In the world of investment, things often seem darkest just before the dawn. Investing in stocks and shares is a cyclical business. Valuations tend to rise along with business confidence during times of economic stability, when factors such as interest rates and inflation are firmly under control. Conversely, when rising interest rates and high inflation make trading conditions difficult, falls in the market can usually be expected. However, once in a while extreme events such as war or a global pandemic come along and pose a real threat to most sections of industry, not least the hospitality trade.

This is, of course, exactly what we have witnessed over the last three or more years, with both the war in Ukraine continuing to rumble on and the legacy of Covid lockdowns still casting an unwelcome shadow over the brewing industry in general and individual licensees in particular. We are all well aware of what has happened to inflation and the cost of living, not least the price of energy since the end of the pandemic and although both have been edging down again in recent months, they still remain at problematic levels. Not surprisingly, the consequent reduction in disposable incomes has led to many folk going out less often and spending less down the pub when they do. Couple all these adversities with the recent increase in the minimum wage, thus increasing staffing costs, and licensees really have been facing a perfect storm.

The British Beer & Pubs Association reports that well over 500 pubs closed their doors forever during 2023, while SIBA (Small Independent Brewers Association) has recorded a nationwide net loss of 13 breweries during the same period and noticeably, the North East and North West regions faring far worse than elsewhere, with a net loss of nearly 30 producers between them.

Anthony Hughes, founder and director of Nottinghamshire-based Lincoln Green brewery (pictured) summarises the problems he feels the industry is still facing: "Malt prices have increased in the last 12 months by up to 40 per cent owing to production requiring large amounts of energy. In our own pub company, gas and electricity bills have increased by 119 per cent since before the pandemic.

“Labour bills have also risen dramatically and will add an additional £88,000 per annum to our overheads, which is equivalent of an extra pub’s payroll without the benefit of any additional sales. 

“Furthermore, the challenge of recruitment is also placing pressure on pubs, with back-of-house kitchen skills almost impossible to find unless operators are willing to pay a premium. 

“Sadly, pub-goers are reluctant to pay higher prices and if pubs push up their own selling prices too much, people go out less often and trade declines. The headwinds for brewing and hospitality are becoming too much to bear and the government really does need to provide more support for the industry.” 

Colin Wilde, MD of Castle Rock brewery in Nottingham, echoes many of the points raised by Hughes. 

He said trade in suburban pubs has recovered reasonably well, but city-centre premises have been noticeably slower to bounce back, while cask ale sales are still well down on pre-pandemic levels as more customers have been switching to craft keg and, perhaps surprisingly, Guinness.

Wilde said: “The brewery would not have survived Covid without government assistance, but now those loans have to be repaid and interest rates, of course, have increased substantially since they were granted. 

“However, I do believe we might be through the worst and although it is hard to preserve margins, we make every effort to run as tight a ship as possible, while still trying to ensure drinkers continue to enjoy the experience of visiting our pubs.”

It is these sorts of uncertainties, coupled with the almost total inability to retrieve monies if things start to go wrong, that makes it very difficult for the CAMRA Members Investment Club to invest in small brewers, for example, through crowdfunding. 

There is a handful of small, well-run operators such as Loch Lomond brewery and Twickenham Ales in which it does have a financial stake, but like everyone else, it is not infallible and there have been a few occasions when it has its fingers burnt. However, club committee members are always very cognisant of the fact that we are custodians of other people’s money and we do not believe we have a mandate to indulge in investments we consider to be not only inherently too risky but also totally illiquid.

Fortunately, some of the bigger players in the business are beginning to detect a few encouraging green shoots. Pubcos Fuller’s and Young’s both reported trading over the last Christmas period to be almost back to pre-pandemic levels, while the latter’s takeover of the City Pub Company, a well-run business in which the club had a sizeable holding, has resulted in a welcome boost to its finances. Furthermore, some major brewers have also resumed dividend payments, which are used to make further judicious acquisitions with a view to enhancing overall investment performance. 

The brewing and licensed trade generally may not yet have quite turned the corner, but depressed stock valuations do create opportunities to pick up a bargain and careful selection of stock that we consider to have long-term investment potential is really what the club is all about. In short, our aim is to provide CAMRA members with a good, long-term investment proposition alongside the opportunity to put their money (from just £5 per month) where their mouths are – in good beer.

For more information contact CAMRA Members Investment Club, 123 Wellington Road South, Stockport, SK1 3TH or go to: www.cmic.uk.com

John Westlake is a CMIC committee member.