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BrewDog brings craft beer (and capitalism) to the masses
Are you a punk? Are you passionate about craft beer? Are you cool with the risks of investing in a company that “started as 2 humans and 1 dog”? If you answered Yes to these questions, Brewdog has a business proposition for you. And it comes with free beer.
BrewDog is one of the UK’s most successful craft breweries. James Watt and Martin Dickie began the company in 2007 using personal savings and bank loans, and second-hand equipment. Initially, their beers were bottled by hand and sold at local markets. By 2009, BrewDog was the fastest-growing independent brewery in the UK, with annual sales of £1.7 million ($2.6 million). 2009 was also the year that the company launched Equity for Punks, which allows individuals to buy shares online. Strong growth continued, and in 2014 BrewDog reported annual sales of £29.6 million ($45.5 million). Its distribution channels include 27 BrewDog bars in the UK and four other countries, and export sales to 50 countries worldwide.
In April 2015, BrewDog announced its intention to raise up to £25 million ($38.5 million) via an Equity for Punks share issue. The funds would be used to expand its brewery operations, extend its portfolio of bars, and develop a canned beer line, among other plans.
While the total beer market in developed economies is mature, and often threatened by substitutes such as wine, the craft segment is much more dynamic. The UK is currently home to around 800 breweries, the largest number since the 1940s. Craft beers only account for 2% of so of total UK beer consumption, but a recent survey found that one in four bars stock beers from independent breweries, and several sources quote double-digit annual sales growth in this segment. Factors such as localised ingredients, more intense or unusual flavors compared to mass-consumer beers, and niche branding are all likely drivers of demand. Whatever the reasons, this trend is highly beneficial to BrewDog and its competitors.
The crowdsourcing route to funding shows BrewDog’s characteristic blend of the passionate and the canny. It applies the techniques of consumer brand building to the business of investment. Share purchases as small as £95 ($146) can be made through a simple web form; the website and prospectus is designed in line with BrewDog’s brand identity; buying shares is described in terms of joining a community as well as making an investment. Shareholders gain benefits such as free beer on their birthdays, and beer vouchers. For many individuals, the ability to buy into a rapidly-growing company for the price of a decent night out might well prove attractive. This was certainly the case in 2013, when BrewDog raised £4.25 million ($6.5 million) in a similar way.
At the same time, the shares are not publicly traded, which means that there is little danger of a larger brewer gaining equity in BrewDog, and no dividend payments are planned at present. Also, only Class B shares are on offer, while the existing Class A shareholders will be able to carry all votes on commercial decisions. The expansion plans have been ranked as well as costed, so that it will be clear to the company exactly how many of them it will be able to implement when the shares have been sold.
All in all, the company looks set to raise significant capital from people who may not consider themselves to be capitalists, while retaining control of a strategy that has been highly successful thus far.
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