The Growth Paradox.

In America, what might look like a full scale commercial brewery like Beavertown, might just be a brewpub. Craft Beer is big business. Not many individuals can afford to start breweries on this scale without external investment. The news of Speakeasy Beer ceasing to brew indefinitely may come as a surprise, but it certainly highlights the risks of needing to rely on outside funding to sustain cash flow. Late 2016 an article was written detailing the necessary “evil” of buyouts from big non-craft breweries, which was widely discredited, in particular by Modern Times, whose model of organic growth seemed to be pretty simple. Sell beer for more than it costs to make, and use profits to grow the business.

Back in the UK craft beer is undefined. In America the Brewers Association strictly define which breweries are craft based on their volume output, their brewing methods and ownership. Amongst beer geeks, craft breweries have a reputation of being owned by enthusiasts, but as the sector continues to grow and bigger, better financed players seem to emerge, where has all the funding come from? After all, brewery equipment isn’t cheap, and it wouldn’t be prudent to start off in debt, would it.

Some breweries like Lost and Grounded have been very forthcoming where their funding has come from, others less so much. Starting with expensive equipment gives an edge to the quality of the beer, and allows more rapid growth, but will the industry sustain itself, or will debt start to creep into conversation more regularly. Rate of brewery expansion and growth appears faster than would be provided from purely organic growth, suggesting that breweries are increasingly being set up by already independently wealthy individuals or they’re borrowing the money.

One of the options for raising capital is crowdfunding, which allows individuals to invest in a brewery’s growth. There are various platforms available and recent successes by Redchurch, Red Squirrel, BrewDog, and Hop Stuff on CrowdCube suggests this avenue is worth pursuing for businesses to grow, without having to worry about paying back debts so much. Crowdfunding isn’t for everyone though and has been described as fragile by Hawkshead, who recently chose to sell a controlling equity stake to a non-craft brewing business to secure their future, presumably allowing growth without debt.  

Regional breweries of the likes of Fullers and Adnams already operate on a much larger scale than most new emerging craft breweries. With the exception of BrewDog and a few others, most craft breweries in the UK are considerably smaller, but this seems set to change. Some breweries, like Wild Beer are planning large up-scales in production capacity which will dwarf current “craft” volumes. Being invested in the industry I’m hoping it will sustain its growth, but there’s a very real risk that some businesses will succumb to the consequences of too much debt.

Self funding, growing organically and not having any debt seems to be the best business model. There aren’t many examples of breweries that fit all these criteria, but from reading the latest round of brewery crowdfunding from Mad Squirrel, formerly Red Squirrel on The Right Crowd, it seems they don’t have any debt, and are not installing a much larger capacity brewery, so they will be able to grow more organically, but with injected funds that won’t need repaying to tight deadlines, allowing rapid growth.

P.S.

Thanks to James Watt of Brewdog. If only I’d had Business for Punks when I was doing my Business Studies GCSE, it would have been a lot more fun!

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