Is the end of the beer boom nigh?

“It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.” Sherlock Holmes

Yeah, whatevs, pipe boy.

Though we’re still crunching data on brewery openings, closings and goings on between the 1970s and the present day, this optimistic post from Des de Moor, and some pessimistic responses on Twitter, got us thinking about possible signs the current beer boom might be coming to an end. Here’s what we’ve come up with.

1. Fewer breweries open than in the previous year

Er, yes, this one is a bit obvious. Previous UK brewery booms (early 80s, mid 90s) follow the usual ‘Bell curve’, and there’s no reason to think this one will be any different. Here’s 2006-08 from figures given by CAMRA at successive Good Beer Guide launches.

Graph of new UK brewery openings 2006-08
Number of new breweries opening each year according to CAMRA, e.g. 99 in 12 months preceding September 2011; 158 announced from then until September 2012.

When the new GBG is launched in the autumn of this year, the ‘new breweries’ number will be significant. If it’s more than 158, then the boom is still going; if less… well, it’s not the end of the world, but it means we can start to expect a slump the unfettered growth to slow down in the next few years. (Our guess (that’s a guess): it’ll be 180+, but then back down to 150 in 2014.)

2. The big-small operators start selling up

A final death knell for the 1980s boom was, we think, the moment when David Bruce of the Firkin chain of brewpubs sold his interest to Midsummer Inns for £6.6m in 1987. Clever people invest at the start of the boom and sell before it peaks. So, if, say, Martin Hayes of the Craft Beer Company, for example, decides to cash in his chips and sell his five (?) pubs to a bigger national operator, alarm bells ought to ring.

3. Big breweries get in on the act

We’re not saying big brewers can’t or shouldn’t ‘do craft’, but it might be a bad sign when they do. The 1980s boom was partly down to Whitbread, Allied and others getting in on the action with their own ‘fake Firkin’ brewpubs and the (half-hearted) revival of their own real ale brands. They undercut small operators and contributed to an over-saturation of the market. The equivalent these days might be the ‘pilot plants’ all the bigger breweries are opening; but a far bigger danger sign wil be the first Mitchells & Butlers brewpub or ‘craft beer bar’.

4. Hipsters move on from beer

Hipsters might not consume much beer as a total share of the market, but they own the buzz. They write blogs, reviews, newspaper and magazine articles, and work in TV production. They attract attention. If (when) they decide that Brewdog isn’t cool anymore and move on to, say, sloe gin, or mead, or whatever, it’ll be a rats- from-sinking-ship moment. This usually happens well before the peak of the boom, which suggests there might be a couple more years to go yet. Thirty-odd years ago, c.1980, key indicators were a drop off in CAMRA membership and in sales of the GBG, as those who’d got excited by the ‘real ale craze’ lost interest. What’s a modern equivalent? Sales of the Craft Beer London app? Brewdog shares? Google searches?

Summary

What we’re saying, we guess, is that there’s no reason to be gloomy just yet — there’s another year or more of boom to be enjoyed — but that anyone opening a brewery right now is doing so towards the peak of the curve and had better have a bloody good offer if they expect to be trading in three or four years time.

If you’ve got any guesses or suggested indicators, share them below.

UPDATED 09:30 24/01/2012 a slump is not what you call the end of a boom, apparently! You live and learn…

25 thoughts on “Is the end of the beer boom nigh?”

    1. Yes, c.1980 there was a big crisis because they’d printed 100k copies based on previous year’s sales and only shifted 60k. Caused a major financial problem for CAMRA.

      Coincided with the drop in membership from 30k in 1976 (?) to 15k in 1982.

  1. Does there HAVE to be a slump? Sure, the increase in breweries will inevitably end (just as the decrease in pubs will) and there will be consolidation period, but there is no reason to believe this will be some terrible disaster. As long as there is demand for good beer, interesting beer, local beer, whatever, then someone will supply it.

    1. “Sure, the increase in breweries will inevitably end (just as the decrease in pubs will) and there will be consolidation period”

      Haven’t you just described a slump? We’re not economists/stattos, so stand ready to be corrected.

      Won’t necessarily be a disaster, and the total number of breweries will be higher than at the start, but a boom is a boom — mad, unsustainable expansion.

      1. I think a slump implies a definite decrease, as opposed to simply no longer increasing. The number of UK breweries will probably stabilise to a dynamic equilibrium somewhere between 1000 and 1500 – and that’s fine. There will continue be big MNC breweries, medium sized regional and national breweries and local microbreweries and brewpubs, and occasionally a brewery will jump up a size.

        I don’t think the number of breweries is going to plummet back to single or double figures again any time soon.

  2. Here’s a graph…

    … based on data of openings / closures recorded on the Quaffale website.

    Which shows the dramatic decline in brewery numbers when the Firkin chain closed. The steady rise in numbers since then (Progressive Duty + availability of Firkin kit?). The exponential rise since 2009. Which may be attributable to redundancy cheques being spent on comparatively cheap kit that can be installed in small units brewing small batches to support a limited number of outlets.

    The real doozy stat I’d love to see is the average size of kit installed since 2009. Here in the East Midlands we have at least 12 breweries that have opened in the last few years which supply (regularly) no more than one outlet… and that outlet could be a part-time bar (ie weekends) or a micropub.

    Micro-leaning-towards-nano brewers who supply one outlet – maybe as a part-time/hobby venture – is certainly long-term sustainable in my view. Ditto for those who choose the bottling/export route (where price point isn’t an issue to the, ahem, discerning craft customer.

    I’ll put ready money on the likes of M&B pushing a premium craft offering – it’d be a straight development from the Nicholsons ‘heritage pub meets quality beer’ concept. Will it hurt the sector? Doubtful.

    The real opportunity waiting to be exploited will be how pubs/bars will appeal to today’s craft drinker in 10/20 years time. Maybe the same kind of beer but different atmosphere. With customers who fell in love with craft as twentysomethings and now have more disposable income. But less tolerance to naff music and small toilets.

    Maybe there’s a brewer who owns craft bars across the UK with a canny exit strategy who’d be willing to sell their chain onto a national pub group sometime beyond 2020…

    1. “The real doozy stat I’d love to see is the average size of kit installed since 2009.”

      That would be interesting. We’ll keep our eyes peeled.

      Worth noting, though, that quite a few breweries in the early 80s boom were really homebrew set ups in back rooms of pubs producing a barrel at a time. (One landlord had a two hour training session in the car park at his malt suppliers before declaring his brewery, using plastic buckets, open.) Guess they were ‘nano’ before nano was a thing.

  3. The Firkin is a bit of an anomalous result, seeing as it was basically one company, but it counted as multiple closures. So that weird spike should probably just be ignored.

    1. We’re looking into Firkin as a whole separate thing. If you take them out of the equation, London’s brewery numbers looks *really* pathetic from up until about 2008.

      But they did employ lots of brewers. Would each of them have opened their own brewery if they hadn’t worked for Firkin? Lots certainly did after Firkin (and its imitators) folded.

  4. Great work, Simon in particular. Now plot brewery openings/closures against (1) UK GDP growth/decline (2) demographics of 25 to 35-year-olds (3) lending rates – note the explosion since 2009 matches historically low loan rates (4) inflation-adjusted industrial premises rental costs. I suspect (1) may show an inverse association, (2) won’t show anything, (3) and (4) will again show an inverse relation. That’s my null hypothesis, anyway.

    1. Maybe, but it’s not part of a Craft Beer Company-style chain. Whitbread pubs had real ale back in the 70s and 80s, but the kind of thing we’re talking about is when they launched pubs with breweries called things like The Dog & Dustbin to cash in on the success of the Firkins.

    2. Prince of Wales Feathers is part of a brand known as Castle internally and Metro Professional Pubs publicly. They do have a good beer range but I wouldn’t put them in the same bracket as things like the Southampton Arms or the Euston Tap.

      The White Horse in Parsons Green however you probably could put in the same bracket.
      http://www.whitehorsesw6.com/

  5. It makes sense that investment in brewing would correlation to low interest rates. But correlating positively with recessions is an interesting idea, in direct contradiction to, say, the Keynesian investment model, which suggests that investment in new businesses and equipment should go up as the economy goes up and demand for luxury goods like beer increases.

    Perhaps its a supply side issue: lots of amateur brewers lose their day jobs and decide that nows the time to give it a go professionally, and that overrides the effect of the lack of demand in the market.

  6. I think the recent boom hasn’t really been economically driven at all; its just that a) a latent desire for a different style of beer in the beer buying public has been awakened/discovered, and every tom, dick and harry thinks that he can make a mint supplying it before the big MNCs catch up; and b) the ongoing (middle class) preference for small, local producers has made being a microbrewer a more economically viable prospect than ever before.

    Are these permanent changes? Or just temporary fads? I think they’re probably at least partly permanent.

    1. I think all of that explains the general trend since about 1970, but not the spikes — those points where it suddenly goes nuts for about three or four years. Those have to be driven by something external, whether its economic, demographic, sun spots…

      1. If you treat the firkins closing as one large, geographically dispersed brewery, closing rather than one hundred small independent ones – which is effectively what it was – then the graph remains rather flat – a slow increase in brewing followed by a noticeable jump in the last 4 years.

        Obviously you are going to have fluctuations from year to year, thats just the nature of statistics. They don’t have to all have the same exogenous cause. Its most likely just noise – I’m sure you could produce confidence intervals on the statistical significance of the year on year correlations if you wanted.

        When did the small brewery tax relief come into effect? Thats probably relevent.

  7. pyO – while I’m sure you’re right that a large part of the current boom in new brewery numbers, especially in London, is down to a new interest among the beer-drinking public in different styles of beer that aren’t supplied by the big brewers, I can’t believe the boom hasn’t been helped by lower industrial premises rents and lower interest rates caused by the recession.

    I also wonder whether the current generation of 25 to 35-year-olds isn’t just more entrepreneurial than past generations: need to look at general business start-up figures over the past 40-50 years …

    1. Yeah sure, it could never have happened if it was extortionately expensive to set up a little brewery etc.

      Its basically Tobin’s q model in economic terms: if the expected return on the investment ( in this case due to the perceived unfulfilled market for microbrewed craft beer) is greater than the cost of the investment (due to low interest rates and industrial unit rents), then people will invest.

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