A slew of rate increases, red tape and cost hikes are not only damaging Britain’s brewers, distillers and wine makers, but sending an increasing number under.
Reports of corporate financial distress by alcohol makers have risen by between 36% and 109%, depending on the sector. The findings come from analysis of data from corporate accounts monitoring platform Red Flag, which measures the number of companies experiencing ‘significant’ or ‘critical’ financial problems.
“A number of businesses across the food and beverage industry are in distress at the moment, but we are seeing that independent breweries are particularly affected,” says Paul Stanley, partner at business recovery specialist Begbies Traynor.
Supply chain costs and interest rates accounted for some of the stresses causing financial troubles, but many smaller producers had to compete for attention from major sellers and consumer groups, he adds.
| Sector | Q4 23 Red Flags | Q1 24 Red Flags | Q2 24 Red Flags | Q3 24 Red Flags | Q4 24 Red Flags | YoY increase |
|---|---|---|---|---|---|---|
| Beer & brewing | 225 | 271 | 290 | 281 | 305 | 36% |
| Spirits distilling & blending | 150 | 184 | 188 | 224 | 252 | 68% |
| Wine production from grape | 26 | 19 | 24 | 27 | 48 | 85% |
| Cider & fruit wine production | 23 | 22 | 38 | 40 | 48 | 109% |
For spirits makers, producers have faced some of the highest increase in Europe which, at a time when UK alcohol sales are in decline, is distressing, says the UK’s Wine and Spirit Trade Association’s chief executive Miles Beale
“Alcohol producers had the largest alcohol tax hike for 50 years, which saw more than 10% duty increases for spirits and beer and at least a 20% increase in duty for most wine,” he says.
There are now 100 fewer breweries in the UK than a year ago, despite strong demand for independent beer, new figures from the UK’s Society of Independent Brewers (SIBA) show.
How businesses can handle financial strain
- Sector specialist lenders and investors are still keen to provide debt or equity capital
- Confront distress early when the signs are appearing and there will be more opportunities for turnaround
- Operational improvements can reduce costs and improve cash flow
- Raising finance against assets at the business can release cash
- Existing debt could be refinanced on improved terms
David Hopkins, Partner at Begbies Traynor
Independent brewery numbers now stand at 1,715, with the highest number of closures occurring in the first quarter of 2024. A number of factors are at play, including legacy Covid debt, restricted access to pubs and tight margins.
“Speaking to many indie brewers who have closed their doors over the last twelve months it is a very similar story; they can’t sell into enough of their local pubs and make enough of a profit to remain viable,” says SIBA chief executive Andy Slee.
Why are alcohol producers struggling?
These figures could be hit further, as from April this year, alcohol businesses in the UK will also pay new waste packaging recycling fees as part of the Extender Producer Responsibility (EPR). Many will also see their Packaging Recovery Note (PRN) costs double.
Fallout from the UK Chancellor’s recent budget will add to overheads further, with increases to National Insurance Contributions and the cut to business rates relief from 75% to 40%.
Not only does this place more businesses under threat, increase the price of products for domestic consumers, but it makes Britain’s booze industry less competitive on the international stage.
“Duty on a bottle of gin will increase by 32p, and for wine, at 14.5% abv, will increase by 54p,” explains Beale. Taking into account the duty hikes introduced on 1 August 2023, duty on a 14.5% red wine will have increased by 98p in just 18 months. At this strength, the UK now levies higher excise duty than any other EU country.“
Extra costs faced by UK alcohol makers
Estimates suggest:
- EPR is expected to cost at least £1.1bn each year
- PRN cost £600m in 2023
- Companies complying with EPR may also need to pay compliance fee costs and could face labelling changes in a few years’ time
- The government also want to introduce a deposit return scheme, by the unlikely start day of October 2027. This will cost producers about £650m to set up, and retailers some £2bn to purchase machines and make changes to stores
The UK Government would expect to see revenues from alcohol rise as a result of the tax hikes, however, the latest HMRC shows alcohol tax receipts have fallen by £209m in the year April to December 2024 when compared with the previous financial year.
How can government support UK alcohol production?
UK Government has also excluded food and drink CPG from its industrial strategy, which further risks the UK industry’s domestic and international growth potential.
Producers need more support, and while sector representatives are in discussion with policy makers, there is little sign of positivity. If burdens aren’t reduced – either taxes, overheads or additional costs – UK alcohol would be severely stunted.
This would reduce consumer choice, but also potentially force the closure of more small-to-medium-sized producers and retailers, warns Beale.
Even after Brexit, UK alcohol exports grew from £8.3bn in 2021/22 to £9.4bn in 2022/23, Scottish Whisky Association data shows. Focusing on Scotch, the biggest markets for the liquor were France, Germany, Spain and Poland – among the top 10 markets for volume.
As the industry continues to face domestic pressures – through taxes, reduced alcohol consumption and rising overheads – it will also have to contend with external strains, such as wider socioeconomic burdens. As a result, many in the sector ask how the UK alcohol industry can compete on the international stage going forward.