palate nationwide is difficult to say, although those same marketing people might also point to ‘aspirational’ branding (snob value, to put it plainly).
Whatever the motivation, the extent of choice available to pub goers has increased markedly. Those of us of a certain age will recall the days when bars were routinely stocked with just one or two varieties of cheap gin and blended whiskey, cream sherry served in silly little glasses, and a magnum of sweet, sickly, German table wine of highly questionable provenance.
Changing consumer behaviour has underpinned the rise in craft beer production. It has drawn demand away from mass-appeal industrialised brands at a time when overall beer consumption is in decline. Although this presents a favourable backdrop for boutique breweries, they are also facing structural problems of their own; ones that the multinational brewers have been keen to exploit. Covid-19 pub closures have distorted regular patterns of consumption, but evidence from the Society of Independent Brewers (SIBA), published prior to the lockdown, suggests that growth within the sub-sector may have plateaued.
Off-licence sales have continued to rise as a proportion of overall consumption. The trouble is that supermarkets, due to their buying and logistical characteristics, are not the ideal route-to-market for the smaller breweries. And even if a craft brewer does manage to secure distribution through a pub group, consumers of traditionally made brews do not typically drink as much as punters who make do with so-called ‘session’ beers. Research by SIBA also suggests that the new breed of real ale aficionados tend to be more adventurous in their drinking habits, regularly seeking out novel taste experiences. However, an absence of brand loyalty, set against an overall fall in consumption, makes it more difficult to build volume in the market.
The large brewing multinationals are certainly aware that a relatively high percentage of drinkers within the key 18-30 age demographic prefer craft beers over their higher-volume brands. This explains why the likes of Anheuser-Busch InBev (Bel:ABI), which controls around 30 per cent of the global beer market, has been aggressively buying established microbreweries and marketing them separately with budgets that limited-scale brewers could only dream about. Indeed, Anheuser-Busch triggered the wave of buy-outs in the sub-sector through an £85m deal to acquire the London-based Camden Town Brewery in 1995.
It could be argued that the recent £273m tie-up between Carlsberg A/S (Dan:CARL-B) and Marston’s (MARS) had less to do with the Danish brewer’s desire to seize control of the latter’s cask ale brands than it did with the freedom to channel Carlsberg products through Marson’s 1,400-strong pub estate. Given Marston’s market capitalisation of £490m, it is debatable whether brands such as Hobgoblin, Pedigree, or even Old Thumper, fall within the craft beer category – it is hardly a back shed operation. But regardless of where Marston’s sits in the spectrum, SIBA believes the deal will make it harder for independent brewers to get their beers into pubs.
A consumer shift in favour of traditional beer styles may have precipitated the recent buying spree by the industry heavyweights, but other factors have been at play down through the years. It may seem perverse that one corporation could control nearly a third of global beer production, but consolidation has been a central feature of the industry in the post-war period.
Technology and the development of modern marketing schemes were important drivers of consolidation during the period, along with relatively high levels of sunk costs, a permissive M&A environment, and the practice of tying pubs to breweries.
By the mid-1980s, six national brewers controlled over three-quarters of UK beer production, with the balance given over to regional and small-scale producers. This concentration, allied with widespread vertical integration, drew criticism from the Monopolies and Mergers Commission, eventually leading to the introduction of the Beer Orders of 1989, by which time the political influence of the beer barons (or the ‘beerage’, as they came to be known) was in decline.
National brewers were given three years to sell over 10,000 pubs from their tied estates. This resulted in widespread structural changes to the licenced trade, including the eventual rise of the pubcos. But contrary to the aims of the legislation, and subsequent reforms, concentration in the brewing industry has probably increased if anything.
It may be that millennial drinkers value authenticity and craft above anything, but the rapid growth of the artisan beer industry is effectively pushing independent brewers into the arms of the industry heavyweights. Overall consumption volumes have not kept pace with the number of new entrants in the market. It has simply become more difficult to remain independent amid intensifying competition from a new generation of craft breweries.
