A mix of tradition and innovation has helped the London brewery to flourish while others have called time.
There is a common perception of family businesses as being risk averse. But at London brewer and pub company Fuller, Smith & Turner, being a family firm has helped it to make some brave decisions against a backdrop of changing consumer habits and unfavourable government interventions.
That’s according to Richard Fuller, corporate affairs director at the London Pride producer, and one of three members of the 10-strong board to come from one of the three founding families.
Pride is evident in Fuller himself as he shows off the portraits of his predecessors in the boardroom. And it’s there again when he talks about Fuller’s being “London’s brewery” and the company’s continued commitment to the Griffin Brewery, which has occupied the same site in Chiswick, west London, for more than 170 years.
While other traditional breweries have been turned into offices and flats, the traditional brick buildings here house gleaming steel brewing equipment in every nook and cranny. The latest arrival – double-stacked fermentation tanks – have been installed in what seems likes a long-forgotten storeroom down a series of passages. They will increase capacity considerably, primarily for bottled beer, at a cost of £4.5m.
Fuller credits continual investment as the reason for the company’s success – and his arguments seem to be supported by its latest financial results: for the six months to September 2015, there was a 10 per cent rise in revenues to £177.7m, and a 10 per cent rise in pre-tax profits to £21.6m.
But changing consumer tastes and, in particular, the rise of craft beer and smaller producers, have challenged Fuller’s approach of “style over fashion”. Its considered response to the trends has led the company to diversify into craft lager with its new product Frontier and also to acquire the UK distribution rights to US craft beer Sierra Nevada. In November 2015, it also launched an American-style red ale, Montana Red.
To capitalise on the rise in popularity of cider, it bought cider producer Cornish Orchards for £3.8m in 2013 and has since tripled production. And in June 2014 it invested in a 51 per cent share of Dorset-based pizza and cider restaurant chain The Stable, which now has 13 sites across the country.
The shift towards producing more bottled beer is particularly significant given that a quarter of production is now exported – and supermarket sales are growing.
“Beer is a challenging market,” chief executive Simon Emeny tells Business Voice, from his office in what used to be a bedroom in the master brewer’s house. “We’ve had to change this brewery quite significantly over the past four or five years so that we can brew more bottled beers and more beer for export.”
Emeny is the first CEO in the company’s history not to come from one of the founding families, yet as a 20-year stalwart of the company, he shares some of the caution typical of family businesses. “The most important thing we have is that we’ve never extended ourselves too far with debt,” he says.
In our sector, a lot of family businesses have had a very tough time because they haven't evolved - or they haven't been able to
But he adds that it’s a policy that has seen Fuller’s weather the recession, and even buy “trophy assets” when others in the sector were forced to sell.
“It’s probably testament to the family shareholders that they’ve supported the gradual transition of the business. In our sector there are quite a lot of family businesses that have had a very tough time, and part of that is because they haven’t evolved – or they haven’t been able to,” he says.
“If you haven’t got the luxury of long-term family investors, you can be driven by delivering short-term satisfaction. Our investors are far more interested in where this business is going to be in five, 10 or 15 years’ time.”
To illustrate his point, he refers back to when Fuller’s 400-strong pubs moved to serving fresh food after the smoking ban. “It means you’ve got to go back and refit all of your kitchens. You’ve got to change your supply chain. You’ve got to recruit a very different type of person to staff the units. And in the short term that’s very expensive, because it takes a while to then communicate to customers that the food is really good and can compete with restaurants.”
Fuller’s more recent investment in The Stable – a restaurant chain with an informal feel, including communal tables and a bar – is part of that same journey, as Emeny says learning from the venture is the biggest benefit from doing it.
“If you look at how our pubs are run today versus ten years ago, it’s day and night. Integrating and working with entrepreneurs is something that would be quite daunting for a number of companies, but it’s been quite exciting for us,” he explains.
But neither Emeny nor Fuller believe the government shares the same long-term view that has helped the company find success.
“Historically, when the government has intervened in this industry, it hasn’t been to the long-term benefit of either the consumer or the companies,” says Emeny.
He doesn’t think it’s fair that pubs have to pay VAT on food sales, when supermarkets selling fresh food don’t. And he is highly critical of the beer duty escalator, which – although now scrapped – saw tax on beer go up 40 per cent between 2008 and 2013.
Tax now equates to roughly a third of the price of a pint, ten times the duty paid in France or Germany
“It means tax now equates to roughly a third of the price of a pint, ten times the duty paid in France or Germany. Because of the amount of British products that we use as part of the brewing process, we should have been encouraging it for the past decade. Instead, particularly under Labour, the government has done its best to destroy the British brewing industry.”
Although he is encouraged by recent moves to reduce tax, big concerns remain about the end of the centuries-old beer tie – whereby a tenanted pub is obliged to buy beer and other drinks from the company they rent from. The company is not directly affected by proposals – with 400 such pubs, it sits below the 500 threshold – but Fuller warns of unintended consequences.
“Big brewers are not going to give up share that easily. I think we’ll move to a model that looks a bit more European in style, but with fewer small brewers around,” he says.
The last time an intervention like this was made was in 1989 following the Monopolies and Mergers Commission’s report, which stopped big brewers running pubs, he explains. “None of the big breweries are UK-owned anymore as a consequence of that.”
“Although consultation is ongoing, and some of the new proposals look more sensible, the tie means there has been a very big incentive for pub companies and family brewers to invest in their properties and their tenants,” adds Emeny.
A perfect storm
But as the area’s oldest employer, Fuller’s is not just affected by industry-specific issues. Fuller talks of a “perfect storm” of apprenticeship levy, national living wage and pensions changes, which Emeny agrees poses a challenge to every single business.
In fact, Fuller’s has decided to implement the living wage ahead of time, extending it to all staff who are in training. “We have the advantage of being at the premium end of our market, so we are already paying our staff very close to it anyway. The incremental costs won’t be too burdensome for us,” says Emeny.
“But the apprenticeship levy has really disappointed me. Over a quarter of our turnover goes on wages. I feel we’ve helped the coalition government out during some very tough times by increasing the number of people we employ every day. We’ve worked hard to create jobs and reward people that are coming through the business.”
Emeny himself joined the industry as a graduate trainee, and he’s “absolutely committed” to ensuring the same kind of opportunities are offered to Fuller’s recruits. The company has run its current graduate training programme for the past five years.
“And there are so many development programmes that mean somebody joining us as an hourly paid member of staff in our pubs has the potential to one day run the pubs division,” he adds, noting that the current head of hotels joined the company via this route 12 years ago.
Despite all the challenges facing the beer and pub industry, Emeny emphasises the importance of re-investing in the business, whether through training, refurbishments or initiatives such as The Stable.
It’s a virtuous cycle that protects the business for its next generation of leaders, he says. And being a family business “has an awful lot to do with it”. At a time when the industry is changing beyond all recognition, Fuller’s is staking its future on traditional values, not just the traditional brewing it takes such pride in.
- Post tagged: