Monday, 13 August 2018

Trouble at Allsopp

In the 1880s and 1890s many breweries were transformed from partnerships into limited companies. The rewards reaped by investors in Guinness and William McEwan made brewery flotations hugely popular. Most had little difficulty in finding eager buyers and were heavily over-susscribed.

When Allsopp, one of the largest and most successful brewers, was floated, there was no shortage of eager investors. But their dreams of riches soon turned sour.

"He [Mr. Henry R. Grenfell] then went through the balance-sheet, and compared the salient items with those of the previous statement, pointing out that the reserve now stood at £15,000, or a diminution of £10,000, the latter sum having been used last year for the purpose of paying the in terest on the preference stock in full. The undivided balance of profit and loss was £17,244, against £24,869, arising from the diminution in the profits of the business. On the credit side the business premises and goodwill figured at the same amount as last year — £2,241,758, but the freehold and lease hold houses purchased stood at £193,109, against £180,410. This included freehold and leasehold houses which had been purchased for their business, as the stockholders were aware; and they had also embarked in this item a certain sum which had been made over to them as agents by the vendors, while out of their own resources they had made sundry loans in excess of those of the previous year. The item of sundry investments stood at £106,142, against £56,000 a year previously, which was to be accounted for by the fact that they had invested £50,000 in Victoria Government Treasury bonds. They were naturally at this time of the year, before the begin ning of the buying season, obliged to have a large sum of money in hand ; and they believed they had made a good investment, upon which they could at any moment raise money. They had in cash at the banker’s and in hand £111,747. He then went through the profit and loss account, remarking that the agency expenses amounted to £90,800. This was a very heavy charge, and he would have been very glad if he could have held out any expectation that the item would show any serious diminution, but he could not do so. The most distressing figure of all was the gross profit for the year, which had been £238,954, against £264,000 a year previously."
"The Brewers' Guardian 1892", 1892, pages 243 - 244.

The figures didn't look good and shareholders were understandably pissed off. Profits were falling every year and there wasn't enough money to pay a full dividend.

Mr. Grenfell tried to explai away the bad results. It doesn't sound like his audience was very convinced.

"Some of the causes of the falling off in their business had really nothing whatever to do with the company. It had been the practice at their meetings, on the part of some of the proprietors, to argue that the falling off in the profits was wholly due to the inception of the company, and the mode in which it was floated. (A SHAREHOLDER : “And bad management.") He, however, considered that the decline in the business was attributable to far more general causes. An immense amount of capital throughout the country had thus been diverted into the brewing trade, rendering it necessary — either by competition, tied houses, or other measures — to seek a revenue for those who had so invested their capital. Their own company had depended entirely for its profits upon free trade and not upon tied houses, and the necessity of acquiring tied house was not contemplated when the company was formed, and it had been one of the causes of their disasters. As he had explained, they had had to divert some of their own means into this channel, and to secure lease hold and freehold premises, and the old vendors had come to the assistance of the company for the purpose of increasing the amount so invested."
"The Brewers' Guardian 1892", 1892, page 244.

Allsopp had been slow to acquire a tied estate, as had fellow Burton brewer Bass. But Bass was much more successful at getting its beer into rivals' pubs. The rush to by pubs was a by-product, as stated above, of brewery flotations. It left the new companies with bundles of cash. Which most used to buy up pubs, grossly inflating their prices.

The article following this one in The Brewers' Guardian gives an indication of the crazy prices:

"ON the 1st ult. Mr. F. G. Huggins offered for sale, at the Royal Hotel, Derby, the “Thorntree” Inn, an old licensed house in Tenant-street, Derby. There was a large attendance, and after a spirited competition the property was sold to Mr. Eadie, brewer, of Burton-on-Trent, for £3,710.
"The Brewers' Guardian 1892", 1892, page 244.

To put that into context, a pint of Mild cost 2d. And a brewery sold a barrel of basic Mild for around £1.50. You'd need to sell the pub several thousand barrels to get any sort of return on your investment. And Allsopp entered the game late and had to pay top prices to acquire pubs.

The £193,109 Allsopp spent on buying pubs probably only got them 50 - 60 premises. Not many for a brewery of their size (they brewed over half a million barrels a year).

More on the trouble at Allsopp soon.


qq said...

Watney Combe Reid issued paper at 3.5-5% during their merger, which suggests that you could finance a pub at £3710 (ex refurbs etc) for £200-250/year on a 25year repayment mortgage. With a little "yield management", 2d/pint and 30/- per bbl suggests you could make a quid of GP per bbl. Say 40% of that went on staff and other costs, and you're having to shift somewhere around 330-420 barrels per year to wipe your nose. Which is a lot of beer - doable, but a lot. That's at the pub level, they would also make money on the 30/- wholesale price.

However, 25 years from 1892 takes you to 1917....

Anonymous said...

This is great stuff (and I bet you weren't expecting a commenter to say that about Alsop financial doings in the 1880s).

There are wonderful parallels to the financial wheelings and dealings of the past few decades, and how sure things turn out to be anything but, especially for the average employee or beer drinker.