The British craft beer industry is a “house of cards” built on crippling levels of debt, according to some small breweries who believe the U.K.’s loose credit system threatens to undermine their growth—and even their existence.
Concerns about 30-day terms and late payments have bubbled to the surface following the liquidation of distributor The Bottle Shop and a separate County Court judgment against a well-known East London craft beer pub over a £999.60 invoice that’s more than a year overdue.
On Twitter, Canopy Beer Co founder Estelle Theobalds said an unnamed pub had bought 10 kegs of Pale Ale in 2018 on 30-day payment terms. Theobalds went on to say that, despite the court order, the venue is yet to respond, and has even set up new companies in a bid to avoid paying. According to public records, that pub is the Chesham Arms. Canopy has since hired a debt-collection agency who also failed to recoup the money, leaving Theobalds with few options.
“I suspect that they pay their regular breweries, but just didn’t really care about us, a one-off order,” she says. “But the way customers expect credit is deeply, deeply ingrained, and as a small brewery, we simply would not get any custom if we insisted—as our suppliers do—on upfront payment.”
The Chesham Arms did not respond to a request for comment. Even if the pub does pay its key suppliers, late payment is an issue U.K. breweries are now fighting on a daily basis, particularly smaller businesses without dedicated accounts or sales teams.
This approach to payment differs dramatically to common policies in the U.S. With some state-by-state exceptions, the U.S. operates a cash-on-delivery system at the retail level for alcohol, and a typically stronger commitment to 30-day terms for wholesalers. In the U.K., however, buying alcohol on credit is the default option, and it’s hard to find a brewery that hasn’t been taken advantage of by one of its customers.
Andy Parker, founder of Elusive Brewing in Berkshire, a county just west of London, admitted he had taken payment only last week for an invoice from 2017, and had several other unpaid invoices that had been overdue for a year.
“When I look at what we’re owed, it’s usually about a month’s revenue that’s overdue. Often it’s an oversight, but that does wear pretty thin on the second or third time of chasing—it becomes obvious they either don’t have the money or they’re stalling.”
The result is that breweries unable to get credit terms with their suppliers end up shouldering the debt for the entire supply chain—they aren’t getting paid but everyone else is. This state of affairs is exacerbated by the long lag times between breweries paying their suppliers and receiving money from their customers. Including brewing, transport, and the credit period, that gap can grow to seven or eight weeks before it’s even contractually overdue. Parker sees the pub industry’s reliance on credit as the single biggest issue his brewery faces, and one that holds his young company back.
“We’re going through an expansion right now, and if I were to immediately receive all the money that is currently overdue, we would do a whole lot more than we currently can do,” he says. “It has literally held back our growth.”
It’s not hard to see why these practices are harmful for the industry as a whole. Any breweries looking to expand capacity or improve processes—and potentially pass economies of scale or efficiency on to customers—are less able to do so.
“Early on, one supplier was months late paying £15,000,” says Cloudwater Brew Co.’s founder Paul Jones. “That kept me awake for months; we were flying so close to the wind it was untrue. My ability to put our profit to use, fund new equipment, and better support my staff is still massively impaired because we don’t reliably know when and sometimes if we’re going to be paid.”
More recently, the lack of cash flow has played a part in several liquidations in the U.K. beer market. A recent study by financial firm UHY Hacker Young found that British breweries were closing about as quickly as they were opening for the first time since the boom began around a decade ago. Several retailers and distributors have fallen on hard times too, including bottle-shop chain The Beer Boutique closing its stores and speciality importer The Bottle Shop going into administration.
[Editor's note: We Brought Beer was originally cited as having financial trouble, but was corrected to The Beer Boutique, which it merged with in early 2018.]
The latter sent shockwaves through the industry when it collapsed in March, with breweries all over the world affected. According to filings documenting The Bottle Shop's liquidation, the store owed £579,844 to trade and expense creditors—including a startling £89,862 to the Kernel Brewery. Another large creditor was the South London-based Gipsy Hill Brewing Company, which was owed £21,545. Just weeks before, The Bottle Shop had cleared its outstanding debts with the brewery and put in a big order on credit.
“In the six months leading up to their going bust, Bottle Shop paid all of their overdue debts with us,” says Gipsy Hill co-founder Sam McMeekin. “So when I heard the rumors, it was surprising. I gave them a call and was assured they would be fine, so I approved a further invoice on their account. 10 days later it happened. I do feel a bit naive, but I also insured our entire debtor book last September to cover all our outstanding invoices—some are 90% covered, others 60%. Bottle Shop were 60%, so we’re getting that much back.”
While that has been a potential lifesaver for Gipsy Hill, that kind of insurance doesn’t come cheap. McMeekin quoted a figure of around £8,000 a year, which, given the unreliable cash flow in the industry, is beyond the reach of small businesses like Elusive. Instead, Parker is hoping to effect change through conversation with his customers and his competitors.
“The whole industry is built on this house of cards of credit. It’s pretty terrifying really, especially when you look at the Bottle Shop fallout. I’d love to start a campaign about losing credit as the default across the industry, but people often don’t want to stick their neck out.”
How Parker will go about leading any industry-wide changes is unclear. It would take a coordinated effort to encourage pubs to accept upfront payment terms, and many breweries are worried about losing customers by demanding it. The idea gets support from Jones, however, who believes that change would have to come from a trade body that has the interests of small, independent businesses at its heart—something the industry’s only body, SIBA, receives scrutiny for.
Given the state of the industry, McMeekin believes change is almost impossible. Because there are so many breweries in operation in the U.K., beer has become a buyer’s market, and clever businessman will resist any measure that reduces their ability to game the system and release huge sums of cash.
“There are cutthroat businessmen [in the pub industry] who want to grow fast and are using cashflow to do it,” says McMeekin. “They sell a keg of our [Carioca] Triple Fruited Sour and they’ve got £300–£400 of cash that they don’t have to address for 60 or even 90 days. Multiply that by 20 lines, four days a week, and you can fuel incredible growth out of positive cash flow even with zero net profits.”
Jones agrees. “For some of these companies, not paying is a strategy,” he says. “They bring in a brewery, put in a big first order, then string you along for three or four months, exploiting the fact that there is nothing you can do. We are busy; it means getting solicitors involved which is costly and risky.”
Some bigger breweries seem to accept that costly legal battles and debt collection agencies are the only way to deal with willful late payers, but that most overdue invoices are down to human error. McMeekin believes breweries need to look at themselves and their systems to make sure they are set up to protect their interests.
“At its worst, around 40–50% of what we were owed was overdue on 30-day terms, which is shocking. So we downloaded a new system that plugged directly into our accounting software, took into account the insurance level and automated all our chasing communication. Within three months our overdue debt fell to 5%.”
Of that 5%, McMeekin said he had around 10 different claims with debt collection agencies. It seems technology can only do so much in an outdated and competitive market. Or, as McMeekin puts it, “It’s the Wild West out there.”