Brewers will have to cut costs: Fierce competition continues as national consumption declines

NEARLY a dozen big breweries capable of producing almost seven million barrels of beer a year have been closed since 1991. But has the industry done enough to counter the continuing and steady decline in national consumption?

Probably not. Trading conditions since the start of 1992 have been some of the toughest on record and the fight for volume sales and market shares among the big brewers shows no sign of abating.

In an aptly titled piece of research called The Shrinking Barrel, analysts at S G Warburg say that further action by brewers to contain costs must be expected.

Beer consumption in the UK is at its lowest level for more than two decades, with sales particularly undermined by the recession and the contraction of the industrial base.

From a peak 42.4 million barrels in 1979, sales have since dwindled to about 35 million, or 10 billion pints, last year. The industry also lost about 3.5 per cent of its market share last year to the sharp growth in personal shipments from across the Channel.

Amid the clamour for market share, the brewers will have to keep the lid on already depressed wholesale prices and suffer flat operating profits for some time yet.

While that squeeze takes place, the growth in surplus brewing capacity looks poised to continue. Warburg estimates that in 1993 the industry, assuming it utilised 90 per cent of its capacity, was capable of producing 17 per cent more than it could sell.

'However, with beer sales continuing to fall and the majority of the scheduled brewery closures having taken place, the level of excess capacity looks certain to rise once again unless there are further brewery closures and/or downscaling of operations,' says Warburg.

It is difficult, however, to pinpoint where the brewery closures would take place. Regional brewers, which mostly have only one brewery apiece and account for a high amount of the excess capacity, will fight hard to stay in the industry.

But several regional brewers may have to sacrifice independence by merging with a rival.