Follow the money
When Black Sheep brewery announced it was lining up administrators in May 2023, it showcased the dire market conditions the beer industry presently finds itself navigating. Rampant inflation and the cost-of-living crisis have made operating a profitable brewery difficult for many producers, with at least 35 breweries closing this year alone.
Founded by Paul Theakston in 1992 and based inside a former maltings in the town of Masham, North Yorkshire, Black Sheep is, perhaps, not a brewery you would have expected to find itself impacted so keenly by such financial hardships. Despite being a relatively young brewery, it’s one that very much feels like an essential thread within the fabric of British brewing. Although neighbours Theakston’s has 165 years on their younger peers, there is little to diminish Black Sheep’s reputation as a legacy brewery.
That it was founded by a member of the Theakston family should provide the necessary evidence of the brewery’s significance. A sip of its rasping best bitter – still fermented in open Yorkshire squares – will surely convince you if you otherwise haven’t been. Its closure would have been devastating, not only for Britain’s beer drinkers, but because of the impact and influence this brewery has had on British beer culture for a generation of drinkers.
Thankfully, people were convinced of the brewery’s significance. People with money. Less than a month after Black Sheep had signified its intention to call in administrators, it was acquired by a London-based investment firm called Breal Capital. Little was known about this investor beforehand, but in the months that followed, its activity demonstrated some serious intent in terms of building a drinks and hospitality empire.
The firm – which according to Companies House was established in July 2014 – followed the addition of Black Sheep to its portfolio with the acquisition of South London’s Brick brewery in June. Then, within the space of two days in August, it purchased wine/restaurant chain Vinoteca, followed by Brew By Numbers, another young London brewery. With cash still seemingly to splash, it invested £60m into the D&D London restaurant group, which operates more than 40 sites in the UK.
Like Black Sheep before them, both Brick and Brew By Numbers had entered administration, driving down their sale price, allowing Breal to pick them up for less than their previous market valuations. Brick, with an estimated annual turnover of around £1.4m, was acquired for £318,000. But with the industry facing such difficult trading conditions that will likely continue into 2024 and beyond, why invest in such a large chunk of the hospitality industry now? Surely this is a time for caution, not confidence.
Investors are a savvy bunch though, and firms like Breal will be intentionally investing in projects it believes will provide them with a profitable return, usually within five to seven years. With the beer market looking bleak right now, it’s given it the ability to invest while the value of these companies is low. Establishing a network across both Yorkshire and London means that it can streamline the businesses by, for example, moving to a single central office team. It could also feasibly move production of certain beers between sites (which, if you believe the rumour mill, is already happening). All of which will reduce overheads and allow the different elements of the business to weather the storm for as long as it persists. Additional streamlining was made not long after the purchase of Black Sheep when three of its pubs were closed, much to the chagrin of some locals.
Breal’s investment in large hospitality chains like Vinoteca is another interesting move. Not least because it gives the parent company immediate access to direct-to-consumer retail sites. All three breweries also have taprooms of their own, and it means each of them has access to beer lines in each other’s sites. Having a traditional, legacy brand alongside modern beer brands like Brick and Brew By Numbers, also gives it diversity, allowing it to appeal to a wider metric of consumers.
At the recent opening of pop-up pub the SnowGlobe, on South London’s Bankside, Black Sheep was seen advertising “proper, sparkled Yorkshire cask beer alongside an epic range from Brick and Brew By Numbers” according to its Instagram page. This is also demonstrative of how the new owner intends to market its new portfolio – one with broad appeal, playing on both the legacy, and the contemporary side, of British beer.
What could all of this mean for the brewing industry at large? While Breal’s moves could be framed as blind optimism, I posit that there’s a good deal more logic to it than that. It likely means that, by 2028 and beyond, the investor expects the beer and hospitality markets to be in a far better position to trade profitably. And, while it’s impossible to predict the future, the investor’s activity looks to me like evidence that trading conditions will gradually improve.
All the reason then, for more small breweries to hunker down and trade on as best they can in the meantime. We’re not out of the woods just yet, but I see this as a sign of the trees beginning to part.