Trouble’s brewing — but independent beer makers fight on

“Our strategy has been very successful in delivering 30 years of continuous profit growth and, arguably, we are in a stronger position than we have ever been,” he said.

The company he runs, which makes Spitfire and Bishop’s Finger ales and runs nearly 370 pubs, has attracted interest in the past year from an unnamed investor group, initially intent on acquiring the business and now focused on doing a sale-and-leaseback of its property assets. So far, Neame and his board have refused to engage.

But it has been a different story at several other family-backed or regional brewing companies. Over the past year, no less than five have been taken over. Burtonwood and Jennings Brothers were both bought by Wolverhampton & Dudley Breweries; Greene King, the Suffolk-based brewer, acquired its smaller rivals TD Ridley and Belhaven.

And 2005’s deal frenzy was rounded off by Fuller Smith & Turner, maker of London Pride, which picked up George Gale & Sons. Most observers expect this deal binge to extend into the next few months.

In truth, the brewing sector has been steadily consolidating for the past century. In 1900, there were more than 6,400 individual brewing companies in Britain. Today, that figure has shrunk to about 40, producing beer from about 60 plants around the country. And it is not just the smaller, family-run names that have disappeared. Giants of the industry such as Tetley, Bass and Whitbread have all sold their brewing interests to multinational concerns.

Those smaller firms that survive — and, it ought to be said, in some cases thrive — do so through a dedicated commitment to the art of brewing and because these operations have been, in most cases, in family hands for decades. The current generation of owners is wary of destroying the heritage that has been built up over many years. But the industry is not getting any easier.

Richard Kershaw, chief executive of Joseph Holt — which has no plans to sell up — said: “Certainly it’s a much tougher industry now than it was. That’s causing people to have a look at where they are going. Trade is tougher to come by.”

There are a number of reasons for the hardening market and brewers’ willingness to sell up, something many might not have been happy to consider before now.

The bulk of the problem can be traced back to 1990 and the Beer Orders, a piece of legislation introduced by the last Conservative government in an effort to curb the power and influence of the large breweries, all of which controlled massive pub estates. The law restricted them to owning no more than 2,000 pubs and required them to sell any they had over this threshold.

This led to the creation of a number of large pub groups, such as Enterprise Inns and Punch Taverns, with the capacity to buy beer in great bulk and at competitive prices. At the same time, it led to a series of mergers among the big breweries, with the result that today Britain has one home-grown international beer maker, Scottish & Newcastle. The urge to merge has been driven by the need to create greater scale and therefore efficiency.

The multinational brewers have also been concentrating their spending on a decreasing range of “power brands”. The likes of Carling, John Smith’s, Foster’s and so on, have huge marketing and advertising budgets. Even if smaller brewers spend a similar proportion of their income on promoting their brands, they will find it nigh on impossible to compete with the majors.

“The real-ale category is declining by about 10% per year. It’s not necessarily because these beers are losing popularity; it’s more because the brands are in the hands of smaller players that do not have the benefit of the marketing spend enjoyed by the bigger brands,” said Jim Fallon, a partner at McQueen, a corporate- finance boutique that has advised on a number of takeovers in the family brewing sector.

The pub estates controlled by the family-owned brewers are also coming under increased pressure, in common with other pub groups.

The rise in the minimum wage, the growing cost of utilities and the prospect of a smoking ban have all conspired to add to the headache felt by most landlords. It is a cocktail that has prompted some beer makers to sell up and others to contemplate doing so. “The pressures have never been greater and it is making it harder and harder to have long-term growth in their businesses,” said Michael Turner, chief executive of Fuller Smith & Turner.

The gloomy outlook coupled with a scarcity of decent assets has created a sellers’ market. Last year, the families and board directors of the five groups that sold up pocketed about £144m, according to Sunday Times estimates. Valuations are arguably at their peak and it could prompt others to follow. If they do not go for it now, they may miss the boat.

Many in the industry are trying to guess which of the remaining independent brewers will be next to be swallowed up. It is not an easy exercise.

Hardys & Hansons, the AIM-quoted brewer, is tipped by some commentators, although it has a new chief executive who presumably will be given time to work his magic.

Naturally, most of those in a position to discuss future strategy insist on remaining independent. The scion of one family-controlled brewer, who refused to comment on the record for fear of attracting a multitude of unsolicited inquiries about doing a deal, said: “A lot of these businesses don’t stay independent because they can’t, because they’ve got people who look at their brewery sites and say ‘Tesco’. But we perform quite well and hope to keep going as long as we can.”

And despite the pressure being heaped on the sector, money does not always talk. “There’s a lot of emotion with these people and they don’t always make their decisions based on economics,” said one industry source. Even so, it seems a safe bet that there will be a few more deals to toast in the coming year.

Additional reporting by Jamie Singer