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The real cost pressures craft breweries are facing

05 December 2023 By Jessica Mason

Craft brewers have spoken up about the reality of the cost pressures, lack of government support and the future of their businesses.

Steve Dunkley head brewer at Beer Nouveau told the drinks business: “Everything at the moment is a cost pressure. Everything that a brewery buys in has gone up in price. Every overhead a brewery has has increased beyond planned budgets.”

Dunkley revealed that the new Duty system has “benefited the larger family and regional brewers who brew a core of low to mid strength beer, and nothing else, and has really benefitted the large multinationals, but at the cost of the micro/craft brewers”.

Essentially, the smaller independent businesses are feeling the squeeze and are under a lot of pressure, a situation not helped by the lack of clarity the end consumer has over the challenges.

Julie O’Grady, co-founder of Neptune Brewery, based in Liverpool, said: “Most people don’t think of the costs included in producing beer, as they are hidden, such as staffing, duty, transport, cost of ingredients etc as to why their beer may costs the price it does.”

Understandably, everyone is feeling the pinch, but as Dunkley points out, this is having an adverse effect on how much everyone can afford. He observed: “People are skint, they’ve got no spending money, they’re struggling to pay for essentials, so extras like beer are cut right back. And when they can afford to treat themselves to a few pints, they’re being careful, and going for the lower cost options, or if it’s a special occasion then it’s a few more expensive beers, but nowhere near as much as previously.”

Confirming the situation, the Society of Independent Brewers (SIBA) head of communications & marketing Neil Walker insisted that brewers are doing what they can to not pass on the costs and drive away custom, but this in itself is endangering their businesses as they are often the ones to put customers before their own bottom line. He explained: “Independent breweries have seen their ingredients, utilities, packaging and fuel costs rise dramatically over the last two years, with many cutting margins to avoid dramatic price-hikes on the bar. Small breweries aren’t increasing prices in line with those rising costs, they’re struggling to keep beer affordable and protect their market.”

Outlining additional invisible cost pressures, Darron Anley, founder of Siren Craft Brew, based in Berkshire, pointed out that there are things like “fuel for our steam boiler – not only has the price increased along with all energy, but the government removed the Duty relief so increased the price by a further 40%” plus the price of “malt increased from £480 to £780 per tonne” and “CO2 used to be £295 per tonne” but now Siren is “currently paying £410 plus an energy surcharge of £400 per tonne – was at £800 per tonne for most of the year”.

Added to this, Anley lamented that the business’s “landlord wants to increase rent by 30%” and “energy costs will double this year for the brewery” as it is coming out of a contract. Additional costs people don’t see – aside from the usual Duty gripes are things like “cardboard, cans, delivery costs both in and out of the brewery have all gone up further than inflation,” he explained.

Olivia Clarke, head of marketing at Yorkshire based brewery North, reiterated that the situation was challenging and this was across the the craft sector. Clarke described how the costs included: “Raw materials and ingredients, equipment and facilities, labour costs, energy costs, marketing and branding, environmental sustainability as well as distribution and transportation.”

But for an industry on its knees, the over-arching message has been that the craft beer industry does what it can to look after its people. Its teams and staff are like family and so too are its pub customers and their guests too. Despite this, Dunkley highlighted how the cost of staff is still having a knock on effect because people are going out less and spending much less than they normally would. He explained: “Staff need to be paid more because their rent has gone up, their bills have gone up, everything they pay for has gone up, and they need their wages to go up to match that.”

According to Dunkley, the outlook for the craft sector is bleak: “Ingredients, production costs and overheads would all have to drop quite drastically for us ever to get back to where we were when we could all produce good beer at a price people could afford. And I can’t see that happening. I also can’t see wages being able to increase to match the new costs, because most businesses just don’t have that spare cash flow to pay their staff, especially breweries who are laying staff off because they can no longer afford to pay them, let alone pay them what they need.”

However, despite this, Dunkley admitted that there are things that could be done, if only the government listened. He told db: “The only thing we can hope for is a level playing field with competitors. The new Small Producers Relief needs changing. We’ve seen it in action now and we can see its faults. For a start it needs to not count production of different types of alcohol together for the overall production, if that overall production is below a certain limit. There are breweries who’ve tried to diversify into cider or spirits to stay afloat and been hit hard with this new system.”

Outlining what else could be done by the British government, Dunkley said: “The relief also needs to be extended to higher strength products. At the moment anything at 8.5% or more gets no relief, so start up wine and spirit producers get nothing, purely because the Temperance Movement through their fronts don’t like the idea of the masses drinking stronger alcohol. Keep the production volumes low for relief, but put that relief in there. And the Draught Relief needs to be binned off. It was flawed from conception through implementation, and HMRC knew this but refused to do anything about it. The whole ridiculousness about draught take outs shows this.”

Anley has stated that the government needs to take note that “the two biggest things they can do right now are to reduce VAT for hospitality – our customers. This would give them the freedom to breathe a little – they have been hit massively by Covid, now paying high interest rates for loans they had to take to repay debts from Covid, unbelievable jumps in energy prices and every goods in from fish to meat to beer to spirits. A reduction in VAT will help them check their prices, which would help deflation, hopefully increase the visits their customers could make, and therefore help us with a stronger pipeline”. Plus, “the second would be to not touch alcohol Duty in the next budget. The measures on Duty, wages combined with inflation in the system has made this a tough couple of years. This industry is the third biggest employer in the country and it needs more support.”

O’Grady agreed and insisted that the sector needs a reduction of VAT for breweries and hospitality. “This is a big cost that can be crippling to many. At least 5% as a minimum” and added: “A reduction in duty would help too.”

Dunkley advised that “a far better system would be a Small Retailers Relief. This wouldn’t even be hard to implement, any retailer below a certain size could be able to claim a relief on their VAT, or if they’re smaller than the vat threshold (which several are and a lot of folks forget there is a threshold before you start paying VAT) then they can claim it back of other business taxes”. He suggested: “This would actually help small pubs, bars and bottle shops, allowing them to keep their prices down even when they pay full price for craft/micro beers. This could even be offset by increasing vat on alcohol by 1% for the largest retailers. So the treasury wouldn’t even lose out, like it has done with the draught relief.”

Overall, the craft brewing sector is filled with people that have a readiness to make their businesses work and assist the economy and keep people in jobs, but as many have stated, the suggestions they are making need to be heard. Politicians need to take action if they want to save our independent brewing sector and the pubs and bars that it supports.

Sean Ayling brewer and director Tom’s Tap and Brewhouse in Crewe said that his customers [the pubs] desperately need a VAT cut and revealed that he had “heard of one business turning over circa £600k a year that is yet to make a profit” and explained that “if the VAT was cut even to 15% that business would be profitable. Instead, we have reportedly six pubs a day closing each of which are supplying precisely nothing to the treasury”.

Also making suggestions, Walker said that “SIBA would like to see the government extend draught duty relief up to 20% to mean that pubs pay a significantly lower rate of tax on the beer they sell when compared with supermarkets and other big retailers” and pointed out that “it is also vital the government support breweries who are seeking to lower their environmental impact and work towards the government’s own ’Net Zero Emissions’ targets, with targeted grants and subsidies.”

Ayling is in agreement and tabled the idea that “every brewery that could afford to, should invest in solar power and CO2 recapture” and mused upon the idea of there also being “evidence that moving to a four day week (whether that’s 100-80-100 or four long days) can improve staff wellbeing and productivity”. Essentially, looking after people is part of the sector’s aim as well as safeguarding its future.

In addition, Ayling pinpointed how the government could offer “green energy grants” as well as “being honest about when a tax cut isn’t a tax cut would be a start” but stated that ultimately, the government “really do need to address the closed shop that is the beer tie”.

As he deftly pointed out, very few people within parliament are actually taking notice of what is truly happening to pubs and the beer industry and why it is failing. But, he warned, it may already be too late because, sadly, “by the time the government works out what’s happening there’ll be no industry left”.

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