Monday, July 29, 2013

So, is it a bubble?

Well, I don't know. It's easy to see a bubble in retrospect, but rather harder before the fact.

It does look like there's a steep climb in new starts without any real market justification (that I can see).

And of course, the quaffale numbers aren't claimed definitive.

But you should see the most excellent Quaffale site for more info.


Oh Piss.  The late Simon Johnson beat me to this graph 6 months ago, his here:

Another Update: Some important dates for consideration when looking at these wiggly lines:
1979 Birth of what will become firkin chain (Bruce's Brewery)
1988 Firkin chain acquired by Midsummer Leisure
1991 Firkin taken over by Allied Lyons (and expands)
1993 (I think) All those little cellar tanks taken out (and sold 2nd hand)
1989 - 2003 Beer Orders in force (I think)
1999 Punch sells off 110 firkin pubs.
2002 PBD introduced.
2009 UK base rate goes down to 0.5%

And Another Update: According to Quaffale, of the 585 breweries opened since (including) 2009, 127 (21.7%) are brewpubs.


Cooking Lager said...

It kinda depends, I think, on whether you think market fundamentals have altered.

Consumers tend to like a choice of beers rather than 1 breweries bitter & mild alongside Carling & Guinness.

The tax system favours small producers. So much so that regional & family brewers see advantage in scaling back to a smaller brewery than expanding output. The tax system favours many small players rather than few big players. So much so that staying small is better than getting economies of scale.

This suggests market fundamentals have changed.

On the other hand you have the Angry Scottish brewery getting away with share issues at 4 or 5 X fair valuations & craft beer bars selling pints for prices that appear to support notions of irrational exuberance.

Who is to say? A bubble suggests a burst that would return the market to below previous numbers.

Maybe it isn't a bubble but an expansion that has a finite growth.

StringersBeer said...

Of course PBD was designed to favour small brewers - it's an intended consequence. Concentration of production in a few hands was significantly restricting consumer choice.

Now that brewing is incontrovertibly hip, lots of young, energetic types are piling in. Less risk averse?

There's also a new market for higher margin products (expensive bottles / craft keg / whatever).

Export (at least to EU) is pretty straightforward nowadays.

Interest rates are low - it's cheap to borrow, if you can find a bank that will lend. Equally, if you have money in the bank, a punt on a microbrewery is looking better than leaving it there.

There may be a feeling that the days of the tie (as currently operated) are numbered - in which case a genuine change in the "fundamentals" is looming.

Cooking Lager said...

You would be right to say the stated aim of PBD was to increase consumer choice but there are sound economic reasons for encouraging new entrants into a market anyway.

New breweries can grow and employ people whilst many established players are more in the business of consolidation and gaining efficiencies through reducing headcount.

Small businesses which grow by 50% a year and double headcount drive that figure often quoted statistic called economic growth. Larger corporations do not grow by 50% a year.

However I doubt the intended consequence was to limit growth. To put an upper limit on the viable size of an enterprise. I doubt the intention was for established brewers to scale back in order to take advantage of PBD.

StringersBeer said...

Yer durn tooting. The small breweries create many times more jobs for a given beer volume as the big brewers manage to sustain. See earlier rambling.

But if "established brewers" scale back, that opens up the market to new entrants doesn't it? Of course that scaling back may very well be due to simple overcapacity - volumes consumed have declined quite a lot.

I don't believe PBD does limit the viable size of a brewery - the relief tapers off. I know some believe that the taper is too steep, and that the upper limit should be raised. But there are breweries who've grown past the upper level.