What’s the Story?

Last week the craft beer giant BrewDog said it will no longer pay employees the Real Living Wage. The Scottish brewer said that this was necessary to help reverse the 2022 operating loss of £24 million.

The Real Living Wage is independently calculated, at £12.00 an hour (23/24).

It should not be mixed up with the lower, and confusingly named “UK National Living Wage” set by the government at £11.44 from April 2024, and the “National Minimum Wage” for under 23’s.

BrewDog ex-worker’s set up a “Punks With Purpose” campaign in 2021, amid allegations of BrewDog mistreatment. This group said abandoning the Real Living Wage is against BrewDog’s public identity and a real terms pay cut for front line staff.

Non-London staff will now be paid £11.44 an hour, up 5% over the current £10.90, but the Real Living Wage would have delivered a 10.1% rise, more than double. London staff remain on £11.95 per hour. A zero-pay rise.

In May 2022, BrewDog co-founder, James Watt announced that he will give 20% of his shares in BrewDog equally to salaried staff over 4 years via an Employee Benefit Trust (EBT or ESOP trust).

The company value was then some £1.8 billion, so 5% was worth £90 million. This chimes with BrewDog saying the start value of these shares are some £120,000 each for the 750 salaried staff in point. That’s £30,000 a year each for four years.

Also, in 2022 BrewDog introduced a pub profit sharing plan. Half of pub profits will be shared with hourly bar staff, worth some £3,000 to £5,000 each; paid in two six-month instalments. So, the average is 14% of pay for a bar person on say £28,000 base pay a year.

BrewDog sales for 2022 were £321 million, up some 13% on 2021 and nearly double the 2018 sales figure. That’s growth of c.15% each year.

Why Does it Matter?

Abandoning the Real Living Wage during an ongoing cost of living crisis, and in a reversal of company stated and desired culture, is a stark move 

Brewing firms are part of the hospitality industry, the public interface of large numbers of retail pub staff is very Important. But so too is the culture of fairness, and the employee motivation essential to support fast growth.

In total package terms, the share plan participants are insulated from this base pay issue. So too, seem the bar staff with their significant profit share plan. But all other staff are moving backward. It’s not a mix to generate harmony.

Aside from this latest move, the brewer has been dogged (apologies) by allegations of inappropriate behaviour, a “culture of fear” and huge pressure to deliver fast growth. Claims supported by Punks With Purpose and investigated by the BBC among other media.

The moves by the brewer to adopt a share plan and pub profit share scheme were aimed at creating “a new type of business” and for the team members to “act as business owners and incentivise them as if they were business owners.” Maybe a fresh start, and a return to the start-up values?

In 2022 BrewDog grew rapidly again, with a new brewery in Ellen following the breweries built in Ohio, Brisbane and Berlin. Since then, it has expanded in China, the world’s biggest beer market by far. Two of the three top global beer brands are Chinese, Snow and Tsingtao, with Budweiser being the other.

As with many fast-growing companies, the need for new capital has been identified and has been met. Ongoing corporate finance is no doubt available with the prize of a listed company status available, most likely in the near future.

BrewDog may be successful in reframing its corporate culture, and supporting its ongoing profitable growth aims. That needs multiple actions, including a well-designed share plan and pub-based profit sharing arrangement. Yet these good moves can be undermined by abandoning the Real Living Wage policy.

Newspoint View

Companies have a right to balance revenue and cost to deliver sustainable profit and growth.

BrewDog is a massive success story. It has created a strong new brand, healthy and growing year on year sales, many jobs, and products which are world beaters.

The broad-based share plan for salaried staff is a healthy way of sharing in success and driving ongoing future results. This, combined with the pub profit share arrangement will be valuable tools in BrewDog’s aim to cement its past success, and to step forward as a major listed company in the future.

At the 2022, estimated market capitalisation of £1.8 billion, each founder is worth some £450 million. At 15% annual growth, at the end of the four-year share plan, each participant will receive some £210,000. The founder’s worth at that point would be some £780 million for one and £630 million for James Watts, post his share give away.

In short, Watt’s share gift will by then have cost him £150 million. But his remaining stake will have increased by some £180 million or so over the same four-year period.

Within this success story, some things are surprising:

First, the employee share plan is met fully by James Watt alone. The company benefits of the share plan will be enjoyed by all shareholders, including his co-founder. The IFRS2 charge will flow through as a cost anyway, and a sensible structure is needed to claim tax deductibility for that heavy cost.

Second, a highly successful fast growth company can manage operating profit in multiple ways. BrewDog is doing just that, no doubt. But abandoning the Real Living Wage is a savage blow to the company culture and its brand.

Third, for a super-savvy marketing company, the BrewDog story could have been framed much better. Aside from bar staff and salaried staff, who else is left? Brewery workers on the shop floor among some others. And the wage rise for them can be managed upward at minor cost surely? That picture is much better than the headlines seem to say at present. So why has BrewDog lost the thread of this story?

So, best not to abandon the Real Living Wage; just disapply it to those in profit share and equity share plans. Which is loads of people. That delivers most of the cost saving, but with a much better message and it would also protect the remaining staff from a real pay cut.

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Please feel free to email or call:

Damian Carnell - [email protected] +44 (0) 7989 337118

VA Bec Bostock - [email protected]

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