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News & Nuggets Special: Open Season

Mostly out of nosiness we’re always pleased to see brewers being honest and this week, with new year’s spirit in the air, has seen a bonanza.

First, though we missed it, there was this reflection on profit-per-cask of ale from Ade at Wishbone Brewery, based in Keighley, West Yorkshire:

We know Landlords feel pressure to sell beer at competitive prices, we also often wonder where the fairness is in the profit share between beer-making and pint-pulling as it often seems that pubs demand the lion’s share in comparison to what the brewery makes. (Includes brewery profit at approx £25 per cask)

Brewery Cask per pint including VAT (Blonde) = £1.20 (approx)
Pub served pint including VAT (Blonde) £2.70 to £3.20+ (estimate)
@ £3.20 per pub-pint that is £146 per cask profit for the pub.

Cloudwater growth chart 2015-2017.
SOURCE: Cloudwater

Then there was the Cloudwater blog post which, quite apart from the hot potato cask issue, also gave a top level run down of the brewery’s financial position (sales, growth, margins):

There’s another standout commercial difference I noticed on my trips to The States in these past couple of years – many of the breweries we hear and get excited about manage a staggering amount of direct retail, leaving UK breweries lagging way behind.  From West Coast breweries turning anything between 50-85% of their beer over in their own tap rooms, to East Coast breweries selling 100% straight off the canning line at retail value, the margins our American peers and friends are making are both impressive and powerful… So it’s without apprehension that I’ll say that by focusing on opportunities we have now, and will work to develop in 2017 to maximise the margin we make, we’ll put ourselves, and every business in our supply chain too, in an ever stronger position next year.

Kegs and casks behind the Free Trade Inn, Newcastle.

That prompted Steve at Beer Nouveau, a man who never shies away from providing detail, to go all in with a numbers-heavy post detailing the costs of producing, and profits from, casks, kegs and bottles of the same beer. He concludes with an intriguing suggestion about the purpose of draught beer, as a kind of marketing tool:

Putting your beer out on cask or keg doesn’t make you much money. We’d be looking at less than £500 a month. That would be my wages. Would you expect anyone to work 60 plus hours a week for that? But as breweries we have to put beer out on draught because that’s generally where the majority people first see and try it. And those first impressions are what are vital to us, because if someone likes our beer on draught, they’re more likely to buy it in bottles or cans. And that’s where we start looking at making a living wage. So as brewers we have to strike a balance between getting out names out there, and getting our bills paid.

Macro shot of 1p pieces with The Queen's profile.

Finally, today, we have a frankly worrying post from Dave Bailey at Hardknott — another brewer who has always worn his heart on his sleeve, for good or ill. Cynics might read it as asking for special treatment or pleading for pity-purchases but, based on our dealings with him, we’ve no reason to doubt Dave’s sincerity when he writes…

It seems to us the only thing that might help us to make a go of it would be to sell our home, downsize and in so doing release some capital. I’m going to be honest, this scares the living shit out of me, not least of which because although we will release capital our house is really efficient and low-cost, our bills are low, should we move into a draughty house we might see bigger bills, which we cannot afford on our non-existent earnings… Our house is on the market, and I’m hopeful that we will find a buyer this year. Our plan requires that we move and so I can no longer hide the fact that a move out of Millom is essential. I understand it is possible to find some quite nice caravans and this sacrifice will be worth it to save Hardknott. What if even that doesn’t get us on an even footing?

With our amateur historian hats on we’re going to file these posts away — they may well be vital evidence in a Where Did it All Go Wrong/Right analysis in a decade’s time. In the meantime, it’s worth reflecting on that common theme of the price of cask ale — is there anything we can do as consumers to convey the message to the Trade that, while we don’t want to be exploited, we wouldn’t object to people like Dave earning enough that they don’t have to live in caravans?

35 replies on “News & Nuggets Special: Open Season”

I think the Wishbone post is a little disingeneous, selling cask @ £3.20 a pint gives a difference of £146 per cask between buying and selling, not pure profit. I don’t think that is taking into account the overheads of the bar, which would reduce profitability significantly. Most of these posts are really saying the market is oversaturated with breweries, which I think most of us would have guessed at any rate.

The Wishbone post is complete nonsense – apparently the >50p/pint of VAT that pubs pay to HMRC is considered profit!

So the beer typically costs nearly a quid a pint. Add on nearly a quid for wages, a quid for rent/rates and VAT and then you’ve not got much left to pay all the other things – electric, gas, rubbish disposal, line cleaning, repairs, gardening, insurance etc, let alone capex, before taking a profit. Big busy city outlets will have lower staff costs per pint, but partly make it up on higher rents.

I’ve not got it to hand but I’ve seen a regional report on the state of on-trade outlets and broadly there’s 10% making good money and 90% barely surviving, but not much in between.

As I’ve mentioned previously, the expectations set by Wetherspoons affect the whole trade, if you want an easy fix then their mates in CAMRA should encourage tweaking their formulas would help.

As for too many breweries – only relative to current demand. Further work needs to be done to give pubco tenants more freedom to buy locally. Also if a brewery is >50% bottom-fermented beer, then its pubs should be tied on no more than two lines of top-fermented beer. That would at least reduce the monoculture of Theakstons and Caley that is heading for ex-Punch pubs…

The Wishbone post isn’t total rubbish, not all pubs are VAT registered, and his numbers are representative not actuals for all. VAT is a problem for brewers as well as pubs (for VAT registered brewers).

Brewing ingredients are all VAT Free, yet the products brewers sell are all added VAT, the other issue brewers have is Duty, if the Brewer is getting £1 for a pint that £1 includes duty at around 44p per pint, therefore the brewer is selling beer at 56p a pint to the pub not £1 (the small brewers relief should never be used in cost calculations as its a relief to invest in growing the brewers business not to reduce the cost of goods, & if a brewer is to move past the duty barriers for growth all costings should be done at full duty.)

Out of the 56p per pint the brewer receives the brewer needs to cover all associated costs of producing their beer (and then use the relief they get to fund growth)

Therefore the brewer sells a cask of beer for £40.32 the Duty is £44.00 (approx) SALE PRICE £84.32
PUB SELLS 72PINTS AT £3.20 sale price is £230.40

VAT on sale of 72pints= £38.40
therefore the sale price is £192.00
– Duty @£44.00
Sale price is £148.00
Brewers gross revenue £40.32
Gross profit for the publican is £107.68

Now I know a pub has overheads, wages, staff, heating, electric etc, but so do brewers.
On top of the same sort of overheads that a pub/bar has, in respects to cask beer a brewer needs to make 2 journeys to the venue to a) deliver the cask beer and b) pick up their empty cask, the brewer has to do this within their gross revenue, because Publicans expect Free Delivery, and in many cases don’t want the responsibility of looking after the brewers cask after they have emptied it, and will therefore give the cask to anybody willing to remove it from under their feet.
The current market forces are making many brewers use their PBD to survive rather than grow.

We therefore need to start looking at hidden taxes within the beer industry, and start to look at a fair deal for all, because currently the producers are getting squeezed a lot more than the retailers.

sorry I don’t know why I went in at £44 duty on a 4% beer Duty £29.39

so brewers gross revenue at £1 a pint is sale price 59p per pint
72 pints at £3.20 in pub=£230.40
So VAT on 72pints £38.40
Sale price £192.00
-Duty £29.39
Pub gross revenue=£162.61
Brewers Gross Revenue=£42.48

If I came across a pub that wasn’t VAT registered I’d immediately expect tax fraud. 🙂 [I presume there is the odd one about, but can’t be many… most couldn’t exist on that sort of turnover.]

At average pint prices selling just cask at the rate of 1 cask per day on average would hit the VAT threshold. (Ignoring wine, mixers, anything and everything else.)

I’ve done a lot of thinking about the whole margins brewer/(distributor/)pub thing. In distribution gross margins are very very low. In pubs gross margins are about 3x higher just in % terms. Distribution GP is perhaps a fifth of the price we sell product at, pub GP is generally at least half the ex-VAT price they sell at.

The key difference is that most pubs are selling maybe 6 casks a week (it varies wildly).

But I (and most breweries) are selling far more volume than that. High volume => low margins. Different economics.

I will agree that there are a few pubs doing *VERY* well out of their margins of course… and some prices I can’t help but feel “take the piss”… but also many pubs are struggling, albeit most of them are the tied places paying high prices for average beer. For the most part, for most businesses, at most levels of this industry I don’t think there’s any great seas of cash sloshing about at a scale where one sector of the industry can blame another for its lack of money.

“If I came across a pub that wasn’t VAT registered I’d immediately expect tax fraud.”

It’s a core part of the micropub business model, as per Martin Hillier here:

“Micropubs make money. Some of them have turnover of £250k a year… I stay below the VAT threshold and I don’t have any staff. Shops are ten-a-penny thanks to supermarkets and what else do they do other than turn them into charity shops, pound shops, bookies? I don’t pay business rates – I’m at less than £6000 rateable value… Running a micropub is perfect for a 55-year-old who’s just taken early retirement. I take the piss – if the pub is empty at 9, I close up, because it’s my pub. (It’s usually busy, though.) It’s the 10th anniversary on 24 November and it’s flown by because it’s not like work.”


I’ve also looked at lots of numbers to do with brewing, along with quite a number of other brewers, based on a one man band Brewery.
(some may be able to make more some less but we are looking at workable averages here)

Production wise 1 average person can make, sell, deliver, collect & Clean empties rack off etc 20 casks of beer, based on a 48hr working week.

for a 1 man/woman band micro brewer to earn a national average wage of £26,400 per year and take 4 weeks holiday., selling wholesale.

If we take the average rent, fuel bills, duty etc etc etc (I will need to go dig the full rundown on another PC that I don’t have to hand), to make average wage without any unforeseen costs, the brewer (based on a 4.0% cask beer and selling 20 casks per week) would need to sell each cask at approx £96.40 plus VAT per cask.

When we start looking at staff and growth to higher volumes, it doesn’t take long to require 60-80 & 100 casks a week to make the numbers work.

That text makes it sound like a viable option more than a “core part”?

I don’t know of a micropub in my region that would be doing anywhere near so badly (as I rate it) as to be below VAT threshold. Our local village micropub turns over well over VAT threshold. (Open only evenings 5 days a week.)

But I accept it is completely plausible. And a bare-bones tight-arsed micropublican could possibly do quite well off £80k of revenue. (I’ve done some quick calculations to satisfy myself on this – but won’t repeat them here for lack of time to triple-check them, and due to the huge number of assumptions that must be made.)

But I suggest non-VAT-registered pubs are a rarity. Albeit whether or not a pub is VAT registered is not a bit of information I gather… so I don’t even know if any of my customers are not VAT registered! If any of them are than fraud is likely as I can’t imagine any of them shift so little beer as to stay below £83k.

At the average pint price of £3.46 £83k is 23998 pints, 461 pints a week, 6.8 casks a week (assuming 68 pints per cask). Obviously print prices vary regionally… and that’s assuming no other products are sold (all revenue is pints) but cask ale of course. (I don’t know of a micropub that sells exclusively cask ale… most have some other products, the odd one has a keg line or two.)

@Shane – I’ve no disagreement with your numbers. And have sympathy for your situation. I just don’t think all that many publicans are getting rich either.

” not all pubs are VAT registered”

Yeah, a handful of micropubs, but 99% of pubs are VAT registered. The threshold kicks in at £1600/week – say 7 firkins (of ale, lager, wine, spirits equivalent). So say that’s £1100/week of GP to pay rates, rent, wages, utilities, insurance etc etc. It just about works for the lifestyle micropub business, but just the rent on a free-of-tie pubco pub would swallow up that kind of money before you even put staff in it. You can’t assume a pub is getting the benefit of low-turnover VAT rates and then disregard a brewery getting low-turnover duty rates.

currently the producers are getting squeezed a lot more than the retailers.

The producers may like to think that, it’s an easy assumption for them to make – but as I say the market surveys suggest 90% of retailers are making no money either. That’s why so many pubs are closing.

The pubs Costs are not the Brewers problem, they are the publicans problem, and the publican needs to negotiate with all parties to make his business work, that includes negotiating a price for the beer bought, also its not the brewers job to ensure customers through the door of the pub that’s the publicans job.

Even with the relief the brewers gross revenue is £57.17 you cannot include the relief for cost purposes as it distorts the market and gives unfair advantage to the retailer to leverage price down further, doing so increases the argument for larger brewers to argue that PBD is squeezing them and they then lobby to have it removed, the end result will be NO PBD 100’s of brewers out of business, less choice for the publicans and consumers and much higher prices on the pumps as wholesale price increases rapidly.

Therefore as a Brewer I cost everything without relief, because if I don’t I’ve no money left to invest in the future of my business!

For me to work on £1600 a week GP I need to make sell and deliver 38 casks of beer a week, if I’m not to rely on my PBD to survive, & there is considerably more work in making, selling, delivering marketing etc 38 casks of beer a week than selling 6-7 casks worth of beer in a pub, (I’ve done both jobs).


I don’t disagree that many publicans are not getting rich, many publicans are getting rich though, generally ones that are not paying their taxes and buying buy x get x free deals, I don’t know many trades where you get rich by being straight, it doesn’t seem to happen these days there are just so many hidden costs and taxes. And no realistic incentives to succeed. Other than self gratification that your doing the best you can to grow and succeed. My accountant told me that if your 100% through the books your likely to go bust, which is probably why I’ve no money, it’s all tied up in stock etc, and I’ve got to pay tax on the implied profit of the stock etc.

I saw 16% growth in 2016 compared to 2015 And I think I’m going to have to take a loan to pay my income tax, despite working 80plus hours a week, and rarely having a day off or spending time with my young family, there is very little reward in this business, and much sacrifice.

Kinda odd that. I was just reading a few weeks ago about banks bitter on zythophile being too cheap and a few days ago about Arran brewery only making 6p a bottle.

I’m here in Portland, Oregon, where cask beer tends to sell for the same price as keg beer, sometimes a fifty cents to a dollar premium if they’re bunging in special dry hops or something. I lack some perspective on cost, how much would a pint of cask ale run at a place like the Queen’s Head?

The pubs near us tend to charge somewhere between £3.00-3.50 for a pint of cask ale. Average nationwide is somewhere around £3.24. There are some more detailed facts and figures in the Cask Report.

The main thing that strikes me from all of these various posts is the complete lack of any kind of knowledge of basic management accounting or pricing strategy by either brewers, distributers or publicans.

Plucking a GP% out of the air and hoping for the best is alright if you’re doing it as a hobby and don’t mind not making any money, but if you’re attempting to run a viable business and this is the best you can do… well… fuck me…

Are we not forgetting that keg beer must cost more to produce due to either longer rest time in tank, or the costs of extra equipment to force carbonate.

All these costs depend on the size of the brewers kit, as the bigger kit they have the more they can make in a day, and reduce costs.

Key kegs cost a lot more money and also if the brewery has not invested in a fleet of kegs or casks then this addition will also be added.

So surely the opportunity for more profit would come from selling more cask, and not having to invest in the extra cost of keg or bottle/can production?

The cost to carbonate keg beer for me was just over £300’s worth of equipment, apart from the vessel to carbonate in, keg beer is no more expensive than cask to make in reality, other than greater residency time in tank.

Cask loses money because of a) oversupply
b) too many people in the business with no business skills, willing to sell for next to nothing, or not paying duty on x batches
c) Lost containers (happens with keg too but not one-ways)
d) poor cellarmanship, lack of understanding and a demand for a Bright pint/beer ready to go in under 24hrs from delivery

I have several accounts who only order beer off me when the cask they ordered last week has run out and they need something to serve that day, they will not condition beer and plan it just wont happen because they don’t know or want to know about beer, its just a money spinner.

“The main thing that strikes me from all of these various posts is the complete lack of any kind of knowledge of basic management accounting or pricing strategy by either brewers, distributers or publicans.”

In answer to this is Oversupply fucks all basic management accounting or pricing strategy up, & spoons selling beer at £1.99-2-30 a pint fucks it up too, because someone with a freehouse wants to compete on price with spoons by buying cheaper, 1000’s of micros are also chipping away at regional & Globals volumes so the global and regionals are selling cask at cost in volume to try and get that volume back, I have been told sharps doombar is readily available in the south west at £45 a firkin at the moment, and Adnams lighthouse is available at £45 a firkin in other parts of the country. We have another regional round here selling at £45 a firkin into free trade but over £90 to its tenants for the same product. I can only just about make a 4.0% beer for that price at the scale I am at, so canno0t compete with the larger regionals and globals at that price point, if we lost PBD we would have to close the door, if your hand to mouth, with a big loan, many overheads its easy to get sucked into a panic for survival. and start selling for whatever you can get.

When pubs get upwards of 60 breweries a week phoning and emailing them with unbelievable deals many go for the cheapest deals they can get and who can blame them, but this then in turn drives wholesale prices down even further, and anyone trying to sell a high quality product then starts to look expensive, holding out for a realistic price for a quality product using a realistic pricing strategy is extremely difficult in a nuclear price war where the knives are out slitting each others throats for market share.

There are different types of pubs out there – some will buy beer based on price, and as long as it is palatable, they’ll come back for more, others (more beer focused pubs) will buy beer based on a brewery’s reputation for quality and innovation, and will inevitably have a higher figure in their head of what is a “reasonable” price for a firkin.

When you set up as a brewery, you need to decide which market you’re going to aim for. If its the former, then you need to come up with a recipe and a set-up, a brewing schedule and a list of pub contracts that means you can roll out sufficient quantities beer at £45-50 a firkin so you can cover your fixed costs and still turn a profit, if its the latter, than you need to find a way of producing something genuinely interesting and outstanding that will quickly build up a reputation. You may have to be willing to make a small loss on this in the first year, but once the reputation is established, you should be able to sell to one of the latter type of pubs for a decent price that you can actually make a decent margin on.

“In the meantime, it’s worth reflecting on that common theme of the price of cask ale — is there anything we can do as consumers to convey the message to the Trade that, while we don’t want to be exploited, we wouldn’t object to people like Dave earning enough that they don’t have to live in caravans?”

Wishful thinking – I think Phil make many good points here:

Also in the context of Cloudwatergate

You’ve also got the likes of Beavertown and James clay price fixing cans and keg prices, which pushes the margin between casks and other products even higher

We sell quite a lot of Beavertown across a wide region… no price fixing I’m aware of. (As a small distrib in a different region to James Clay mind.) [Aside that it is one brewery, one price list… thus generally everyone working off the same base.]

Beavertown is in demand. Beavertown despite constant upgrades always seem to be at capacity. Folk buying Neck Oil in pallet volumes are on waiting lists. And the brewery isn’t accepting new direct trade accounts. And they are in the enviable position of being able to carefully manage their supply chain.

Simply: the demand for Beavertown is higher than the supply. (Lucky them.)

Undersupply of a specific brand in keg isn’t comparable to oversupply in general of cask.

And whilst other good keg products are available at lower prices we sell more Beavertown than any of them.

See also: Timothy Taylor’s Landlord and Fuller’s London Pride can get away with being available across the country with a £100 list-price on a firkin. Try to sell pretty much any other 4-4.5% cask ale at £100 ex-VAT and you will be laughed out of most pubs.

Which other cask beers command a price premium Yvan? Are some pub considerably more price sensitive than others?

Most freehouse pubs are considerably price sensitive. Be it because they believe they service a market that won’t pay much more than, say, £3 for a pint – or because they just enjoy their nice juicy 70% margin and have absolutely no good reason to do things differently. (Both completely valid reasonings which I don’t hold against them.)

Pretty much everything I sell can command a higher price than average (or it’d not be worth distributing). But it still varies at around 4% ABV from £75ish to £100ish. Most volume at that ABV is around £80-85 a firkin. We’d almost never be able to sell anything 4% at £100… the odd special cask here and there. Bear in mind JGB sells far more keg than cask, and I’ve come very close to throwing in the town on cask distribution multiple times. We’re a niche supplier in a niche sector.

I think the that would have to be decided by the government department. But if they got together to increase the sale prices as apose to let it sell at free market value then how would you class that?

I’d be really wary of saying it in public without offering them right of reply in case things got… lawyery.

In fact, I’m now slightly anxious about letting you say it on our blog.

*fret fret*

Is this something you’ve heard on the grapevine, or read in the news — what’s the source? It would be interesting to see some more detail of what exactly is going on.

I’ll leave it at that, as it’s for the best, but things such as this affect the market cost of beer and it’s something that happens behind the scenes between breweries and distributors. (Feel free to delete my messages for your own safety)

How can sole distribution be classed as price fixing? All the globals do it, if James Clay are sole distribution for a brand, they can charge whatever they feel they can get for a given brand if there is a demand for it in a free market.

Apple do just that and I don’t see The CMA investigating them?

Therein I think that’s the issue that UK Craft brewers have in terms of the perceived value of their beers against Global brands.

In the US the craft brewers can get a better share of the cake because they have to retail the lions share of their production, due to Distribution regulations, if the consumer is forced to go direct, then the Brewer gets the opportunity to show the customer why X beer needs to be a higher price than the Coors Light they can buy in any supermarket. UK Craft brewers selling into supermarkets and large chains and as many pubs as will take it here are their own worst enemies when it comes to adding value to their products, & I believe a contraction from the wider market and a drive to self retail might be the best answer to survival for many UK Craft brewers.

Because if your retailing your own products on your own site it better be good or your going to fail fast.

I’ve temporarily parked those comments but if sole distribution is what was being got at then you’re quite right, nothing out of the ordinary there.

Comments from Dylan unparked.

Beavertown say, via Twitter DM, that they *definitely* haven’t been involved in price-fixing!

Think this is just a matter of confusion over terminology.

Price fixing would be James Clay, Cave, Bottle Shop, etc (competitors) getting together and agreeing amongst themselves the pricing for Beavertown products. A pricing cartel.

There is a lot that goes on that might look like price fixing to some perhaps. One is that so many businesses with equivalent overheads run on the barest margins viable that there’s nowhere to go on pricing. Pricing thus all looks “fixed”.

Regarding exclusivity (vertical agreements), see also:

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