CAs working across the drinks industry discuss contending with rising costs and changing tastes
By CA magazine
2 February 2023
From refreshing fruit drinks to a touch of the hard stuff, the British drinks industry has proved resilient during tough times. With more turbulence ahead, three CAs across the sector reveal what they are doing to ensure 2023 doesn’t go flat
The drinks industry is worth approximately £61bn a year to the UK economy. Alcoholic beverages account for the lion’s share – around 77% – and are especially important in Scotland, where whisky is an enduring national success story. Scotch exports alone were valued at £4.51bn annually this time last year.
Across the UK, there has also been a boom over the past two decades in the number of new gin distilleries and breweries, none of which will be hurt by the Treasury’s recent extension of the freeze in spirits duty until at least August 2023. When that freeze is lifted, however, it will add £1.35 to a bottle of whisky and 37p to a bottle of wine. And drinks manufacturers, alcoholic or otherwise, are having to contend with rising costs, changing tastes and the prospect of recessionary times.
Having the all-round business knowledge of my CA will really come into its own this year as we manage challenges on multiple fronts
Ross Rennie CA - Finance Director, Summerhouse Drinks
My childhood was spent on the family farm in Aberdeen. With plans to become a farm manager, I opted to do a degree in agriculture at the University of Aberdeen – one of the last courses of its kind.
A partner in a top 12 accountancy firm in Forfar came to give a talk as a university alumnus. I realised that it would be a good move to get a trade behind me. So, after graduating in 1999, tax is the route I took.
I enjoyed all aspects of the industry, and the client contact played a big part in building my confidence. I completed my CA in 2003 and spent two years post-qualification in tax before the farming bug came back to bite me.
With the opportunity to do soft fruit on the family farm, and since it was obvious that we needed an off-farm income, my now wife and I started a firm called Berry Scrumptious – chocolate-dipped strawberries which were then couriered out.
It worked okay in the early days, but by 2008 the courier was swamped and the amount of returns we were getting was uneconomical. We also had a downturn in fruit on the farm, so we diversified into chocolate with freezer-dried fruit, and I went back into accountancy as Group FD for a local seafood firm.
Along the way we’d developed relationships with a wholesaler in Dunfermline, who alerted us to a gap in the market for a natural lemonade. So we launched Summerhouse Drinks in 2014, providing all-natural lemonades and tonics using Scottish water, British beet sugar (not cane) and Scottish raspberries with no artificial sweeteners. Being FD at Summerhouse doesn’t quite have the glamour of my previous Group FD role. I do more on the operations side than purely accountancy. My youth on the farm has left me with limited taste and smell, so I’m not on the new products development team, but once they agree the recipe, I am in the mix, getting it from the tank to the shop shelf.
We employ six people, we’re growing organically and exporting 20% of our product. Scottish Enterprise has assisted massively in developing export markets – the country-specific contacts are superb, and it has assisted with finding and retaining a part-time export manager.
We were only at the beginning of our exporting journey when Brexit kicked off, so I don’t know whether the process would have been easier before. But as a small business we do struggle with the need for good staff. I believe that getting to grips with the education system will improve the capabilities of the next generation.
For the domestic drinks industry, the Scottish government could do with drawing breath on the deposit return scheme (DRS) and get it into a workable proposition before thrusting it on our sector. For companies selling spirits at £30–£35 a bottle, a 30p per bottle increase will be a small bump. But when that 30p is nearly 50% of your sales value, as in the case of tonics, it becomes a business-critical issue.
And then we are expected to fund its start-up costs by backdating the calculation during the busiest three months of the year. Having the all-round business knowledge of my CA will really come into its own this year as we manage this and other challenges on multiple fronts.
Without a doubt the Brexit legacy is still to be finished. The pandemic has thrown a major spanner in the works and the DRS is going to markedly shift the marketplace for drinks in Scotland. The CA qualification gives me the ability to strip these problems down to the component issues, resolve them one by one and then build a viable answer for the whole going forward, to see if the final combined answer resolves the issue at the start.
I would fully expect that some products will drop out of the Scottish market and those that remain will need to price in the extra costs that are going to be imposed on us. My hope is that the hospitality sector will come back to full strength, and we can then capitalise on that with an increased production capacity. Reduction in shipping charges would also allow further penetration of export markets.
Alcohol still has an important role to play in society, in bringing people together in a positive way
Melissa Spence CA - CFO, In Good Company
I grew up on the Orkney Islands and it was a wonderful place, so safe and free. But I lived on a farm and spent most of my childhood outside – and the weather on the Orkneys is rugged, to say the least. So my dream was to work in a cosy office. Being good at maths, accountancy sounded like a plan!
With the benefit of hindsight, it’s the best decision I ever made. My CA, which I did with KPMG after graduation from the University of Strathclyde, has offered so many opportunities.
I loved working at KPMG. The people and clients were fantastic, but I hankered for sunshine, so I moved to Sydney, joining a mid-tier team at BDO, which sponsored my residency and sent me on secondments to Auckland and LA.
When I decided to leave professional services, I searched for a company that had a good culture, focused on people and their development. One name kept cropping up – Lion Food and Beverage. I joined as a Senior Financial Accountant, giving advice, writing accounting policies, and working alongside the corporate development team, who I eventually moved sideways to join. We were a good team and I worked there for a year and a half before moving to the strategy team on a dairy and soft drinks division in Melbourne. When it was put up for sale, I was tasked with selling it.
In January 2020 I accepted a four-month secondment in London as FD for one of Lion’s UK brewing businesses, which then became permanent. Then all hell broke loose with the pandemic forcing our pubs to close. It was tough spending lockdown alone, trying to learn a new business and leading it through unprecedented times. My remit had been to integrate two breweries along with a big brew pub, but then the parent company decided to exit the UK market and I was faced with another sale process.
The business changed hands in August 2022 and I now work for the new owners, In Good Company. So, while 2022 was a lot less stable than it might have been, 2023 is about making sure we get back up to speed post-pandemic and under new ownership.
We still have challenges to overcome. The economy is in a precarious situation. Hospitality was hit hard by Covid-19; now it has to cope with train strikes and consumers with less disposable income. With that in mind, I still believe alcohol has an important role to play in society. We’ve all experienced not being able to connect with the people we love, and as a company we are aware of the importance of bringing people together in a positive way. Sustainability is also front of mind, and we approach this holistically by ensuring our people feel supported and by meeting the environmental expectations of our clients and consumers.
We are looking at ways to make our manufacturing more efficient, and we’re going for B Corp certification to ensure we are on the right path and making the right improvements. It’s something that’s vital for our long-term survival.
Going straight to a smoky or heavy peaty whisky is like having a vindaloo for your first curry
Michael Sloan CA - CFO, Whyte and Mackay
Being a CA in the drinks industry wasn’t something I planned. I did a master’s in civil engineering. Four years later and wanting a change, I went to a Scottish and Newcastle graduate day and joined its graduate training programme, doing my CA within the business.
Debits and credits, profit and loss, and balance sheets were new to me, but my engineering training included finance, and I had a good feel for numbers.
The company had just bought Kronenbourg, Alken-Maes in Belgium and Sagres in Portugal, so I got to travel. My first newly qualified job was as Investor Relations Analyst, pulling together figures and analysis and ensuring we were as prepared as possible for investor meetings and presentations.
I enjoyed auditing – I got to see how various parts of the business linked up. Later I became Sales and Marketing Controller in Belgium working in Alken-Maes. Another promotion to Commercial Finance Manager of Eastern Europe meant flying from Brussels to the Baltic states every Monday.
When Scottish and Newcastle was taken over, I returned to Glasgow to try something new. But I missed the drinks industry, so I became FD of Tennent’s, which had just been bought by C&C Group, then moved to AG Barr, best known for Irn-Bru, as Group Head of Commercial Finance. Whyte and Mackay approached me in 2015. Recently bought by Philippine drinks company Emperador, they wanted someone in Glasgow to lead finance, legal and IT.
I became a whisky lover while in Belgium. Living abroad you get super patriotic, so we’d celebrate Burns Night with haggis, and I’d wear a kilt. People assumed whisky was my drink of choice. The trick was finding an entry-level brand. Going straight to a smoky or heavy peaty one is like having a vindaloo for your first curry. I was soon hooked!
Whyte and Mackay has great brands anyone can relate to, from supermarket shoppers to private clients who buy bottles for hundreds of thousands of pounds. Consumers stayed loyal during the pandemic. On-premises trade and travel retail vanished, but people started buying online, spending more on a nicer bottle of whisky to enjoy at home. Alcohol is about social cohesion. It helps people connect.
Having a CA, using my analytical skills and data-led decision making, helped during the pandemic. Now, rising costs and less disposable income for consumers are the problems. We need to excite people with new approaches and show our wonderful products are worth paying more for, even in times of constraint.
Sustainability is also a strategy pillar. Consumers are not yet making choices based on sustainability but they may soon. And it’s important for us to do the right thing, whether that’s using green gas and wind energy or incentivising electric cars.
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