BrewDog Named Scottish Business of the Year

From the Sunday Herald 2 Page Spread, 11/12/11.

The Crazy World of BrewDog, by Steven Vass. Original found here http://www.heraldscotland.com/business/company-news/the-crazy-world-of-brewdog.16115042

JUST when you hoped it was safe to do some Christmas shopping, an armoured tank was spotted rumbling down the high street in Camden in North London yesterday.

The captain confirmed to the Sunday Herald that this was an invasion from Scotland. No civilians have been harmed, however, not unless you count lost brain cells from people pouring beer down their necks.

This was the latest marketing stunt by BrewDog, the upstart brewer from Fraserburgh that has made its name with surreal stunts like serving beer from dead squirrels, brewing at the bottom of the sea and launching gourmet beers of spirit strength with names like Tactical Nuclear Penguin.

The Camden tank was to launch the company's first bar in London yesterday, the fourth in a chain that aims to reach 14 by the end of next year. It rounds off an awe-inspiring year for BrewDog, which will turn over just under £7 million this year but has achieved several things that put much bigger beasts in the shade. It has raised more than £2m from its customers through a scheme that essentially invents a new way of raising equity. It is revolutionising the way that beer is marketed in this country, amid growing signs that other brewers are beginning to copy its branding. And it has started building a new facility that will enable it to grow 15-fold within five years.

The numbers might not yet be on the kind of scale to compete with Jim McColl's recent deal to sell Clyde Union Pumps for £750m, nor the strides forward by other Scottish companies such as Iomart (IT hosting), Optos (eye technology) and Craneware (medical software) in the past 12 months. But on the cask strength of BrewDog's originality and potential, we decided to stick our necks out and name frontman James Watt the Sunday Herald Businessperson of the Year.

Spend a bit of time talking to him and you realise that his ride in the tank yesterday was entirely in character. He and longstanding friend and business partner, Martin Dickie, have effectively declared war on the entire UK beer industry. Having launched as recently as 2007, they are on a mission to rid the country of rubbish beer, which in Watt's opinion includes almost every other brand brewed here.

Ask why BrewDog has gone into the pub business, for instance, and he launches a couple of rockets at enemy lines: "The problem is lack of choice," he says. "In 90% of bars, you will be faced by the same four or five beers by the generic multinationals. They are focused on making them as cheaply as possible. Everything is the same insipid yellow and tastes like liquid cardboard."

He explains that the BrewDog bars – the other three are in Glasgow, Edinburgh and Aberdeen – sell not only the company's beers but also a wide selection from around the world. But asked whether he would align himself with other outlets that are big on world beers, such as the Republic Bier Halle in Glasgow or the Edinburgh Brauhaus, and he fires off another couple of shots.

"We do things with classic beer styles but with a contemporary spin. The Bier Halle sells what they can get their hands on, the more mainstream beers. We are buying in stuff you can't get anywhere else."

He has no love for the rest of the UK's craft brewers either, which together with BrewDog have built up an 8% share of the UK beer market and are the only segment experiencing growth. When I ask whether there is anyone else in UK brewing that he admires, there is a long pause as he draws a verbal pistol.

"No. Well... there is a guy called Evin who has a brewery called The Kernel in London. I love his beers," he says. "But we don't like the cask ale thing for a start. If you look at the flavour spectrum, there's no diversity. They call themselves by their locations. They put twee maps on the backs of their bottles. Their target market seems to be guys that hang out at train stations at the weekends. Everything is between a 3.5% and 4.5% mild. It's not exciting and it's not cool."

While he concedes that this might be a slight over-generalisation, he has plenty ammunition left over besides.

On why BrewDog swapped the Bank of Scotland for HSBC: "Every time we went to see them it was like going to see the dentist."

On corporate culture: "We don't buy into this mission statement rubbish."

On focus groups: "People don't know what they want to drink. We want to tell them what to drink. And if you don't like it, then screw you and go back to drinking Tennent's, you muppet."

Watt, whose father is a semi-retired fisherman and mother a teacher, comes from Gardenstown, near Banff. Dickie is from Peterhead.

They are both 29 and both studied in Edinburgh – Watt did law at Edinburgh University and Dickie distilling at Heriot-Watt. They had in common a love of gourmet beer, particularly the hops-heavy varieties from California. "Brewers like Stone, Alesmith and Ballast Point, those guys are our idols," he exclaims.

They took to brewing similar beers as a hobby at the weekends. When they got positive feedback from sending samples to American beer experts, they raised £50,000 from savings and loans and started the company. Dickie is basically the master brewer and Watt is in charge of running the business and the marketing. Aberdeen design agency Hampton Associates has been behind the distinctive BrewDog fonts and designs, but Watt comes up with the brand names and the marketing wheezes himself. By thinking creatively and using the internet well, he says, BrewDog has managed to attract attention with a miniscule marketing budget.

Having found their way into the main supermarket outlets and a few pubs, it was not long before there was enough demand to warrant bigger brewing facilities. But they were having difficulty raising the capital. In true warmongering style, Watt recalls the day he decided to raise an army.

"In the first two years of BrewDog I spent eight weeks at sea to supplement my income on a North Atlantic fishing boat," he says. "It was three o'clock in the morning, in rough weather, and I was sitting in the wheel house of the boat thinking about the business. It was the depths of the credit crunch. The banks weren't lending, we had spoken to VCs and it was like selling yourself to the devil, and I thought we could involve the people that drink our beer in the ownership of our company."

Dickie agreed, but various lawyers told them it was either impossible or prohibitively expensive. Instead of taking no for an answer, though, they found someone who bought into their vision and went ahead. So began a push online and through various events to persuade customers to invest in exchange for future dividends.

They first tried it in 2009 and raised £650,000, which fell a long way short of the target. So more recently they tried again, cutting the minimum investment and taking advantage of their growing name. This time the target was £2.1m. Ahead of the January deadline, they are oversubscribed.

"Equity For Punks was a way to raise money to grow our business but also it was a way to build a culture and community around what we do," says Watt. "It's almost as important from a marketing perspective. That's 7000 people that are an army of dedicated brand ambassadors."

THIS is where the real charge begins. BrewDog, which employs 75 people, has cleared some space at its Fraserburgh brewery to increase capacity from about 28HL to 40HL in the New Year. It is building a new brewery at Balmacassie, near Aberdeen, which will raise capacity to about 150HL by October.

That equates to about 25 million bottles of beer a year. The total cost will be £6.1m, the balance of which is coming from bank loans. But because demand for the beers is so strong, he reckons it will only take about a year to reach maximum capacity again.

"Just by supplying current demand, we could instantly double turnover," says Watt, who along with Dickie still owns nearly 80% of the company.

Better still, he says, the new brewery will only need to add extra fermentation tanks to increase capacity more than threefold to about 83 million bottles a year (albeit this 500HL would still only be a quarter of a truly massive brewery like Tennent's Wellpark in Glasgow). Watt reckons this will start happening in late 2013, at a total cost of £3m. He is more coy about when BrewDog will reach full capacity once more, but eventually commits to between 2016 and 2018.

At that point it should be turning over £110m or so at today's prices. If pre-tax profits stay in line with the current roughly 10% margin – more likely they will increase faster – they will hit around £11m.

The company won't be relying solely on kicking off a UK beer revolution to achieve this. At present, 65% of beer sales are from overseas, with Sweden, the US, Japan and Italy the four biggest markets. Half of all beer sales come from Punk IPA, with Five AM Saint and Hardcore IPA contributing another 25% between them. The bars are contributing about 20% of sales and provide cash flow, which protects against the long payment waits typical of export businesses.

And as if there wasn't enough for Watt to think about, BrewDog is gearing up for a big launch to coincide with its fifth birthday in April.

"It's a product that's going to blur the distinction between what beer is, how it can be served, how it can be enjoyed. It's not just an innovation in a beer. It's almost an innovation in what beer itself is."

Beyond that, you and me will have to wait until April. But if past form for continual surprises are anything to go by, armoured tanks will probably not be involved.