Business interview: Gerald Michaluk, Arran Brewery

Gerald Michaluks plans for Arran Brewery expansion have taken curious twists. Picture: Kevin GibsonGerald Michaluks plans for Arran Brewery expansion have taken curious twists. Picture: Kevin Gibson
Gerald Michaluks plans for Arran Brewery expansion have taken curious twists. Picture: Kevin Gibson
SOMETHING strange happened when Gerald Michaluk got his first thorough look around the Drummond Hotel on the banks of Loch Earn.

The property had been vacant for some time, so Michaluk and his team were in no way surprised to find roofing, plumbing and electrical wiring

in need of repair. That had all been factored in to their plans for the property, which is set to become island-based Arran Brewery’s first mainland production site, complete with restaurants, bars, a visitor shop and accommodation for up to 30 overnight guests.

No, something more fundamental was amiss. “When we got the plans, they showed rooms that weren’t there when we walked through the building,” Arran’s chief executive says.

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Fire exits had gone missing as well, blocked off and painted over as though they were never there. False doors led to nowhere, giving rise to suspicions that the missing rooms were still back there somewhere.

When finally cracked open, the misplaced chambers were strewn with booby traps of live electrical cabling. A distinct pungent odour rising from the cracks in the floorboards left no doubt why those snares had been laid.

“It had been a cannabis factory, and it looked as though it had been cleared out in a hurry, but no-one knows exactly when that was,” Michaluk says.

“The whole thing was very cleverly put together. It was quite an interesting warren.”

The electrical traps were powered down, and after the all-clear from the police, work resumed on what Michaluk describes as the brewing company’s “top priority”.

The hotel is due to open next month, which is when Michaluk also hopes to receive planning permission for the brewery due to be installed in the Victorian boatsheds to the rear.

If all goes well, production could begin within a couple of months.

That additional capacity is one of the key pieces in Michaluk’s exponential growth plan for Arran Brewery, which made just shy of £67,000 last year on sales of £835,000.

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Previous attempts at scaling up have foundered upon the tax breaks offered to micro-brewers, which cut the beer duty by half to 24p per bottle for those making less than 500,000 litres per year.

Once that limit is breached, the duty due on every litre produced starts rising.

“It is an incremental increase, but the problem is the fact that it is retrospective and applied to the first 500 hectolitres as well,” says Michaluk, whose company brewed just shy of 500 hectolitres in 2013.

“There is a dead man’s area above 500 hectolitres. You have to scale up significantly and quickly to offset that additional cost.”

That’s why Arran had to abandon plans for a merger with fellow craft brewer Isle of Skye after failing to secure a grant last year.

Funds from the Scottish Government’s food processing, marketing and co-operation scheme would have been used to upgrade one of the two breweries, neither of which could produce at the “magic price point” needed to profitably breach 500,000 litres. Without that money, the combined business was still stuck in the dead zone. “What we couldn’t do was to have two inefficient breweries,” says Michaluk, who now aims to increase production tenfold by upgrading the original Brodick brewery while also adding two mainland production sites.

As well as Loch Earn, the company has long-standing plans to build another state-of-the-art brewery at the former Rosebank distillery in Falkirk. Both would be more efficient than Brodick, with much lower distribution costs than from the island.

Rosebank, however, is in jeopardy as planning requirements have added to the cost of the project.

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Arran’s lease on the site has been terminated and the company is transferring equipment from Rosebank to Loch Earn following a decision to classify the building as “abandoned”, a move that has trebled the cost of the planning application.

“That meant we couldn’t take the risk on our own for planning,” Michaluk says, “but investors on these kinds of projects want to see planning in place before they put any money forward.

“We are in one of those Catch-22s on this site. The project is in real difficulty.”

It could be revived if Arran is fully successful with its current £4 million crowdfunding drive, which is due to close in April.

Proceeds are earmarked for a variety of projects, with Loch Earn at the top of the list.

Michaluk says the company is “fully committed” to Loch Earn, which will go ahead no matter the results of the crowdfunding. It is even taking precedence over the upgrades at Brodick.

However, he is prepared to look beyond Rosebank for a second mainland site if necessary: “It will be producing one-third of our target, so we have got to have other alternatives.”

That target of 5,000 hectolitres would allow Arran to ramp up exports, taking turnover to a projected £8m within four years.

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“We have not yet achieved what we have set out for,” Michaluk says. “We know the model works, it is just a matter of turning the handle faster.”

30-second CV

Job: Chief executive, Arran Brewery.

Born: Broxburn, 1960, raised Polbeth and Edinburgh.

First job: Mending fences on a fish farm.

Ambition while at school: Pilot.

Car: Company Corsa or van.

Kindle or book? Book.

Can’t live without: Working.

Favourite place: Rio de Janeiro.

What makes you angry? My daughter. She runs the brewery. We are both passionate about it and we clash sometimes.

Best thing about your job: Variety.