Oktoberfest has thankfully once again put the spotlight on beer! It would seem a good time to review whether this industry is now ready for institutional private equity investment to the same extent as other parts of the hospitality sector by comparing deals in the restaurant sector with recent transactions in the brewing industry.
Casual dining has attracted huge amounts of institutional private equity money over the last few years but there are growing signs that such investments may be facing difficulties. Wagamama’s, Tasty, Richoux, Comptoir and the Restaurant Group have all warned on trading and Byron, the private equity owned burger chain, has announced it is closing four sites.
Restaurant chains are facing a combination of mounting cost pressures such as increases in:
- Business rates
- The national living wage
- Imported food costs due to the weaker pound
Added to these additional costs are the Brexit effects:
- Worries over EU workers staying in the UK
- Inflation which has put margins under pressure
- Economic uncertainty and the distinct possibility of increased interest rates leading to reduced consumer spending
On the other hand, the demand for craft beer is booming. The craft ale craze has meant that the number of breweries in the UK has jumped almost 20% since last year and 64% in the past 5 years, reversing around 70 years of consolidation in the brewing industry.
The gin industry has seen a similar snowballing effect with the demand for craft gins increasing significantly. Between 2010 and 2016 the number of craft distilleries in Britain has doubled. Many are joining forces to extend their offering globally, including Sipsmith and Beam Suntory who became partners last December.
Microbreweries are traditionally funded by private investors, either individually or through crowdfunding platforms, such as the original investment in Camden Town Brewery. Now may be the right time for institutional private equity to invest in breweries – one recent example is the investment in Innis & Gunn by L Catterton. There is certainly a ready exit for such investments as the multinationals are showing a thirst for acquiring such tiny rivals. The need to build bigger breweries, employ more people and gain access to an international distribution network makes a sale to a larger player almost inevitable. A recent example is the acquisition of London Fields Brewery by Carlsberg who now join other microbreweries owned by multinationals, such as Camden Town Brewery (bought by ABInBev) and Meantime (originally bought by SABMiller but now part of Asahi following the takeover of SABMiller by ABInBev).
This new trend should be encouraged as long as it leads to a greater selection of new beers and an excuse to visit more UK Oktoberfest venues!