George Adnams and his brother Ernest bought the Sole Bay Brewery at Southwold in Suffolk in 1872. But his brewing career only lasted two years. George Adnams, who was a bit of a free-spirited individual, left his brother in charge of the brewery and emigrated to South Africa. He later died there after being eaten up by a Crocodile, or so the legend goes.
The Southwold brewery, which still produces Adnams beer more than 150 years after its founding, is fighting for its survival.
Adnams pubs are scattered throughout picturesque Suffolk. Last week, the company confirmed that it is in discussions to secure new financing in light of its mounting losses. However, the company’s situation is not unique. It is indicative of a sector where costs are soaring and customers are less willing to spend money to go out drinking.
Profits for pubs on a pint have fallen to 12p compared to 27p in 2004
The situation is brought into stark focus by new figures. According to the British Beer and Pub Association, while the average cost of a pint in the UK rose from £3.81 to £4.80 last year, the amount pubs earn has fallen to just 12p, compared to 27p four-years ago.
Many businesses are already in debt because of such thin margins. What has happened to Britain’s pub and brewery sector? Could things get worse?
Pubs and brewers are still struggling to rebuild their balance sheets following Covid. Millions of pints spoilt beer were thrown down the drain due to lockdowns, depleting cash resources. The Covid restrictions were not consistent, so most businesses had to suffer two years of losses despite the government’s support.
Covid restrictions began to be eased early in 2022, and a return to profitability became apparent. Vladimir Putin’s invasion in Ukraine caused double-digit inflation. The pub industry’s energy bills have risen from its fourth to second largest cost, according to bosses.
Sam Hagger, the owner of three pubs located in Leicestershire said: “I have been to many pubs that had half their lights off.” We’ve looked at the time the ovens are turned on in mornings. Each site will be equipped with two glass-washing machine. “Instead of both machines being on simultaneously at 10am they will each be on separately at 1pm, as the trade increases.”
It has a dramatic impact on the price of a pint. According to the BBPA, utility bills accounted for 13p per pint on average in 2019. The bills are now 24p, a 91 percent increase. Kate Nicholls is the chief executive at UKHospitality. She says that although energy prices have decreased in recent months, rising interest rates are the biggest game changer of the past year.
She said that “almost all hospitality businesses have taken out some sort of Covid related debt in addition to their normal debt.” She said that two percent above the base rate was acceptable when the bosses agreed to it during Covid. However, as interest rates have risen from 0.5 to 5.25 percent, servicing and repaying the loans has become impossible.
Adnams, a Suffolk-based pub and brewery operator, is seeking ways to reduce its bank debt
Jonathan Adnams acknowledged the problem. He is the chairman of the Suffolk Brewery and the great-grandson to its co-founder. He said, “We are exploring ways to reduce bank debt in order to reduce interest and strengthen our balance sheet.”
The independent breweries have been particularly affected by the Covid debt. Andy Slee of the Society of Independent Brewers pointed out that pubs have benefited from government support, such as Eat Out to Help Out, which offers a 50% discount to customers by August 2020. Andy Slee, chief executive of the Society of Independent Brewers, said that pubs received grants and breweries were given loans during lockdowns.
Labour costs are another headache. Pubs are more vulnerable to Westminster’s whims when it comes to setting minimum wages because they rely on younger and lower-paid workers. The minimum wage increased by 9.7% last year and will rise again by 9.8% in April for people aged 21 or older. For those aged 18 to 20, many of whom work in pubs, wages will rise by 14.8% to £8.60 per hour.
Jonathan Neame is the chief executive at Shepherd Neame in Kent. He has some bad news for those who hope that the price per pint will follow the headline inflation rate, which has slowed to 4% over the past few months. He said that the wages would force prices to rise by more.
Industry leaders are concerned about more than just costs. The footfall in pubs is still below the pre-pandemic level as consumers choose to drink cheaper alcohol at home. The news that the UK has entered a recession will not reverse this trend.
Sir Tim Martin, the chairman of JD Wetherspoon said that pubs are often three times more expensive than supermarkets because of the price differential.
“Probably lockdowns have caused a change of behaviour,” said Sir Tim Martin Chairman of JD Wetherspoon. The habitual pub visit was replaced by going to the supermarket and staying home. “The new habit took longer than most people imagined to break.”
Martin points out the pubs and clubs were responsible for 90 percent of his beer sales four decades ago. Prior to the pandemic, this figure was 50 percent. It is now at around 40 percent. The huge increase in price differentials between supermarkets and pubs has been a major factor. In many cases, a pub pint can cost three to four times more than a supermarket one.
Martin is upset that supermarkets enjoy lower business rates, and do not pay VAT on food sales. Pubs are charged 20%. These discrepancies enable supermarkets to use the tax advantages they enjoy to reduce beer prices.
Localised issues may also be a factor. Pubs in London are usually flooded with tourists, and they benefit from this. Deepesh Thakrar is a senior director with OakNorth and said operators in London were also affected by the threat of Tube strikers and mass protests over the Gaza war. He said that some of the businesses he spoke to recently reported seeing up to 25% less revenue in the last quarter of the year than they had forecasted.
Some lament the changing tastes, notably the sharp drop of cask ales. Cask ales are more difficult to reproduce at home than lagers or keg beers. According to the BBPA the UK cask beer market has decreased by a quarter in the last year.
Simon Collinson is the managing director at Oak Taverns. A family-owned business with 16 locations in Oxfordshire, Buckinghamshire, and Oxfordshire, Oak Taverns revives centuries-old ales recipes. Collinson believes that before the pandemic, many pubs did not take care of their cask ales. He said that when Covid arrived, many pubs thought it would be too hard to maintain cask ales. Cask ales are more difficult to store than kegs and have a shorter shelf life. During the Covid stop-start trade, pubs were reluctant to stock them.
The figures released last year showed that the number licensed premises in the UK fell below 100,000 for first time ever since records began. The new-opening statistics tell a sobering tale: Only 3,222 new licensed establishments opened in 2023. This is lower than the 3,989 new premises that were launched in 2022, and 4,532 new ones in 2021.
Kate Nicholls said, “We must see immediate action in the budget to lower business costs. This will be achieved by reducing the VAT rate for hospitality and capping business rates increases due in April.”
Brewers who were once successful could face a death roll reminiscent of a crocodile.