Why Brexit could boost craft beer but hurt big beer businesses
As businesses scramble to get their heads around the ramifications of leaving the European Union (EU), the beer industry is one that analysts predict will have split fortunes, with craft benefiting from Brexit and big brewers losing out in the face of unknown trading laws.
Beer
With production split between the UK and internationally, many brewers such as Heineken and the newly merged SABMiller and AB InBev may have to re-examine their business models and shift from imported to licensed beer depending on the positioning and consumer perception of the brand according to a newly released report by Rabobank. Currently, around 18 per cent of the UK’s beer market is imported, while 13 per cent of the production volume is exported.
At Heineken, the brewer is still trying to fully understand the implications of the vote, but played down the impact it could have on its import/export business. Speaking a spokeswoman for the business said: “Heineken is a truly international business, and we work successfully within a huge variety of constitutions and political frameworks. Our business in the UK is strongly focused on UK consumers. Imports and exports are a relatively small proportion of that business and the majority of our supply chain is UK based.
“We are working carefully to understand the full implications of the vote. Many of these will not become clear until there is greater certainty on the timeline and terms of the UK’s departure.”
Currently, as a member of the EU, the UK benefits from the single market – the programme of freeing up the trade of goods and services as well as the movement of people between EU countries, which was introduced to reduce paperwork and ensure harmonised standards. Should Article 50 and he UK officially leave the UK, it is unknown what and how trading laws will be impacted, but it will have a negative impact on the beer industry, according to Jonny Forsyth, global drinks analyst at Mintel.
“My view is that Brexit will have a net negative impact on the total UK beer market's growth over the next few years (assuming negative economic forecasts are correct).
“We know from the 2007/08 recession that beer does get affected by economic headwinds. Especially in the UK where it relies a lot on pub trade and people tend to go out/spend less.”
Despite the uncertain future of beer conglomerates, the craft side of the industry could be boosted by the weakness of the pound and a reduction in competition from foreign brewers.
“The current weakness of the pound would suggest that local, UK brewers will do well over big brewers on price,” said Forsyth. However, it is a big assumption to suggest that the pound will remain so weak for a prolonged time. Brewers will have likely hedged their pricing for the next few months at least. So, while we may see a pricing advantage for local brewers in 2017, we are very unlikely to do so in 2016 - nothing much will really change.”
Craft brewers however, should err on the side of caution when it comes to playing up the “Britishness” of their products given that 48 per cent of the population voted to remain in the EU, warned Forsyth.
“In the previous 2007/08 recession, we saw that "Britishness" became a big selling point for British brands as people sought to support locals and pull together, so will this aid the UK craft beer scene this time? Less so.
“However, I think that there will be a national mood to support entrepreneurial businesses that will help the country to a more positive future. This combined with the potential prospect of a price advantage could potentially give the UK craft brewing industry a big shot in the arm during 2017 and beyond.”