Why craft breweries are under threat as closures leap 49%

Craft breweries are under increasing threat as rising costs and lower demand push even more into insolvency.

The total number of business failures in the sector increased from 35 in 2022 to 52 in 2023, according to data from accountancy firm Price Bailey.

Smaller breweries have been hit particularly hard by rising interest rates and higher costs, as many have been pushed to rely on debt to finance equipment, raw materials and in some cases, operating costs.

Shuttered: The number of craft breweries who filed for insolvency jumped again in 2023

While the data covers breweries that entered into insolvency, they do not count those that were liquidated. 

Some big names, like Brew By Numbers, went bust last year but were subsequently bought out of administration. 

Price Bailey says that rising interest rates and the tapering of energy support package, means a growing number of breweries have failed to make payments on loans, pushing them into insolvency.

Matt Howard, head of insolvency and recovery at Price Bailey says: ‘Many of these businesses were betting on interest rates staying low but with rates having sharply risen many are unable to make loan repayments. 

‘The longer rates stay at current levels, the more brewers are likely to fall into the red.

‘As rates have risen banks are piling pressure on breweries to make capital as well as interest repayments on loans. This has proved the final nail in the coffin for many breweries.’

At the same time, craft beer production has yet to recover from the pandemic which has no doubt added to craft brewers’ woes.

A report by the Society of Independent Brewers (Siba) found that average annual production for 2022 remained 11 per cent below 2019 levels.

There has also been dampened consumer demand, in large part due to the cost of living crisis, which has done little to help sales.

‘With many microbreweries struggling to turn a profit in the first few years of trading, you only need a shrinking market for a short period for unsustainable debts to pile up,’ says Howard.

Difficulties in the pub industry are also having a knock-on effect on craft breweries who sell small batches into local pubs.

Siba said last year that more than a fifth of consumers had not visited a pub in the last 12 months, as well as a significant fall in the overall number drinking beer.

Pub closures reached a record high last year, with 769 businesses having to shut its doors last year, up from 518 closures recorded in 2022.

‘Pubs are less willing to take risks on new beers where there is uncertain consumer demand,’ says Howard.

Rob Fink, founder and chief executive of independent alcohol-free brewer Big Drop says the growth of the sector has created difficulties in getting beer onto shelves.

‘The independent sector is now sufficiently loud that trying to make yourself heard is increasingly difficult.’

Larger brewers are moving into the craft beer sector, either through the development of their own products or through the acquisition of smaller brands.

It means supermarkets are allocating less shelf space to smaller, often more expensive brands, particularly against the economic backdrop.

Howard adds: ‘While many multinational brewers are seeing bumper profits, smaller independents generally have much higher exposure to market risks. 

‘While 2024 is already seeing an improvement in trading conditions for brewers, we are likely to see many brewers fall by the wayside as the sector continues to consolidate around fewer premium brands.’

This post first appeared on Dailymail.co.uk