Company Profile : Shepherd Neame

By Gary Mead for NEX Exchange

BREWING HAS ALWAYS BEEN

AT A FAST PACE

NEX Exchange is very proud that the oldest brewer in Britain is a member, although Shepherd Neame's business is morphing - in line with the changing tastes and cultural attitudes of the country - such that calling it a "brewery" might be considered inadequate. To gauge exactly what the 302-pub strong Shepherd Neame's view of the future might be we spoke to Jonathan Neame, the company's CEO.

“Brewing has always been at a fast moving pace,” he says. “The rise in the small and ‘micro’ brewer has been pretty transformational in the last 10-12 years. I think originally it was stimulated by the so-called small brewer’s relief, a tax incentive for small companies, but it’s now evolved a little bit because all over the world there is a small brewer movement. We’re probably now entering the second wave of that, the first being led by small, rural, cask-led brewers. The second is being led by more urban or metropolitan craft-led brewers. That’s why you are beginning to see an explosion in small-can, and keg, very powerfully hopped beers.”

Ordering a glass of beer in a pub, or searching the racks of your favourite retailer to choose a beer for the weekend, has become an extremely complex process: you are spoiled for choice of little-known trendy stuff in which the can design shouts for attention. You can often find yourself being seduced by the packaging, not by its contents. Neame says that’s the  “opportunity that Shepherd Neame has in this very complicated market. We have no intention of re-presenting ourselves as a craft brewer – we are what we are. We’re a long established business with a great pedigree and history that’s full of stories. What the new guys, the craft guys, are doing is demonstrating that around the world people probably want less alcohol, in a smaller serve, and with fuller flavour. We at Shepherd Neame are going through a process of developing new beers, new recipes, meeting those needs from a packaging and a beer point of view, but equally trying to be true to our pedigree and our origins. If we can have an interesting range of beers but the reliability of our brand behind us, then the consumer who is confused by all this will hopefully default to one of our beers and stick with that.”

It’s not an easy market to be in, where overall volume is in decline , there are relatively low barriers to entry, and profit margins are very tight. In the 1980s about 40 million barrels of beer were annually consumed in the UK and today about 24 million barrels are drunk. Beer is also a surprisingly emotional subject. A huge number of the smaller start-ups are led by hobbyists or lifestyle-type brewers, for whom profit isn’t the principle motive – they want to brew a great beer and be part of the industry. Right now the overall market is relatively stable although some product segments, such as traditional cask beer, are in decline. For Neame, the market today is being driven “by value, not volume – people are much more willing to pay more for a good beer but they are not necessarily going to say it’s so fantastic that they want three or four or five of them.”

The company’s pub profile “has changed significantly” says Neame. “The thing about pubs is that they are incredibly versatile at adapting to the needs of their local community. It’s true that the traditional male-only corner boozer has seen significant decline across the country in the last 20 years, as a consequence of industrial decline and the smoking ban. But there have been strong opportunities, too, such as the growth of food which is also a result of the smoking ban, and the idea of staying in a pub-hotel. Since 2008 we have radically change our portfolio – we have sold 110 of those traditional male corner-type pubs and we have acquired about 50 of the more premium accommodation or food-led outlets. But almost all pubs in the country will be more drinks-led in their turnover, with 60-70% of their turnover drinks-led. The centre ground now for a great pub is probably 25% food and 75% drinks, with possible exceptions being central London, where people still like an after-work experience. What we are trying to do with our pubs is to develop unique pubs, by which I mean amazing buildings or amazing character in unique locations, with a large catchment which has plentiful disposable income.”

Shepherd Neame’s heartland – Kent, bits of Essex and Sussex and Surrey, as well as London – is no accident but policy, driven by what Neame says is “the area of the south-east getting the greatest economic development. If you just take Kent alone there are all kinds of infrastructure development that is going to take place in a 15-year timeframe. The forecast population growth rate is more than 20% by 2031. Our whole focus is, ‘do we have the right pub in the right location, for what we think will happen in our heartland by 2031?’”

It is of course a bit of an oddity, perhaps, that Britain’s oldest brewer is listed on Britain’s newest exchange, but Jonathan Neame has no doubt it’s the right place to be. “We’re still a family dominated business but we have got a lot of outside shareholders, so we want a trading platform. We haven’t looked to raise equity; we’re a cash-generative business, so we have always looked to fund our growth by long-term debt. We like the lighter touch environment of NEX Exchange and we would like it to gain in reputation and credibility and we’re optimistic about the changes we see. There is definitely a need for this type of exchange.”

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