Kimi Karjalainen, along with his sibling Marko, invested their entire savings into establishing Bone Machine Brewing Co in Pocklington, East Yorkshire, back in 2017. Later, they relocated to Hull, riding the wave of the craft beer movement that was taking over the UK.
Karjalainen revealed, “Our total investment, excluding the countless hours and effort we put in without any compensation, amounted to around £70,000.” However, just a month ago, all of it vanished. He lamented, “That was essentially my parents’ nest egg for their golden years.”
Brexit became an overwhelming challenge for them, as Karjalainen explained, “Our business was primarily focused on exports. Our market spanned countries like Finland, Sweden, Norway, Ireland, the Netherlands, Italy, and Spain. We were even planning to expand to Hungary. But Brexit put an end to all of that.”
Brexit failed the craft beer industry
Following the UK’s departure from the European Union, new trade agreements necessitated that Bone Machine’s artisanal beers be accompanied by costly and labor-intensive documentation.
Karjalainen expressed, “The common sentiment was that importing from the UK had become overly intricate.” He added, “This affected nearly 30% to 40% of our production volume. When it comes to revenue, it was likely over half.”
In the last year and a half, over 100 microbreweries, including Bone Machine, have had to shut their doors. This is due to a mix of Brexit repercussions, the global pandemic, rising living costs, and impending alterations to beer tax regulations. A study by the accounting firm Mazars in June revealed that 45 of these small breweries had been liquidated, while numerous others were either acquired or absorbed by competitors.
Steve Dunkley, who founded the Manchester-based brewery and taproom, Beer Nouveau, which also closed its doors the previous year, has been monitoring brewery closures since 2022. He noted that 83 breweries shut down last year, and an additional 33 have closed this year, with another four at risk.
Not only Brexit Covid hit home hard
Brexit wasn’t the sole challenge Bone Machine faced. “The pandemic took a heavy toll,” Karjalainen remarked. “The rising cost of living was the final straw. Our production expenses skyrocketed, while our clientele dwindled. As the general public’s financial situation worsened, large-scale brewers approached pubs and free houses, offering them discounted kegs in exchange for control over their beer taps.”
While Karjalainen has secured a sales position with another brewery, he’s had to abandon his lifelong aspiration. “The toll it took on my mental and physical health was immense. I even developed a blood clot. Pursuing this dream isn’t worth the sacrifice. My heart goes out to our employees. We had a team of five, and when I met them recently, they were all devastated.”
Currently, Bone Machine hasn’t been liquidated. The brewing equipment is in storage, and Karjalainen remains hopeful about finding a potential buyer.
The brewing industry has faced other challenges too, such as the carbon dioxide shortage during the initial phase of the energy crisis and Russia’s invasion of Ukraine, which escalated barley and hops prices.
Yvan Seth, the founder of Jolly Good Beer, an independent craft beer distributor, commented, “It’s not uncommon for breweries to close down annually. That’s just the nature of the business.” However, he noted, “The number of closures this year surpasses the total from the last eight years combined. A keg that was priced at £100 three years ago now costs £150, leading many pubs to pass on the offer. Other challenges like staffing and high electricity costs persist.”
Cost of living crisis causing a crisis in the beer sector
While consumers might be tightening their belts, their affinity for craft beers remains undiminished. Major players in the industry, such as Brewdog, Camden Town Brewery, and Beavertown, have thrived, with supermarket sales surging by over a quarter, as reported by the Grocer.
However, Seth anticipates a narrowing of options for beer enthusiasts, a significant shift in a culture that prides itself on continuous innovation and unique brews. “The more experimental beers, like the triple IPAs or the 10% pale ales that retail for over £10 a can, are becoming rarer. We’re likely to see more beers with lower alcohol content and fewer trendy hops,” he observed.
A contributing factor to this shift is the recent overhaul in beer duty regulations. Previously, beer, wine, and spirits were taxed based on distinct rates. However, starting from 1 August, the tax is levied based on alcohol content. This translates to a 10.1% increase in duty on bottled and canned beers, as stated by the British Beer and Pub Association. Consequently, craft beers with higher alcohol content are disproportionately affected.
On the other hand, the popularity of lager remains steadfast. Pete Brown, co-founder of Forest Road Brewery in south London, which produces a lager named Posh, remarked, “For every 100 beer consumers, approximately 70 consistently opt for lager.”
Lager, in its essence, is a beer that leaves little room for error. As Brown analogizes, “Drinking a lager is akin to standing bare on a stage. With an IPA, the myriad of flavors and aromas can mask minor imperfections. A hop aroma can easily conceal a flaw. But with lagers, it’s a different ballgame; they are more nuanced and balanced.”
Brown, hailing from the US, draws parallels between the craft beer industry’s trajectory in the UK and its history in the States. He recalls, “The craft beer scene in the US faced a significant downturn in the late 90s. It’s eerily similar to what’s unfolding here in the UK.”
He elaborates, “Craft beer became the ‘in’ thing. Everyone jumped on the bandwagon, and soon, the market was flooded with brewers vying to introduce the next big sensation. This saturation led to a scenario where even the most ardent fans struggled to distinguish between a brand’s staple offerings and their limited editions.
In such saturated markets, consumers tend to gravitate towards familiar choices. And right now, the UK’s craft beer industry is undoubtedly experiencing a downturn due to the cost of living crisis.
Trouble brewing
366,300 litres: This is the mean beer output by members of the Society of Independent Brewers (Siba), marking an 11% decline from the figures of 2019.
684: As of the beginning of this year, this is the count of independent brewers in the UK, from a total of 1,828.
63%: A significant majority of SIBA members, precisely 63%, have stated that their primary objective for the year is merely to stay afloat.
55.1%: There has been a notable surge in the production of specialty lagers this year, showing a 55.1% increase in comparison to 2019.
91%: A staggering decline in the volume of craft cask ale, plummeting by 91%.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.