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Two pints of your finest ale landlord and I'll pay you in two years time: why micro breweries are going bust

In 1971 the Campaign for Real Ale (CAMRA) was launched and has since become one of the most successful consumer pressure groups of all time. For those with long memories CAMRA was born in the era of Watney’s Red Barrel and Double Diamond, and a time when historic interiors of pubs were being ripped out in favour of serveries, carpets, themed interiors and the stripping out of snugs and alcoves.

Consumer pressure

By the 1980s the industry was dominated by the big breweries which led to an outcry spearheaded by CAMRA who could count on the support of the largely male members of parliament. In 1989 The Beer Orders were passed which prevented the big chains from owning too many pubs and instructing their pubs to have guest beers from independent brewers. Although the orders were overturned a few years later the industry had changed with the rise of micro breweries.

So far so good. Then came Covid 19 and the lockdowns. Every month ICSM charts the numbers of hostelries who have gone into receivership and frankly the numbers of pubs closing for good is a matter of national concern since they are often an important pillar of the local community.

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Wooha collapses

Last week the Scottish brewer Wooha went into administration blaming a combination of the lockdowns and Brexit which had compromised exports to Europe. In 2020 Mad Dog Brewing entered voluntary liquidation after experiencing major cash flow problems at its Welsh headquarters. Both firms had not been long in existence and like many smaller brewers had taken advantage of the Beer Orders which had revolutionised beer production. Now there are hundreds of micro brewers with some as small as one man and his hops while others have expanded into major suppliers. The craft beer industry is hoping changes this year to the Treasury’s Small Brewers Relief Scheme will not penalise those brewers who are growing. The scheme gives a sliding scale of duty to be paid on the golden liquid. The more that is brewed the greater the duty with a 50% cut for the smallest operators.

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Late payment problems

Writing for Good Beer Hunting a few months ago Jonny Garrett described how poor credit control was one factor behind the demise of many a micro brewer of craft ales. He wrote: “Concerns about 30-day terms and late payments have bubbled to the surface following the liquidation of distributor The Bottle Shop and a separate County Court judgment against a well-known East London craft beer pub over a £999.60 invoice that’s more than a year overdue.

“On Twitter, Canopy Beer Co founder Estelle Theobalds said an unnamed pub had bought 10 kegs of Pale Ale in 2018 on 30-day payment terms. Theobalds went on to say that, despite the court order, the venue is yet to respond, and has even set up new companies in a bid to avoid paying.”

Estelle Theobalds said that a lax attitude to credit by pubs and brewers alike was at the heart of the problem of cash flow when pubs open normally. In the USA (with some exceptions) the usual mode of business is cash on delivery for retail while here 30 days after delivery is the norm with many pubs and hotels refusing to pay for months and even years.

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Suppliers pay the price of administration

Two years ago when The Bottle Shop went bust the store owed £579,844 to trade and expense creditors including Kernel Brewery who were owed £89,862 and the Gipsy Hill Brewing Company, £21,545.

The average brewer will be supplied by a bottling plant supplier, printing firms for labelling and packaging, marketing people to create the brand and advertise the products, as well as the ingredients that make up the beer.

Jonny Garrett described how Andy Parker of Elusive Brewing in Berkshire, had admitted being paid by some pubs up to two years late which meant “they either don’t have the money or they’re stalling.”

He said: “The result is that breweries unable to get credit terms with their suppliers end up shouldering the debt for the entire supply chain—they aren’t getting paid but everyone else is. This state of affairs is exacerbated by the long lag times between breweries paying their suppliers and receiving money from their customers. Including brewing, transport, and the credit period, that gap can grow to seven or eight weeks before it’s even contractually overdue. Parker sees the pub industry’s reliance on credit as the single biggest issue his brewery faces, and one that holds his young company back.”

About ICSM Credit

ICSM Credit has more than four decades of experience as a credit intelligence group whose members gain inside information about firms in trouble allowing them to avoid bad debts and rogue traders. To join costs less than a tank of fuel - while at the moment there's a special free temporary membership offer during the Covid-19 crisis which gives access to free legal letters. ICSM also has an effective debt collecting service which has a global reach - ask for details from Paul.

For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.

To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website www.icsmcredit.com or send an email to Ian.carrotte@icsmcredit.com

For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk