Asahi Buys Another Gem: Fuller’s

The sale illustrates where the money resides in the British beer industry: pubs.

Some brewery sales elicit a yawn; others raise an eyebrow. This news produced an electric shock when I read it this morning:

“Fuller’s announces that it has entered into an agreement for the sale of its entire beer business to Asahi Europe Ltd for an enterprise value of £250 million on a debt free, cash free basis.”

Fuller’s, Smith & Turner is one of the most significant breweries in the world. There still remain a number of regional family breweries across Great Britain (though their numbers continue to dwindle), but most can’t be called historically significant. Two hundred and fifty years ago, London was the center of the brewing universe, and remained so for well over a century. Fuller’s was founded in the middle of this era, in 1845, when the three founders took over a 17th-century facility that had for thirty years been called the Griffin Brewery. This was an era when giants inhabited London and breweries like Barclay Perkins could issue volumes that, even by today’s standards, seem titanic. There were well over a hundred breweries in the city then, including some of the largest in the world. Over the twentieth century, London’s influence waned with the rise of lager, and one by one, the big breweries began closing. When Young’s quit the city in 2006, there was only one Victorian-era stalwart still resident in London.

But Fuller’s legacy doesn’t rest on its mere survival. Eventually, London left behind porter and entered the pale ale era with the rest of the country. Chiswick Bitter debuted in the 1930s, forty years before that style would supplant mild ales. London Pride, a best bitter, came in the 1950s. Finally, Extra Special Bitter was introduced in 1971. All of these beers are world classics, and London Pride is arguably the best bitter made in Britain (and oh, my what an argument that is). Amazingly, the brewery has kept alive the process of parti-gyle brewing, a truly ancient practice long predating the brewery itself, which keeps intact a lineage dating back centuries.

Fuller’s is, simply put, one of the best and most-important breweries in the world.

The Deal

Asahi has become the most interesting player in the big-brewery sweepstakes. Where other multinationals buy for volume or place bets on the future by snapping up promising upstarts, Asahi has decided to buy heritage breweries. In 2016, it bought Peroni and Grolsch, and then made a big splash by taking Pilsner Urquell from SABMiller in 2017. (It also owns Meantime.) Whenever a brewery changes hands, its legacy is placed in jeopardy, and it’s impossible to say what will become of these breweries in twenty or thirty years. But Asahi seems committed, at least in the short term, to leaning into these breweries’ heritage rather than trading on them while slashing costs and quality.

That’s what makes the Fuller’s deal itself so interesting. Fuller’s is a huge company that derives income from beer, pubs, and inns, but Asahi is acquiring just the beer component.

Under the terms of the [deal, Asahi] will acquire the brands of the Beer Business (including “London Pride”) and will receive the benefit of a licence, on a perpetual, global, exclusive and royalty-free basis, to use certain trade marks (including the “Fuller’s” name, logo and cartouche) for the provision of beverages. Ownership of the licensed trade marks will be retained by Fuller’s.

For the rights to the beer business (and only the license to the marks), Asahi was willing to pay $327 million (£250 million), a substantial premium—despite the fact that sales of Fuller’s beer were flat last year. A big part of this premium appears to be the result of a very weak pound, though this remains a big price tag by any measure.

Lessons

The British beer industry is in the midst of its most interesting moment in decades. The incursion of lager into Britain beginning in the ‘70s and accelerating through the 1990s dealt a crushing blow to regional producers of cask ale. A huge number were “rationalized” (“consolidated” in US vernacular) or shut down. Cask ale consumption collapsed relative to lager. That all changed in the 21st century, as trends shifted with the arrival American-style craft breweries. This created interest in ales again and a lot of excitement about new breweries, but the effect on regional cask brewers was mixed. Drinkers would pay more for craft beer, but wanted cask at rock-bottom prices, despite the cost of handling the delicate product. Cask ale breweries like Fuller’s were forced to compete against higher-margin craft breweries on the one hand and high-volume mass market lagers on the other.

By all accounts, more people are drinking high-qualities ales in Britain, including cask ales. But there are also something on the order of 2000 breweries in the country, which has made it very difficult to compete. All of this brings us to the real heart of this news, evident in the portion of the business Fuller’s kept: their pubs and inns. Americans familiar with the three-tier system might miss the importance of this detail, but let’s turn to the press release to illustrate its significance. (I’ve added the emphasis.)

The [agreement] will enable Fuller’s management to focus on its pubs and hotels, which is the core of the business and where today 87 per cent of the Fuller’s operating profits are generated. It will also provide significant capital to accelerate investment in the premium pubs and hotels business both organically and through future acquisitions.

The shift away from beer and into pub operations is not new. It’s been happening for decades, as other erstwhile breweries have made the same decision. In the UK, regional breweries don’t just make beer; they own pubs and inns where it’s sold. The real profit comes from pub ownership, not brewing beer. I’m just a yank 5,000 miles away from Chiswick, so take what I say with a grain of salt—but the way the British market is currently structured, including not just tied-house pubs, but taxes and off-premise, packaged sales, makes brewing beer a marginal prospect at best. Dave Bailey, who was finally forced to shut his Hardknott Brewery four months ago, put it this way:

“Cask beer represents less than 10% of the total beer sales in the UK and around 16% of the total draught sales. The remaining 84% of draught sales are keg beers and the vast majority of that volume is from the big global producers. hanging customer preference to what are seen as more artisanal products. Cask remains roughly static as a proportion of the overall beer market. Cask in the free trade also appears to remain largely free from dispense equipment ties and this is in itself an interesting observation.”

Then head brewer John Keeling (right) with former Young’s head brewer (and then-Fuller’s brewer) Derek Prentice in 2011.

Over the past decade, Fuller’s did absolutely everything it could to escape that grim calculus. Led by head brewer John Keeling, they embraced craft brewing and became something like an elder mentor to the young upstarts. The company began exploring ways to incorporate craft expressions into their classic cask ales (and did so quite impressively). They mined their archives and released wonderful revival ales. They bought regional breweries and craft breweries. At the end of the day, someone looked at the balance sheet and finally concluded that their core competency, as the face of London beer in pubs scattered across the capital, was really running pubs and inns, not making beer. It should alarm people interested in the beer side of the British beer business that one of Britain’s most important and most successful breweries has just decided to get out. Asahi may well keep the brewery exactly like Londoners expect, and I’m thankful the new owner isn’t AB InBev. But it’s hard to see this as anything but a serious warning sign about the future of cask brewing in the UK.