Independent breweries are suffering increased insolvencies at the hands of cost inflation and reduced consumer spending.
Following the collapses of two prominent North East breweries, research from accountancy firm Price Bailey indicates the number of industry insolvencies tripled in 2022. The firm found 38 breweries went bust in 2022, compared with only nine the previous year, making 2022 the highest yearly total on record.
This year has already seen the collapse of Tyne Bank Brewery in Newcastle and Black Storm Brewery in North Shields. Covid-related difficulties - including challenges recruiting staff and a failure of trade to return to pre-pandemic levels following the lifting of restrictions - were cited by administrators of Tyne Bank who were appointed to the firm in November last year, before it was sold to new owners.
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More recently, North Shields-based craft brewery Black Storm talked of "sky high utilities and raw material costs" as well as the closure of trading partners as it fell into administration in March. The firm had grown considerably pre-Covid before having to scale back. Price Bailey says its research points towards a number of simultaneous factors behind the increased insolvencies, including material, labour and energy costs and falling sales. The firm has also suggested more consumers are turning to cheaper, multinational brands that operate at scale.
Matt Howard, head of insolvency and recovery at Price Bailey, said: "The growth in brewery start-ups has slowed in recent years and we are now starting to see a significant number of business failures as the market becomes increasingly saturated and brewers face stronger economic headwinds. Soaring inflation is leaving consumers with less money to spend on premium products. This is reflected in the shelf space retailers allocate for craft beers. As consumers trade down to cheaper global brands, supermarkets reduce space for craft beers which leaves some products with very little market exposure."
He adds: “While many multinational brewers have seen profits surge over the past year, smaller independent brewers generally operate on much tighter margins with minimal exposure to foreign markets. They produce smaller batches of beer and cannot leverage economies of scale to offset inflationary pressures.”
Interest rate rises along with cuts to transitional business rate relief earlier this year are also likely to be causing further challenges for brewers, Price Bailey said. Mr Howard added: "Breweries are very capital-intensive businesses. The sector tends to be highly leveraged and therefore vulnerable to interest rate rises which push up the cost of servicing debt.
"Even in benign economic conditions small breweries can struggle to turn a profit for a few years but with higher borrowing and raw ingredient costs, coupled with weakening consumer demand, many start-ups are likely to fold before they get out of the red.”
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