The Corporate Craft Grab

Last year we celebrated ten years since we sold our first beer, and this prompted a lot of reflection on what we had seen and experienced in the UK craft beer scene over those years, the ups and downs, and the challenging times we find ourselves in now.

 

When we started out, it felt exciting to be part of something that came not only from people’s desire for better things, but also from the feeling that they were able to create those things themselves, and that it was not out of reach. People in the craft beer world can be quite sneery about home brewing these days, but in 2012 it was an important part of the scene, it was part of what got a lot of people interested in beer, and the explicit recognition of it by breweries like The Kernel and even Brewdog created a new direct link between producers and consumers, which made it a community.

 

The three of us who founded Pressure Drop started homebrewing together on a Braumeister kit, in a garden shed. We knew absolutely nothing about starting or running a business. We were confident in our ability to learn as we went.

 

One of the most challenging aspects of it was also one of the most exciting. That was the fact that we had to learn absolutely everything, from scratch.

 

All of us had some “transferable skills” from our previous occupations, but none of us knew how to register a company, find a premises, find customers, think of a name, design a logo, get labels printed, order supplies, take delivery of large quantities of things, or promote ourselves.

 

We did a lot of trial-and-error test brewing on the little Braumeister and put it through its paces. By the time we came to invest in a 5BBL brewery in a railway arch, we already had a handful of recipes we were happy with (including, critically, an American-style pale ale, Pale Fire), a name, a logo, and even some customers, who were asking when they could get more beer from us. It was a good position to start from.

 

It felt at that time as though things would just happen if you put yourself out there. Some of this, we now realise, was simple GCSE economics – there was more demand for what we were producing than there was supply. I remember being in a restaurant that had Kernel Pale on its menu, trying to order one, and being told they hadn’t been able to get any for several weeks.

 

It was not a period of strong growth for the UK economy as a whole, but there was certainly growth happening in the demand, and consequently supply, of flavoursome beers, particularly those that made use of fragrant hops.

 

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I’m not sure exactly what market share of overall beer consumption in the UK was ever captured by the smaller independent breweries, but I’m willing to bet that even at its height, it was tiny.

 

For all the talk about small businesses being the conservative ideal, the engine of the economy, or whatever other terms politicians want to use when appealing to some nostalgia in people, large corporations rule and quasi-govern the world, and even in our tiny corner of the economy they do not take kindly to small upstarts doing any kind of business they think they should be dominating completely.

 

From my past life working for large corporations I knew a bit about how they worked, and I knew that even if the large brewing corporations had only lost a fraction of a percent of their market share to small independent producers, some poor schmuck in an office somewhere would be getting their arse kicked over it, and told to fix it. To take it back.

 

The large corporates attacked on several fronts simultaneously. It was quite something to watch it in real time, and arguably, it’s a process that is still going on.

 

In the U.S., one large corporate had run an ad during the Superbowl attacking craft beer as something only pretentious, effete metrosexuals with twirly moustaches drank, while real men drank their mass-produced light lager. This was run while the company in question was quietly, and sometimes not so quietly, acquiring craft breweries. They clearly decided that nothing so crude as a straightforward attack-ad would work in the UK, so the approach here was more subtle.

 

Many corporates tried to pretend that their beer actually was “craft beer” and launched advertisements featuring bearded hipsters showing up for work in the morning and smelling sacks of malt. Others launched their own “craft” brands as offshoots. None of those attempts really worked, at least in the UK.

 

What did work though, was smart acquisition of some of the best and most prominent “brands” in the craft beer scene, who for the most part made very good beer. Those brands were then marketed and sold throughout the country to the point where it’s hard to walk into a pub or even a sports stadium without seeing them on offer. Some of these acquisitions “failed” in the sense that the brands were then sold on to another party, and have practically disappeared from public consciousness, but it’s notable that the most prominent successes of this acquisition approach have been those brands that have been pushed the hardest from a marketing point of view. The ones you see on billboards.

 

The marketing of these brands has also been very careful to avoid associating them with their corporate owners, sometimes even positioning them as “local” breweries, especially those that are named after places. To this day, as the recent SIBA survey showed, most customers don’t actually know that many of these craft beer brands are owned by AB InBev or Heineken or the like. Friends are surprised when I tell them. That’s a measure of the success of this kind of acquisition and marketing.

 

I used to think that this kind of thing didn’t really hurt us, or other independent breweries of our type – “mom and pop” businesses whose ambitions were limited to making good beer and bringing in a little more through sales of that beer than we had spent making it. Now, when I see it in every pub being sold as “independent” craft beer, and offered as the only option under that description, I’m not so sure.

 

Another, perhaps even more insidious, effect of these acquisitions was to encourage other breweries to covet that kind of sale, to want it for themselves. The appeal is obvious, and arguably, understandable. Large amounts of money. Being able to walk away. All of that responsibility you feel as a founder and custodian of a business, suddenly gone. Saying yes to an offer like that is one thing, and who among us can say that they don’t have any price or circumstances in which they would be tempted by something like that.

 

However, building your brewing business directly for the purpose of being acquired, developing a brand and distribution, with no regard for the year-on-year sustainability of what you are doing, and what your work actually produces, or the damage that it does elsewhere, is another thing altogether.

 

When independent breweries started to do that, well … that didn’t look or feel very “craft”.

 

Starting a brewery with those motives felt like a betrayal of the values that the scene was associated with. But it became very rife. As an approach to running a business, it’s extremely risky. And when engaging in something risky, the canny businessperson will always try to risk other people’s money rather than their own.

 

As with the large-scale expansions we saw in the craft beer world in the late 2010’s, my thought watching this happen was: this can’t possibly work for everyone. And of course, it has not worked for everyone. In fact it has only worked for a very small handful of breweries. The others, who under-price their beer hoping for wide distribution and eventual acquisition, find themselves making large losses year after year. Some go bust. Others go back to the main cash-well that has sustained this kind of approach for the last few years: crowdfunding.

 

If we are talking about craft beer in the UK over the past 10 years, then we need to talk about crowdfunding.

 

In principle, crowdfunding is a great concept. Large numbers of people, who believe in a small enterprise or a project, chipping in and taking the place of banks and financial institutions who have become so risk-averse that they no longer fulfil their purpose for society in terms of providing excess cash for investment, certainly when it comes to startups or small enterprises. (The purpose of financial institutions now, as Matthew McConaughey’s character put it so plainly in The Wolf of Wall Street, is simply to transfer money from their clients’ pockets into their own pockets.)

 

One brewery, who we admire greatly and are friendly with, used crowdfunded money in the way that it is supposed to be used, to invest in something productive. They used it to actually buy a property and build a brewery on it, so that now, they don’t pay rent. In other words, they created something of lasting value to the small investors, customers and shareholders who had helped them with their growth. This is what crowdfunding is supposed to be.

 

Like so many things which start out from a noble place though, crowdfunding has become corrupted and abused, and this includes our corner of our industry. I have no doubt that “craft beer” is a sector in which crowdfunding has been abused more than most. There are breweries who go back to this cash-well time and again, always with a transparent (at least to those in the industry, if not the small investors they are trying to fool) story about some grand investment that is planned with the money, or some noble cause that will be served. Then when you look at the financials of the business it is clear that what they are looking for is simply cash that will keep them going until, presumably, the messiah arrives and they are acquired for some vast sum, since it is obvious that their day-to-day activities do not sustain the costs of the business.

 

At times it feels like companies like ours are a quaint anachronism, trying to run a sustainable business that makes a good product and sells it for a price that bears some relation to what it cost to produce.        

 

At some point, the music stops with all of this.

 

Some would say this is already happening, in large part due to the fall in demand all over the economy and the fact that people simply do not have enough money in their pockets for luxuries in the way they did even a few years ago. Breweries, distributors, restaurants, pubs, and shops are closing. Good ones and bad ones. Many of the breweries who crowdfunded large sums – which in theory ought to give them an advantage, since they would have large cash buffers – have already closed, and left their many small investors with nothing.

 

Who will be left standing? In my most negative moments I can see it being a handful of large corporates controlling all of the beer we drink, and where we drink it. In other words, back to how it was before this explosion of small innovative breweries, but perhaps with a larger range of brands and can designs to choose from. 

 

In more optimistic moments, I hope it will include some of the genuinely independent breweries who still focus on producing great beer in a sustainable fashion and provide a rewarding workplace for their employees. I still think those breweries can make things that the big corporates will never be willing or able to do.

 

Sam Smith, Co-Founder, Pressure Drop Brewing