International brewers could be set for a buying spree of some of the country’s best known small brewers.
Plimsoll Publishing research finds the recent spate of acquisitions of “craft” by multinational brewers – such as Heineken’s recent purchase of a £40M minority stake in Beavertown – could become an industry wide trend.
This comes after the sector saw profits fall for the first time in the last financial year, says the research company.
According to Plimsoll, in the last five years, the number of small UK breweries has risen by 64 per cent, causing the marketplace to become overcrowded.
“The boom in small breweries has been in part due to tax breaks, introduced in 2002, but also due to a huge rise in the popularity of craft beer produced by independent breweries,” says Plimsoll.
However, its latest research suggests these smaller breweries may face difficulties in the months to come.
Plimsoll Publishing senior analyst David Pattison said: “The arrival of such a large number of small companies means that the brewing industry has become highly fragmented; 70 per cent companies are run with less than £500k of investment.”
Costs are rising faster than sales and for the first time in nine years, margins have fallen below 4 per cent . This lack of investment means that some companies will struggle to grow, even if demand for their product is high.”
He says one solution to the cash flow problems for smaller breweries is acquisition by larger firms. “Many small breweries have taken up this option in recent months, with Aspall Cyder, Meantime and Camden Brewery seeking investment from Molson Coors, Asahi and Anheuser-Busch InBev respectively,” said Pattison
“The crowded nature of the marketplace will lead to more small breweries seeking investment, and so with a large quantity of companies becoming available, prices may eventually stabilise”
“But among so much competition, small breweries may find attracting a buyer a challenge. What’s more, the increasing popularity of craft beer has also affected the market leaders and 22 of the UK’s 50 largest breweries have seen profits fall. Many large brands have already introduced craft-style beers to their ranges in an attempt to capture a share of this demand and boost profits.”
To survive, Pattison says one option would be for a number of smaller breweries to team up in order to share resources.
“We have already seen a trend in the decrease of asset values, suggesting that companies are becoming leaner. But if a number of smaller breweries were to merge, share costs and resources, this could allow them to benefit from economies of scale, allowing them to raise more capital and ultimately become more competitive,” he said.
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