Brewery’s chief vows: we’ll survive hard times

Jul 30 2008 by Alex Turner, Liverpool Daily Post

Despite difficulties facing a Liverpool brewery, the owners remain confident. Alex Turner reports

CAINS, the Liverpool brewer that has been in the city for more than 150 years, has faced problems before.

When entrepreneurial brothers Sudarghara and Ajmail Dusanj bought the brewery from the Danish Brewery Group in 2002, it was the most recent of rescue missions that had seen the brewery shrink and be largely forgotten about on the edge of the city centre.

But once again the brewery is facing an uncertain future as it waits to see if it will receive the backing of its bankers, Bank of Scotland, to continue.

Its problems, which largely stem from the £37m reverse takeover of Honeycombe Leisure last May that saw the brewer acquire 92 pubs, have been magnified by a downturn in the industry and in the wider economy.

Cains’ half-year results to April showed a torrid six months’ trading which saw the firm lose £4.6m, an average of more than £750,000 a month. This compared with an average loss of £200,000 for the 14 months to October 2007.

Cains chairman Roy Morris described the trading period as “very challenging” and identified four main factors for the difficulties.

He said: “We have seen our whole sector hit hard by a number of factors, including declining consumer confidence, rising input costs, the effects of the smoking ban and the impact of the penal increase in duty rates.”

It is a problem across the sector. Alcohol duties continue to rise at a time when consumer spending is being constrained.

Global rises in food costs have caused steep increases in the cost of the industry’s raw materials, malt and hops.

And the number of pints being drunk has falling drastically. In the UK about 10bn pints are consumed, but the decline is notable. Between 2003 and 2006 consumption fell 7% – more than 700m pints a year.

British Beer and Pubs Association chief executive Rob Hayward is acutely aware of the situation across the sector.

He said: “Beer sales are on the slide and the tax increase in the Budget has made it worse. This is hitting Britain’s brewers and pubs hard.

“With around 1m jobs reliant on the trade, the loss of 1.6m pints a day is having a serious impact, not just on the sector itself, but on the UK economy as a whole.

“Beer sales in pubs are now at their lowest level since the Great Depression of the 1930s, down seven million pints a day from the height of the market in 1979.

“We need a change of approach from the Government. Brewing is a major industry, beer our national drink and pubs a treasured part of our national culture.”

It is not just Cains that is facing severe difficulties. Laurel Pub Company, which operates the brands Slug & Lettuce, Hog’s Head and Yates’s Wine Lodge, has shut nearly 100 pubs this year. Also, the Sports Cafe chain had to be rescued from administration earlier this year, but three of its eight sites, including Liverpool, did not survive.

CAINS’ acquisition of Honeycombe Leisure looks to have been badly timed, taking place weeks before the smoking ban came into force and the credit crunch hit the economy. The longer-term decline in beer sales in pubs is also having an impact, especially in pubs which don’t offer food.

This week Harvester owner Mitchells & Butlers, in its latest trading update, said more customers are opting for cheaper pub meals in the economic downturn.

Around two-thirds of the company’s total sales are now generated by food-driven visits, with beer accounting for just one-quarter of revenues. The company, which runs pub chains All Bar One and O’Neills, now serves 110m meals a year in its 2,000 pubs.

The use of food as a driver for sales is something that Cains chief executive Sudarghara Dusanj is keen to develop.

Cains has recently completely refurbished four of its pubs as part of the group's investment into its pub estate and it has trialed its Cains Local concept, which it said is seeking to capitalise on the heritage of the traditional British local pub.

“The smoking ban has increased the decline of wet sales,” said Mr Dusanj. “However in the medium term, I believe the ban will make it a much better environment to have great food and great beer, and pubs can become the centre of communities again.

“About 30% of our pubs do food. Every time we refurbish a pub it is getting a food menu, food is an important part of the Cains pub model.”

Despite the funding problems that are hampering the company – interest payments on its loans cost the firm £1.2m in the six months to April – Mr Dusanj remains confident that the integration of Honeycombe Leisure into the brewing business can, and will, be a success.

He said: “Retail is now stabilising and our brewery is growing. We believe it will turn it round.

“We are working on a three-year plan to turn it round, but we have been hit with unusual economic conditions which has set us back by a year.

“I think the acquisition of Honeycombe Leisure was always heavily geared. However, the plans we have, of putting the companies together, will provide a very robust model.

“It’s been successfully done by breweries in Manchester, such as Thwaites, Robinsons and others. The model is robust, it’s just the timing has been against the company.”

BILL GLEESON: PAGE 8

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