Keep dreaming if you think Brexit is the reason craft beer breweries are going bust

A couple of weeks in the Highlands is always refreshing; the scenery is fantastic and the locals are welcoming, even if the weather has been typical of a very British summer.

The experience was only marred in one respect: it was virtually impossible to obtain a pint of hand-pumped traditional bitter in the pubs. This outrage was compounded by the proliferation of craft beers, differing only in the extremity of their fruitiness and the ludicrous nature of their names.

It was therefore with considerable schadenfreude that I read that nearly 100 craft breweries had been forced to close down this year alone. At the start of this year 684 out of a total of 1,828 independent brewers were in trouble, according to the Guardian

In a further enjoyable twist, the article claimed “it all disappeared with Brexit”. The decision to leave the European Union in 2016 was held to be the main reason for the demise of micro-breweries in 2023.

One owner of a mothballed brewery opined that “We were heavily geared for export. We’d be selling to Finland, Sweden, Norway, Ireland, Netherlands, Italy, Spain. And it all disappeared with Brexit.” All this would, apparently, have been achieved by a company with a total capital investment of £70,000  – but for Brexit.

To be fair, there was also apportioning of blame to the other problems in the sector such as the cost of energy and the squeeze on living standards.

Much more interestingly, a parallel was drawn with the craft beer market in the United States. During the 1990s, the market boomed with thousands of new firms. By the end of the decade, most of them went bust. An American with experience of that time declared “Everybody thought it was cool, everybody started doing it and then everyone was competing to have the next new big thing. And you overwhelm your own market”.

This episode is entirely typical of new markets. A few producers experiment with an entirely new offer. Consumers seem to like it and as a result, more and more entrepreneurs want to try their luck and enter the market. But most of the firms end up in liquidation, with just a few survivors.

This is not just in rather niche markets such as craft beer. We see the same phenomenon in markets which go on to become a key part of the economy. When the internet started to take off twenty-odd years ago, there was a veritable plethora of internet service providers. But the market consolidated quite rapidly and most companies disappeared.

The 15th century saw its own version of this in the form of the printing press. The Italian cities were the Silicon Valley of the day, nowhere more so than Venice at the centre of a dense network of international trade. In 1469, twelve companies were engaged there in the new activity of printing, but three years later, nine of them had failed.

In comparatively more modern times, between 1900 and 1920 there were almost 2,000 firms involved in automobile production in the US.  Over 99 per cent disappeared.

Of course, there are always specific reasons why any particular company fails. Management inexperience is a major one amongst startups. But unanticipated events can hit even the largest companies, as the experience of banks during the financial crisis of the late 2000s shows.

So the shake out in the craft brewing industry is entirely typical. I live in hope that a strategy for survival is to extend the market reach and offer a more traditional ale in the portfolio.

As published in City AM Wednesday 23rd August 2023
Paul Ormerod
Image: HippoPX

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