A recent study has revealed a significant increase in the number of UK breweries facing financial challenges. The study found that the number of breweries experiencing financial distress surged 82% between 2022 and 2023, from 38 in 2022 to 69 by the end of 2023.
If you have been preparing to enter the craft beer market over the past year or even several years, the disappointing numbers from last year may make you question the viability of your venture.
Should you still invest in brewing in 2024?
When deciding whether to invest in a craft brewery in 2024, it is important to carefully consider the current market conditions, potential risks, and opportunities. Despite the challenges, there are still reasons to believe that a well-planned and strategically managed brewery can be a successful business.
Given the challenging economic climate facing smaller craft breweries and brewpubs worldwide, choosing to open a brewery over a brewpub becomes even more nuanced. We have combined the key investment plans and strategies to compare the pros and cons of opening a brewery or a craft beer bar.
Market demand and competition
The craft beer market is well-established and competitive, making it challenging for new entrants to gain a distinct competitive advantage. It is important to assess whether there is an untapped niche or an underserved segment that you can target.
As part of retail and food service, brewpubs are facing intense competition from various restaurants, supermarkets, nightclubs, etc.
Breweries have sources, including wholesale distribution, direct-to-consumer sales, taproom sales, merchandise, and contract brewing, etc. This diversification can provide a buffer against market fluctuations and economic downturns.
Investment scale and risk
The initial investment for opening a brewpub typically covers rent, decoration, equipment, raw materials, personnel and other expenses, while a brewery investment scale is larger. Rising interest rates lead to higher borrowing costs, which in turn affects leasing equipment and financing operations for small breweries and brewpubs. In addition, soaring inflation increases the cost of raw materials, electricity, and wages.
However, increased production volumes allow businesses to benefit from economies of scale, reducing the cost per unit of beer produced. This can enhance profit margins and financial stability. Another advantage of breweries is that they can avoid costs related to kitchen equipment, food inventory, and additional staffing. This can result in lower overall overhead and operating expenses. However, it should be noted that breweries are relatively risky businesses, requiring operators to possess higher management capabilities and market insights in order to succeed.
Market Reach and Brand Building
Demand for premium products such as craft beer may decline as consumers reduce their spending. Many consumers select mass-market beers that are more cost-effective. Breweries have the option of distributing their products regionally, nationally, and even internationally. This increases brand awareness and market penetration, which attracts more consumers. Additionally, breweries can conduct product research and development and innovation based on market demand and consumer preferences, thereby laying the foundation for long-term business development. In contrast, brewpubs prioritize providing services and creating customer experiences, which makes it challenging to build a robust and lasting brand influence.
It is important to determine whether your target market will remain loyal to your products and adjust your strategy accordingly.
Quality control and technology
In medium and large breweries, quality control is a common and integrated aspect of whole brewing process, extending from raw material procurement to final product packaging. It covers every step from the sourcing of ingredients to the fermentation and bottling stages. To ensure consistency and stability of beer quality, breweries establish and continuously improve their quality management system. In parallel with the ongoing shifts in consumer demand and the relentless advancement of production technology, breweries must also keep up with the latest technological developments. This includes the introduction of new brewing techniques, enhancements to packaging processes, and an increase in the automation level of production lines to align with the evolving expectations of consumers regarding beer quality and taste.
In contrast, brewpubs typically have relatively relaxed standards for quality control and technical requirements. Brewpubs prioritize handcrafted brewing and personalized customization, and the quality and taste of their beer often depend more on the personal experience and skills of the brewer. While beer from a brewpub may have a distinctive flavor and character, due to the constraints of its production scale and the nature of its manual operations, the consistency and stability of its quality are often challenging to compare with that of large breweries. The craft beer market is highly competitive, but there are still huge market opportunities for investors with innovation and management capabilities. Through in-depth market research, product differentiation, brand building, channel expansion, and cost management strategies, investors can differentiate their businesses and achieve long-term profitability in the fiercely competitive market.
