How BrewDog's craft beer revolution went flat

Telegraph

20 hours ago

When James Taylor became chief executive of BrewDog in March, he was heralded as the man to take the troubled brewer 'into its next chapter'.
After a turbulent few years that saw the company accused of running a 'toxic' workplace and post spiralling losses, Taylor, a cool-headed former fashion industry executive, hoped to draw a line under BrewDog's past.
His surprise appointment came after former boss James Arrow stepped down after less than a year in post. But just months into Taylor's tenure, BrewDog has found itself in choppy waters once again.
Unite, the union, has accused the company of 'potentially unlawful' behaviour after BrewDog announced the closure of 10 of its bars because they were not 'commercially viable'. The union claims staff were given less than four days notice. The company has refused to say how many staff will be affected.
Taylor denies unlawful conduct and claims that Unite's accusations are 'factually incorrect'. A BrewDog spokesman adds that while the bars will close, staff will continue to be paid during a consultation period.
'It sounds fairly brutal from a financial point of view but [the bars] were loss-making,' Taylor says, insisting staff affected by the process are being treated 'with the utmost respect'.
Nevertheless, the closures highlight the pressure on a business that was once considered one of Britain's proudest start-ups.
Credited with popularising American-style craft IPAs in the UK, BrewDog claimed to have grown from nothing into a 'unicorn' business worth $1bn (£740m) in just a decade.
Now, after years of rapid growth, the company is fighting just to stand still. It is battling inflation, falling consumer confidence and a decline in boozing.
At the same time, questions have been raised over an unorthodox private equity deal struck in 2017, which turned its founders into multimillionaires but forced BrewDog to deliver an 18pc compounding return to its investors.
It is plain to see why Taylor feels he must take action: pre-tax losses at the brewer have spiralled in recent years, growing from £30.5m in 2022 to £59m in 2023.
Taylor says the company was profitable on an earnings before interest, tax depreciation and amortisation (Ebitda) basis – a measure used in the city to show the underlying performance of the company – in 2024 but admits full results, when made available, will not show a return to the black.
'Below Ebitda, that is where you get various sort of shareholder financial charges, for example, so no, it won't be a pre-tax profit at all. The pre-tax losses will have reduced,' says Taylor.
'We have an awful lot of incredible things to do with this business. You've seen this week we've had to make some harsh decisions as part of that.'
Insiders say BrewDog has been making harsh decisions for some time, pointing to numerous redundancies among the company's central staff.
'In 2023, there was a big cull and then three months ago there was another wave,' says a former BrewDog employee. 'Some people [who] had worked there a very long time left. There were some really surprising names.'
Anti-establishment zeitgeist
Brewers and pub companies have been hammered by the soaring cost of energy, fuel and labour, with the Chancellor's April tax raid heaping further pressure on businesses that employ a lot of people.
Taylor says the tax raid is not to blame for BrewDog's closures but concedes that it 'makes it harder to make money in hospitality [and] makes it harder to make profitable bars'.
At the same time, inflation has pushed up the price of a pint just as the high cost of living has made people more cautious about their discretionary spending. BrewDog's sales growth has slowed dramatically in recent years, with revenues rising by less than £3m to £357m in 2024.
'The bars have been a big problem. Smaller ones that are in the wrong location have probably got quite severe overheads, and not a lot of people coming in,' says the source.
Taylor says: 'The beer market is not growing. That just means we've got to take market share from our competitors.'
In an attempt to restore growth, BrewDog has rebranded its beers around the idea they are 'brewed fresh' and deleted several of its past social media posts, distancing itself from former chief executive James Watt, who would use the brand's social media to rail against big beer rivals.
Taylor says he wants to give BrewDog 'a slightly different personality' – toning down its former anti-corporate stance in favour of marketing around the idea of 'quality'.
'We have a different leadership team. We have a fresh attitude to what we're trying to do,' he says.
He adds: 'We are going to be exciting in our [new products], we're going to be going to some very interesting spaces and territories. We're going to improve the quality of our headliners.'
Whether BrewDog can achieve this is up for debate. The company's reputation has been shaken by allegations of a 'toxic' workplace under Watt, who stepped down as chief executive last year, and accusations that he acted inappropriately with female staff, which he has stringently denied.
Its beers are also not considered as cutting-edge as they once were either.
'BrewDog built the category of craft beer,' says Greg Wells, managing director of beer consultancy We Are Beer. 'They were bombastic with it and it spoke to a generation of millennial beer drinkers in a really exciting way – myself included.'
But the anti-establishment rhetoric that helped BrewDog capture the zeitgeist – Watt was a prominent critic of corporate 'fat cats' and the actions of big beer companies during his time leading the brewer – lacks some resonance with younger drinkers.
'Poking the corporate in the eye, I don't think that connects with 27-year-olds,' says Wells. 'I think part of what BrewDog needs to find is what that punk spirit and creativity means today.'
The former BrewDog employee says: 'Craft beer in terms of pubs, its share has gone backwards. Premium world lager is flying, Guinness – I don't know where, how, or when it caught the imagination of Gen Z, but the whole Kim Kardashian and 'splitting the G' trend on TikTok and everything else – it's just flying.
'For all BrewDog's awareness and for all that it sells in the supermarkets, the [pub] consumer is not demanding it.'
Move away from 'Equity Punk'
Then there is the £213m deal BrewDog's founders struck with the American private equity giant TSG Consumer Partners in 2017, which gave TSG a 22.3pc stake in the company and turned both Watt and Dickie into multimillionaires. During its wild ascendancy, BrewDog raised millions of pounds from thousands of ordinary people who bought so-called 'Equity Punk' shares in the company, fuelling its growth and international expansion.
However, prior to selling the stake to TSG, Watt and Dickie changed the company rules and watered down investor protections, leaving many of their retail investors worried that they will end up with nothing.
Crucially, written into the TSG deal was an 18pc compounding coupon, which rapidly increases the interest on TSG's shares on an annual basis, potentially overriding other shareholders and leaving them with little value in the company.
'Effectively, private equity is going to end up owning the entire business,' says a city source. 'If you've got that interest compounding at 18pc and the business is flat, effectively, the business will have to be financially restructured, and with private equity being the lender first resort, it will end up substantially in their hands.'
Paul Savage, who bought shares in the company in 2020 during one of its crowdfunding rounds, is among those angry at the structure of the deal, which could wipe him out.
'Why are you trying to hurt your initial crowdfunding people? Why is money from a shady investment firm better?' he says.
Taylor says he was not there when the deal was struck, but insists this is not the case. 'We don't 'owe' TSG that money. It doesn't sit on the company balance sheet,' he says.
'My job is to create value for all shareholders. I don't sit there worrying about coupon rates or that sort of thing. I work for all shareholders, it doesn't matter whether that's TSG, whether that's the founders of this business, or [the Equity Punks].'
Before James Watt stepped down in 2024, the company had been working towards an eventual IPO or a sale to private equity. Taylor says no IPO or sale is currently planned and that TSG supports his turnaround plans.
'I will try and create shareholder value for everybody and what happens in the future in terms of the value of that? Well, quite frankly, it's an academic conversation for the moment,' says Taylor.
A spokesman for TSG Consumer Partners said: 'We remain confident in BrewDog's fundamental brand strength and market position under the leadership of CEO James Taylor, COO Lauren Carrol and the new management team, who have successfully returned the company to profitability in 2024.
'We continue to work closely with management to maximise value for all stakeholders as BrewDog capitalises on the significant opportunities in the craft beer space and leverages its market-leading brand portfolio for future growth.'