Mergers loom amid surge in number of microbreweries

Gerald Michaluk of Arran Brewery. Picture: Contributed
Gerald Michaluk of Arran Brewery. Picture: Contributed
Share this article
Have your say

THE desire to make the perfect pint has fuelled a surge in the number of microbreweries and Britain is now home to more than 1,000, a 70-year high.

But saturation point may be approaching and some in the industry are predicting a round of mergers and acquisitions as the larger beer companies take a shine to the popularity of craft ales.

Gerald Michaluk, managing director of the Arran Brewery, believes that bigger brewers will continue to target these brands, produced mainly by beer aficionados who have created a UK industry estimated to be worth £1.4 billion. It is increasing by 80 breweries a year and represents 15 per cent of all beer sold.

Michaluk, a member of the Society of Independent Brewers’ (Siba) council, pointed to Budweiser-maker Anheuser-Busch InBev’s takeover of ­Chicago-based Goose Island in 2011 and Dutch giant Heineken’s 2008 purchase of the Caledonian Brewery in ­Edinburgh as part of its Scottish & Newcastle deal. He thinks there will be mergers in the Scottish sector as firms target economies of scale.

Former Chancellor Gordon Brown introduced small breweries’ tax relief in 2002, which cut duty by 50 per cent for companies producing under 500,000 litres of beer a year.

The tax break triggered a surge in microbrewing but also created a “ceiling” because breweries have to pay the full rate of duty on all of their output if they produce more than the threshold.

Michaluk said: “What’s stopping mergers from happening at the moment is that if you go above the 500,000-litre ceiling then you get hit by a huge ­increase in duty.

“There will be consolidation in the industry as soon as people can get the right kind of kit. It’s all about plant. Just merging two microbreweries will give you two inefficient plants and you’ll pay more duty. That’s a graveyard.”

Michaluk said his own merger – between Arran Brewery and Isle of Skye Brewery – was “on hold” after he was turned down for a Scottish Government grant that would have allowed him to expand production on Arran and reduce output costs, making the duty threshold manageable.

He will meet new Isle of Skye Brewery managing director Kenny Webster this week to discuss the merger. Webster was previously the owner of filling station operator ­Calanike Retailing and soft drink maker Sangs, which were both put into receivership last year by Allied Irish Bank.

As well as mergers in the sector, larger companies could look to buy fast-growing ale brands. Michaluk added: “It’s a strategy that can work well, buying something that has a good range and then using your muscle to get it global in days rather than the years it would take a small brewery.

“Some have done it better than others. Some smaller breweries brands have been tainted by association with bigger brands. But where it has worked best is when the small breweries can remain intact, like Heineken buying the Caledonian Brewery. Heineken has put the investment in and got Caledonian beers in everywhere but have then left the brewers to get on with it.”

Consolidation in the brewing sector has come in waves, with Scottish Breweries and Newcastle Breweries coming together in the 1960s to create Scottish & Newcastle.

FTSE 250 stock Marston’s grew through several acquisitions – including Banks’s, Jennings and Ringwood – but the firm told Scotland on Sunday it doesn’t have plans to buy a brewery north of the Border.

Wells & Young’s was created in 2006 through the merger of Bedford-based Charles Wells and Young & Co of Wandsworth in London. The company grew again after buying the Courage portfolio of beers in 2007 and historic Scottish brand McEwan’s in 2011. It will make an announcement on its plans this week.

Michaluk thinks more breweries will diversify into producing other drinks as they approach the 500,000-litre duty threshold. His business last week unveiled plans to produce cider and saki, the Japanese-style rice wine.

Brewers are also continuing to diversify within their beer ranges, with Edinburgh-based Innis & Gunn unveiling its first lager last week. The new tipple will be brewed alongside the company’s existing range of oak-aged ales at Tennent’s Wellpark brewery in Glasgow.

“For years we said we wouldn’t make a lager because we were focused on our beers but customers kept asking for it and so we decided why not?” said Innis & Gunn managing director Dougal Sharp.

Sharp plans to sell the lager in kegs in markets including Canada and Scandinavia and will follow up with bottled versions in the autumn. His company marked its busiest month in March by selling 120,000 cases of beer.

Innis & Gunn has also been boosted by Chancellor George Osborne scrapping the beer duty escalator, which has freed up cash to hire another worker.

Meanwhile, Glasgow-based West Brewery has introducing its first stout, West Black.

Last month, the Scottish Borders Brewery near Jedburgh unveiled plans to create beers made using wild berries, herbs and plants. It aims to make six beers over the next 12 months and asked home brewers to help it test out recipes.

The scheme received a £13,000 grant from Tennent Caledonian through its Caledonian Best Seed Fund.