MICROBREWERY No.
74 March 2012
Introduction
Microbreweries or craft brewers are independent producers with a reputation for brewing innovative, unique beers and real ales, often made using locally sourced ingredients. They have benefitted from a growing preference among consumers for locally produced food and drink. Under changes introduced in 2002, breweries with small production levels qualify to pay a lower rate of beer duty, which has led to a significant growth in the number of microbreweries operating in the UK. This profile provides information about starting up a microbrewery. It describes the skills required, the training available, the current market trends and some of the key trading issues. It also identifies some of the main legislation that must be complied with and provides sources of further information. HM Revenue & Customs (HMRC) provides free business workshops on topics including 'Newly self-employed' and 'Becoming an employer' (www.hmrc.gov.uk/bst/advice-teamevents/work1.htm). Learndirect Business provides online self-study courses in sales and marketing, which cost from around 18 to 42 (www.learn direct-business.com/sales-and-marketing). Microbreweries that trade online will benefit from an understanding of e-marketing and e-commerce. Learndirect runs a range of selfstudy eCourses costing around 18 (www.learndirectbusiness.com/e-commerce.
Industry awareness and product knowledge The proprietor of a microbrewery can keep up to date with news and developments in their sector and improve their awareness of trends by attending events and reading trade journals and resources including: 'Brewers' Guardian' (www.brewersguardian.com), a bi-monthly trade journal that features industry news, developments and brewing innovations. 'Brewer & Distiller International' (BDI) (www.ibd.org.uk/ publications/brewer-and-distiller-international/601/bdi-overview), a monthly trade publication that provides industry news and analysis, technical articles and news of new techniques. 'BEER' magazine (www.camra.oxi.net/page.aspx?o=beer), a free magazine for members of the Campaign for Real Ale (CAMRA). Specialist sites such as just-drinks (www.just-drinks.com), which provides regularly updated market research for registered users, some of which is available free of charge. Trade shows such as the International Food & Drink Event (www.ife.co.uk), which takes place each spring in London and provides opportunities to network with industry retailers, wholesalers and distributors. Industry events such as the Great British Beer Festival (http:// gbbf.org.uk/home), which takes place each summer in London, and the National Winter Ales Festival (www.nwaf.org.uk) held each January in Manchester, provide opportunities for microbreweries to showcase their products.
What qualifications and skills are required?
While no mandatory qualifications are required to operate a microbrewery, the proprietor will require in-depth knowledge of the brewing process, as well as knowledge or experience of the beer and real ale market and general business and marketing skills. The following training options are suitable for the proprietor of a microbrewery and their staff: Brewlab provides a three-day course for those new to brewing, which covers topics such as brewing processes, hygiene and beer duty, and costs 650 (www.brewlab.co.uk/threeday.asp). A three-week residential course covering the subject in more depth and including brewery visits and meetings with industry experts is also available. The course leads to a Certificate in Practical Brewing and costs 3,750 (www.brewlab.co.uk/ threeweek.asp). Both are taught in Sunderland. Campden BRI provides a range of courses for anyone working in the brewing industry, including a half-day course in recognising beer faults, which costs 190 (excluding VAT), and a one-day course in yeast management and brewery hygiene costing 330 (excluding VAT). For a full list of courses go to www.briadvantage.com/training/public.php. If the microbrewery retails beer directly to consumers, a retail qualification such as the City & Guilds accredited Award and Certificate in Retail Knowledge at Levels 1, 2 and 3 may be useful. The qualifications cover topics such as stock control, consumer law, health and safety, customer service, selling and teamwork. Go to www.cityandguilds.com/Courses-and-Qualifications/retailand-warehousing/retail/1013-retail-knowledge for details and to search for local training centres and costs.
What are the key market issues and trends?
Some of the current market issues affecting microbreweries include: Since 2002, when a reduced rate of beer duty was introduced for breweries with small production levels, the number of microbreweries in the UK has doubled with around 50 microbreweries opening each year over the period. According to research published in 2011 by the Society of Independent Brewers (SIBA), almost 50% of local and microbrewers believe their business would fail if the reduced rate was abolished (www.siba.co.uk/Local%20Beer%20Reports/LBR-2011.pdf). The increasing number of microbreweries has also been attributed to renewed interest in real or cask ale, which is delivered to pubs and restaurants in casks and allowed to ferment further before being served. According to The Cask Report published in September 2011, cask ale increased its share of pub sales from 14.6% to 15% between 2010 and 2011, and was stocked by 2,500 more outlets in 2011 than in the previous year (www.caskreport.co.uk). Page 1 of 4
Anyone involved in the preparation and manufacture of food products, including beer, must be able to demonstrate appropriate food hygiene knowledge. Although a formal qualification is not mandatory, obtaining a certificate in food hygiene is a good way of doing this. The Chartered Institute of Environmental Health (CIEH) accredits the Level 2 Award in Food Safety for Manufacturing (www.cieh.org/training/level_2_ food_safety.html). It covers temperature control and safety and hygiene hazards and takes one day to complete. Anyone starting a microbrewery will benefit from training in general business and enterprise skills. Courses include:
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The Cask Report also revealed that despite the widespread assumption that the typical cask ale drinker is older, working-class and male, the number of cask ale drinkers aged 24 and under is growing, as is the number of female cask ale drinkers. Around seven in ten cask ale drinkers are in the more affluent ABC1 social category Many microbreweries emphasise the local origins of their beers when marketing them. According to research published in 2011 by the Institute of Grocery Distribution (IGD), the recent economic downturn has prompted many consumers to support their local economy by buying more locally sourced produce, with around half claiming to purchase local produce for this reason. More than four in ten consumers said they were willing to pay more for locally produced foods (www.igd.com/index.asp?id=1&fid=1&sid=8& tid=30&cid=1489). However, research published by Mintel in 2011 found that the origin of food was seen as a priority by only one in three adults in the UK (http://oxygen.mintel.com/sinatra/oxygen/search_ results/show&/display/id=574235). Consumers aged 45-54 are most likely to see detailed origin information as an indication of a distinctive taste that is worth paying more for. Campaigners have warned that more pubs could close if the Government refused to intervene in the 'beer-tie', which forces pub landlords to purchase beer from the large pub companies or 'pubcos' that own their premises, rather than on the open market. According to the Campaign for Real Ale (CAMRA), around 14 pubs closed each week between December 2010 and June 2011, with nearly two thirds of these being beer-tied pubs (www.morning advertiser.co.uk/Hot-topics/Pubcos-Beer-tie). Since 2007, CAMRA has operated the LocAle scheme, which promotes pubs stocking locally brewed real ale, in order to support local brewers. Around 125 local CAMRA branches currently participate in the scheme and each sets its own definition of a 'local' ale (www.camra.org.uk/locale). Men who would traditionally have gone to the pub to drink beer and socialise have increasingly begun drinking bottled wine, spirits and cider at home due to the smoking ban and rising alcohol prices, according to research published by Mintel. Between 2006 and 2011 the sale of beer by pubs, restaurants and high-street businesses decreased by 23%. Many supermarkets have increased their range of regional real ales. Tesco, for example, stocked 350 types of real ale in 2010, up from 20 in 2005. SIBA's 2011 Report reveals that almost 60% of local and microbrewers use social media sites such as Facebook and Twitter to promote their products. Almost 25% sell their products via supermarkets and independent shops while nearly as many sell their products directly, via a local shop or online store (www.siba.co.uk/Local%20Beer%20Reports/LBR-2011.pdf). In 2011, CAMRA's Good Beer Guide listed more than 800 microbreweries in the UK.
applying to higher production volumes is calculated using separate formulae based on the brewer's individual production levels. Liability for duty Beer becomes liable for beer duty as soon as it is produced. HMRC can determine the 'point of production', but it is usually when the beer is packaged, removed from the brewery, consumed, lost (without an adequate explanation) or becomes fit for consumption. However, beer duty is only payable once the beer has passed the 'duty point', usually the point at which it leaves the registered brewery premises. Until the beer passes the duty point, it is regarded as being in 'duty suspension'. Beer duty should be paid by the 25th of the month following the calendar month in which the beer passed the duty point. Moving beer in duty suspension Beer delivered to certain recipients, including other registered premises, excise warehouses and distributors, remains in duty suspension until delivery is completed, and the recipient will be liable to pay the duty. Microbreweries moving beer in duty suspension within the UK must make sure it is accompanied by the correct documentation, and in some cases may be required to record its movements using HMRC's computerised Excise Movement and Control System (EMCS). They must also keep records of all deliveries under duty suspension (there is more information on record keeping below). Record keeping Under the Revenue Traders (Accounts and Records) Regulations 1992, microbreweries must keep a record of every delivery of beer under duty suspension, including the date the beer is delivered or received. They must also keep a Beer Duty Account. This is a summary of the beer duty due in each accounting period, together with a detailed record of any beer that has been lost, reprocessed or destroyed. Microbreweries producing small brewery beer must also keep a Beer Production Account. HMRC inspectors will make visits to check the information, which must be kept for at least six years. There is full guidance from HMRC on the rules surrounding beer duty at http://customs.hmrc.gov.uk/channelsPortalWebApp/download File?contentID=HMCE_CL_000232. Food business registration Under the Food Hygiene Regulations 2006, all food or drink businesses (including microbreweries) must register with the environmental health department of their local authority. A new business must submit an application form for registration at least 28 days before it begins trading. There is a guide to registering as a food business at www.food.gov.uk/business-industry/caterers/startingup/. Premises and equipment The proprietor of a microbrewery will need to budget for the costs associated with leasing or buying suitable premises including solicitor's costs, rent, utility bills, water rates and business rates. The premises will require sufficient space for brewing equipment, reliable water and electricity supplies, wall and floor surfaces that are easy to clean, good drainage facilities and adequate access and parking space for deliveries and collections. Many microbreweries are established as diversification projects by existing businesses such as pubs and farms, and housed in converted buildings on their premises, for which 'change of use' planning permission may be required from the relevant local authority. Equipment such as mash tanks, wort pumps, fermentation tanks, refrigerator machines and sterilizing tanks can be sourced through the Brewing, Food & Beverage Industry Suppliers Association (BFBI, www.bfbi.org.uk). Also go to www.vigoltd.com and www.moeschle .com/en/home for further examples of suppliers of microbrewery equipment. A complete set of equipment for a microbrewery can cost from around 6,000 to 15,000 depending on capacity. For examples of suppliers and installers go to www.enterprisetondelli.co.uk/index.php/microbrew-houses and www.unibeers.co.uk/mobile_bars_048.htm. Microbreweries packaging their own beer will also require bottling and labelling machines. For a list of packaging equipment suppliers go to www.bfbi.org.uk/index/membersearch.php?parent_id=67. Examples include Carbonation Techniques (www.carbotech.co.uk), which provides new, used and reconditioned equipment and IC Fillings Systems, which provides both manual and automatic filling machines Page 2 of 4
What are the main trading issues?
Some of the main trading issues faced by a microbrewery include: HMRC registration and beer duty Registration A microbrewery that produces beer with an alcohol by volume (ABV) strength of more than 1.2% must be registered with HM Revenue and Customs (HMRC) and pay beer duty. Proprietors must also register themselves as brewers. They must apply for registration at least 14 days before a microbrewery starts operating. Small brewery beer A reduced rate of beer duty applies to brewers producing small brewery beer. To qualify they must not have produced more than 60,000 hectolitres (a hectolitre is 100 litres) of beer in the previous calendar year or reasonably expect to do so in the current calendar year. The reduced rate of beer duty depends on the volume of beer produced by the brewer. For example, if the volume is 5,000 hectolitres or less, the beer duty will be 50% of the standard rate. The rate
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(www.icfillingsystems.com/machinery/bottle-filling-machines/beerfillers-for-microbreweries). Second-hand equipment can be purchased from suppliers such as www.abuk.co.uk and www.moodysystems.co.uk. Sourcing ingredients The basic ingredients of beer are usually bought in bulk and include dry malt extract (DME), liquid malt, pellet hops, yeast and sterilized water, which can be produced by sterilising tap water. Typical prices start from around 30 for 25 kg of DME (250g is enough for around 19 litres of beer) and around 40 for 500 g of dried yeast (10g is enough for around 19 litres of beer). The BFBI provides a list of raw materials and ingredients wholesalers at www.bfbi.org.uk/index/membersearch.php?parent_id=1. Go to www.muntons.com and www.botanix.co.uk for further examples of suppliers. Typically, for the first few months' trading, wholesalers will only deal with new trade customers using pro forma invoices. Payments must be made on purchase and before delivery of stock. Labelling Microbreweries bottling their own beer must ensure the labels they use comply with the Food Labelling Regulations 1996. They must display a complete list of ingredients, a 'best before' or 'best before end' date, the name of the manufacturer and the beer's ABV. If bottled beer is to be supplied in a multipack, the information must also be provided on the outer packaging or be visible through it. Sales and distribution Most microbreweries supply their beers to local freehold pubs (those that are free from a 'beer-tie'). Other potential retail outlets for bottled beer include local shops and off-licences, restaurants, cafs, farm shops and farmers' markets. The SIBA Direct Delivery Scheme distributes beers from independent breweries to local pubs and shops within a 30-mile radius of the brewery premises (www.siba.co.uk/dds_site). The scheme supplies more than 2,000 outlets with beers from more than 350 brewers. Examples of other beer and drinks distributors include LWC (www.lwcdrinks.co.uk), Beer Paradise (www.beerparadise.ltd.uk) and James Clay (www.jamesclay.co.uk/beer-suppliers). Supplying to supermarkets Many of the major supermarket chains stock locally sourced products. Tesco has regional food-buying offices throughout the UK, which work with new and existing local suppliers. It encourages very small suppliers to approach their regional buying office or attend a local road show where they can showcase their products (www.tesco.com/ regionalsourcing). Other examples of supermarkets sourcing from local producers include Asda (www.asdasupplier.com/what-is-asda/local-sourcing) and Sainsbury's (www.supplysomethingnew.co.uk). While supermarkets can be a source of larger orders, most will require a significant wholesale discount, often around 60%. Some may also require the microbrewery to supply them on an exclusive basis. Organisations providing business support for small, local food suppliers include the English Food & Drink Alliance (www.englishfoodand drinkalliance.co.uk), Wales True Taste (www.walesthetruetaste .com), Scotland Food & Drink (www.scotlandfoodanddrink.org) and Buy NI Food (www.buynifood.com). Selling to consumers Microbreweries selling beer directly to consumers from the brewery premises must obtain the relevant alcohol licences before they start retailing. In England and Wales, the microbrewery must have a Premises Licence and a Designated Premises Supervisor (DPS) who holds a Personal Licence (www.culture.gov.uk/what_we_do/alcohol _and_entertainment/3189.aspx). In Scotland, the microbrewery must have a Premises Licence and employ a Premises Manager holding a Personal Licence. (www.scotland.gov.uk/Topics/Health/health/Alcohol/licensing).
In Northern Ireland, a Premises Licence is required, but a new licence can only be granted when an existing holder surrenders theirs. (www.nidirect.gov.uk/index/law-on-licensed-premisesand-registered-clubs).
Selling from market stalls If the proprietor of a microbrewery intends to sell from a local market stall they will usually need to obtain a market trader's licence from the licensing department of their local authority. Distance selling regulations Microbreweries taking orders over the phone, via the Internet, by mail order or by fax must comply with the Consumer Protection (Distance Selling) Regulations 2000. The Regulations give consumers additional rights to those they have when buying in shop premises. Under the Regulations, microbreweries must provide pre-contractual information including: Details about their business, including contact details and registered trading address (if a company), as well as the place of registration and registration number. Descriptions of the goods they are selling. Information about payment and delivery arrangements. Consumers' cancellation rights. Clear details about prices and VAT. Guidance on the steps to take to conclude a contract online and how to correct errors.
Generally the Regulations give customers a seven-day cooling-off period in which to cancel their order, which begins once the contract has been concluded (or when they receive the goods). Microbreweries that sell beer online to consumers via their website must also meet the requirements of the Electronic Commerce (EC Directive) Regulations 2002. These include providing clear information about the technical steps to follow to conclude the contract, and how the consumer can identify any input errors before confirming their order. Go to www.oft.gov.uk/shared_oft/business_leaflets/general/oft 698.pdf for details. Waste disposal Under the Environmental Protection Act 1990, microbreweries have a duty of care to ensure that any waste they produce is properly and safely disposed of. General trade waste Some local authorities provide collection services for general trade waste. Alternatively a licensed waste carrier can be contracted directly to do this. There are details of licensed waste carriers at www2.environment-agency.gov.uk/epr/search.asp. Liquid waste (such as waste water produced when cleaning equipment) Most waste water or liquid produced by a microbrewery will be classed as 'trade effluent', and formal consent must be obtained before it can be discharged via a drainage system at the premises. In England and Wales consent must be obtained from the local water company, for example Northumbrian Water (www.nwl.co.uk). In Scotland, consent must be obtained from Scottish Water (www.scottishwater.co.uk/business/our-services/compliance/ trade-effluent) and in Northern Ireland from Northern Ireland Water (www.niwater.com/yourbusiness.asp). Scrapping kegs and casks When scrapping kegs and casks, a microbrewery should inform Keg Watch, which provides a list of accredited scrap yards at www.kegwatch.co.uk/documents/Agentlist.pdf. Trade associations Membership of a trade association can provide a wide range of business benefits. Associations include: The Society of Independent Brewers (SIBA, http://siba.co.uk) offers advice and guidance on best practice and the opportunity Page 3 of 4
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to provide beers to local pubs through the Direct Delivery Scheme. Membership fees start from around 100 plus 8p per hectolitre for breweries producing less than 1,000 hectolitres. The Institute of Brewing & Distilling (IDB, www.ibd.org.uk) offers an annual subscription to the monthly magazine 'Brewer & Distiller International', access to IBD training and qualifications and networking opportunities. Membership starts from around 200. The Campaign for Real Ale (CAMRA, www.camra.org.uk) is a members' organisation campaigning for real ale and local pubs. Member brewers benefit from a subscription to regular publications and opportunities to promote new beers by joining one of CAMRA's Complimentary Clubs. Annual membership costs 20.
Insurance A microbrewery requires a number of insurance policies, including: Public liability insurance, which covers the microbrewery against claims from customers, suppliers and members of the public injured or adversely affected as a result of its activities. Employers' liability insurance, which is mandatory as soon as the microbrewery employs staff. Product liability insurance, which covers a microbrewery against claims made following damage or personal injury sustained as a result of products it has manufactured or supplied. This can also include cover for issues such as spoilage or product recall.
Accreditation schemes Microbreweries can join an accreditation scheme such as Cyclops (www.cyclopsbeer.co.uk/about.php), which provides simple tasting notes to aid sales, and Safe and Local Supplier Approval (SALSA, www.salsafood.co.uk), which requires accredited suppliers to meet strict hygiene and food safety standards. Promotion Opportunities for promoting this type of business include: Advertising in specialist directories such as Breweries UK (www.breweriesuk.co.uk), and The Real Ale Guide (www.real aleguide.co.uk), which provide free listings. Individual beers can also be submitted to directories such as Quality Ales (www.quality ales.com), which encourages users to review beers. Exhibiting products at local beer fairs and festivals. There are listings of opportunities to run stalls at county shows at www.stallfinder.com/county-show-c106.html. CAMRA provides listings of beer festivals taking place throughout the year at www.camra.org.uk/yearofbeer. Selling beer from stalls at farmers' markets and outdoor events. A directory of farmers' markets is available from the National Farmers' Retail & Markets Association (FARMA, www.localfoods .org.uk/local-food-directory). Outdoor Info UK (www.outdoorinfo.co.uk/find/events) provides a directory of events by region. Entering competitions such as Sainsbury's annual beer competition can provide a microbrewery with an opportunity to get its beers noticed without supplying large volumes. Approaching local pubs, bars, off-licences, farm shops and other outlets that may be willing to become stockists. Approaching local freehold pubs that feature regular 'guest' ales. For example, Wetherspoons holds meet-the-brewer events and local ale festivals, which provide opportunities for local breweries to showcase their products to representatives of the chain. Go to www.jdwetherspoon.co.uk/home/discover-jdw/our-community and www.jdwrealale.co.uk/ale-guru for more information. Hosting tasting sessions and educational tours of the microbrewery. Setting up a business page on a social networking site such as Facebook to generate customer loyalty and announce new products and promotions. A regularly updated blog can be used for a similar purpose. Creating a five-minute video demonstration of an example of brewing, uploading it onto online video sharing websites such as YouTube and including a link back to the brewery's website. Go to www.youtube.co.uk and enter 'microbrewery UK' in the search box for examples of other microbreweries doing this.
Specialist insurance for microbreweries is available from insurers such as Whalen Insurance (www.whaleninsurance.com/brewery) and Russell Scanlan (www.russellscanlan.com/masterbrew). Further guidance on the range of policies available and their implications for a business can be found in BIF 6, An Introduction to Insurance Cover for Business.
Legislation
This section is intended as a starting point only. It provides an introduction to some of the key legislation that regulates the activities of a microbrewery. Professional advice about the impact of legislation should always be obtained before making any business decisions. Relevant legislation includes: The Alcoholic Liquor Duties Act 1979 sets out which alcoholic liquors are subject to excise duty and stipulates that any person who produces beer in the UK must be registered with HMRC at least 14 days before production begins. The Revenue Traders (Accounts and Records) Regulations 1992 require microbreweries to keep comprehensive records including a Beer Duty Account. The Food Hygiene Regulations 2006 specify procedures for food hygiene safety management and registration of premises. See BIF 193, A Guide to the Food Hygiene Regulations 2006.
Further information
For practical start up and small business tips, ideas, know-how and news, go to: Website: www.enterprisequest.com To access hundreds of practical factsheets, market reports and small business guides, go to: Website: www.scavenger.net BOP 117 Public House BOP 487 Off-licence Useful contacts The Society of Independent Brewers (SIBA) Website: http://siba.co.uk The Institute of Brewing & Distilling (IBD) Tel: (020) 7499 8144 Website: www.ibd.org.uk The Campaign for Real Ale (CAMRA) Tel: (01727) 867201 Website: www.camra.org.uk The British Beer & Pub Association (BBPA) Tel: (020) 7627 9191 Website: www.beerandpub.com
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This information is meant as a starting point only. Whilst all reasonable efforts have been made, the publisher makes no warranties that the information is accurate and up-to-date and will not be responsible for any errors or omissions in the information nor any consequences of any errors or omissions. Professional advice should be sought where appropriate.
Cobweb Information Ltd, 9 Bankside, The Watermark, Gateshead, NE11 9SY, Tel: (0191) 461 8000
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MICROBREWERY No. 074
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