UK: Boutiques breweries in trouble

Boutique breweries, a flagship sector for Scottish Enterprise and Visit Scotland, are being squeezed off the shelves, according to sources within the industry, The Sunday Herald posted June 04.

Brewers say they are up against a shrinking share of shelf space in the grocery trade, a decline in numbers of free houses as the pub trade consolidates, and rising distribution costs that hurt already tight margins.

Island-based breweries, which have to add ferry freight charges to their costs, are particularly hit by the rise in distribution costs. “We can’t compete with mainland breweries on price”, said Andy Murdo Ribbens, owner of Stornoway’s Hebridean Brewery whose portfolio includes distinctive beers such as Clansman and Celtic Black.

The contraction in free houses is a bigger threat because the real profits are there. “There are only so many pubs to go around,” added a rival brewer.

Some of the longer-established brewers say it all adds up to a market approaching saturation. “Lots of small brewers are trying to make the same thing and it’s getting harder to sell these products,” said Bruce Williams, joint-owner of Heather Ale in Alloa which employs 12 people and turned over £1.2 million last year. “Getting into the market now is difficult.”

Belhaven managing director Stuart Ross, another veteran independent brewer, sees an increasingly congested market. “Business is going to become difficult. [Independent brewers] must create a link with the consumer. For that they need what we call stand-out and that’s very difficult to get,” he warned.

David Gladwin, proprietor and managing director of award-winning Black Isle at Munlochy near Inverness, agreed with that view. Emphasising the importance of finding a niche in the market, he said bluntly: “All the boys playing the volume game are struggling.”

Highlands and Island Breweries, which collapsed into administration in early May with “cash flow problems”, sold its first beer only in 2002.

Highlands is still trading under administrators Kroll, but the industry points out that HIB fell over despite a seemingly profitable contract to deliver its Latitude and other brands into 55 Morrison’s stores in Scotland. Margins in grocery trade sales are notoriously tight.

Scottish Enterprise was unable to provide precise details of the number of boutiques but the industry puts it at around 20, not including pubs brewing only for themselves. Their numbers have increased since 2002, when Chancellor Gordon Brown’s eased excise duties by introducing a sliding scale linked to volumes of production.

Although combined annual turnover is said to lie between £15-20m, which hardly makes micro-brewing a major industry within the £7.3 billion food and drink sector, it has a special economic value out of proportion to its size. Specialty beers enhance the “Scottish experience” for tourists and help promote the country to the wider world through export sales.

Fortunately, some of the boutiques manage to prosper in a difficult market. For them, this summer’s sales are vital and they are flat out producing distinctive ales aimed specifically at beer-loving visitors.

For instance, Heather Ale’s Fraoch, a heather and malt-based ale that harks back to Pictish times, is a steady seller in Historic Scotland outlets. “Visitors want to try our native beers,” said Bruce Williams. And they like to keep trying them when they get back home too. Fraoch sells into seven countries including Belgium, the arthouse of the world beer market.

Aviemore-based Cairngorm Brewery’s elderflower-flavoured Trade Winds and Blessed Thistle (actually brewed with thistles) sell quickly in small hotels, guest houses and restaurants in the Highlands during the tourist season. “Tourism is important to us directly and indirectly”, said managing director Robbie Walker.

Cairngorm Brewery, which believes in covering the beer spectrum, has one of the biggest portfolios, including the Sheepshagger lager (“the best beer baaa none”). “We offer lager through to stout, with traditional copper-coloured ales, porters and milds”, said Walker.

Arran Brewery, one of the most successful boutiques with its Isle of Arran Blonde, could hardly make the importance of tourist-season sales clearer with its seasonal ale, Sunset For Summer.

In the battle for “stand-out” it is helpful to have champion ales in your portfolio and here Scottish boutiques fight above their weight.

Cairngorm Brewery won specialty beer of Britain in 2004 and 2005. “The key to long-term success is quality”, said managing director Robbie Walker. “The last five years have seen sales grow year on year by an average 20%”.

Another winner is Stirling-based Traditional Scottish Ales, whose 1488 whisky ale picked up a gong at the Scottish food and drink awards.

“We’re finding the growth is in bottled beers”, said director Graham Coull. He works closely with the UK-wide wholesale chains Beer Cellar and Fine Firkin, which help get the product into high-volume outlets south of the Border as guest ales. “You have to champion your own products. The wholesalers won’t do it for you,” said Coull.

Increasingly, organic ales are stand-out products, particularly in the deli market where Traditional Scottish Ales’ Lomond Gold is a volume seller.

Some supermarket chains are waking up to the attractions of offering regional brands, albeit at tight margins. Perth-based Inveralmond Brewery has just signed a contract to put its champion Ossian ale on the shelves of 30 Tesco stores throughout Scotland. Contrary to rumour, owner and managing director Fergus Clark said Tesco was “very reasonable to deal with if you work alongside it”.

But the real money for regional ales is in pubs, and they are proving hard to crack as more and more of them are bought up and rolled into discount-conscious chains.

However, this is a dogged and optimistic sector. Despite the fact that half of Stornoway town’s pubs are owned by the Punch group, which does not stock local ales, Hebridean Brewery’s Andy Ribbens remains confident: “This year we’re on target to break even. I’m not sure when I can pay off my loans though.”

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