Chief executive Andy Wood reveals how the Suffolk brewer is investing in resource efficiency and local relationships to help protect it against cost and climate pressures. Nick Hughes reports.
Out of the frying pan into the fire: that’s the way many hospitality sector businesses will be feeling as the removal of covid restrictions has segued into the biggest cost of living crisis in a generation.
For Suffolk brewer, Adnams, the situation is more nuanced. Yes, the business has taken a hit from the pandemic – 2021 revenues were £58m compared with £75m in 2019 – but once all restrictions were lifted in the second half of last year Adnams found itself in a somewhat “serendipitous” position, according to chief executive Andy Wood.
Some of the key societal shifts we’re witnessing, such as an embrace of home working and a rush of people looking to move away from cities, have been to Adnams’ advantage; more so than businesses that rely heavily on urban footfall. “A lot of our on-trade businesses are in beautiful, rural or coastal locations where people want to live and be,” Wood explains.
Indeed, Adnams’ diverse operational footprint makes Wood almost uniquely well-qualified to reflect on the shifts in the drinks trade brought about by the pandemic. The business operates its own pubs, hotels and retail stores as well supplying its range of beers, wines and spirits to third party on-trade businesses and retailers.
Wood reports a “slow move back to pre-pandemic patterns” of trade, albeit he anticipates “they are not going to return to the full position they were at in 2019”. In particular, he expects proportionately more business to be done direct-to-consumer through Adnams’ retail stores and online shop versus the on-trade.
Adnams customers – along with those of any hospitality business – should brace themselves for a hike in the cost of their favourite tipple or pub lunch in the months ahead. Wood notes how cost price pressures are beginning to bite in a big way “throughout the supply chain whether you're looking at raw materials, energy or packaging”.
On the day we speak, Wood has been hearing about an increase in the cost of cardboard from his senior leadership team. Subsequently, Adnams production director Fergus Fitzgerald provides some numbers that flesh out the overall bleak pricing prognosis: in the past 12 months the cost of malted barley, wheat and rye has risen by around 10% and is expected to hit 30% by the end of the year (Fitzgerald recently told The Telegraph that customers should expect to see further price increases in the third or fourth quarter). The business is also paying around 50% more for its energy (which is 100% renewable) compared with a year ago and an average of 25% more for packaging – mostly cardboard, glass and aluminium.
Wood says Adnams is trying to mitigate some of the impact on input costs by securing as much of its ingredients from the UK as it can. The business has historically had a strong relationship with UK farmers: around 50% of its malting barley comes from the nearby Holkham estate in Norfolk, while its rye is grown by chairman, Jonathan Adnams, on his farm just up the road from the brewery in Southwold.
Still, as with any brewer with a diverse portfolio of products, some ingredients have to be imported from overseas. Current consumer preference for citrusy, fruity flavours of beer, for example, typically requires hops sourced from America or Australasia.
Adnams is also looking at reducing its exposure to price volatility in non-food commodities through actions to improve resource efficiency and circularity. Fifteen years ago the business invested in an ‘eco’ distribution centre in Reydon, Suffolk. Sustainability features at the site include an array of solar panels as well as a ‘green’ sedum roof which helps insulate the building and support biodiversity. Wood says the distribution centre is already “very low impact” but adds that Adnams is looking at opportunities across its estate to make further efficiency savings. This could include additional on-site energy generation in pubs and hotels in the form of solar panels, as well as the installation of ground source heat pumps and new insulation.
One challenge facing Adnams is that many of its premises are historic buildings, some of which are listed properties meaning “those things are more difficult to do”, according to Wood; however his team is “really alert to the opportunities”.
Adnams is also looking again at anaerobic digestion “in a big way” to produce gas and electricity from brewery waste (during the pandemic lockdowns, Adnams sent surplus beer away to a local AD plant to be used in energy generation rather than destroy it). The business is also “watching very closely” industry progress towards capturing the carbon dioxide produced during the brewing process and using it in production.
Packaging is another area where more circular thinking can save some of the cost, and emissions, associated with producing and reprocessing virgin materials like glass. Last year, Adnams piloted refill stations in four of its retail stores. Customers can buy a refillable bottle with their first order and return multiple times to top it up with beer, wine or spirits. An extended rollout is planned for this year following positive feedback from customers.
The business is looking too at further greening of its distribution: it has ordered a new fleet of electric vans for delivery later this year which will fulfil orders to online customers living within a 15-mile radius of one of its shops.
Given all of the above, it’s little surprise that Wood firmly rejects the notion that sustainability initiatives might have to go on the back burner while the business focuses on riding out the current storm. “Those investments actually look much better now because of the future outlook for energy prices. Something that may have been unattainable previously because you couldn't get a return on it, now you can.”
It’s also about looking backwards to move forwards. Wood makes the broader societal point that “some of the [agricultural and industrial] practices that we've bought in in the hope of increasing efficiency are now beginning to work against us both in the environmental space and in the cost space”. He talks positively about Adnams’ relationship with the Holkham Estate which is in the vanguard of the regenerative farming movement. If businesses like Adnams can reduce their reliance on fossil-fuel inputs like artificial fertiliser via their work with producers such as Holkham they can go some way to breaking the link between soaring energy (and other input) prices and the cost and impact of their own output.
On the question of Adnams’ impact, the business has yet to set a public net-zero target despite publishing its scope 1 and 2 emissions for a number years. Measuring scope 3 value chain emissions has proved trickier given the scope of Adnams’ operations which encompasses around 900 suppliers. However, Wood says a lot of work has been going on in the background and a “road to net-zero” for the business will be published in the second half of this year.
In many ways, the current global crisis in supply and demand is a precursor to the permanent reality businesses are likely to face in a warming climate. Failed harvests and issues with supply chain security are set to become commonplace and Wood agrees that some of the measures Adnams is taking now should be viewed as long-term investments to insulate itself against future challenges. “Part of the [family] ownership structure of Adnams is that it is prepared to think over the long-term. This is not a short-term thing, it’s the modus operandi of Adnams.”
This year marks the 150th anniversary of the Southold brewery being purchased by George and Ernest Adnams. With careful stewardship, there’s no reason to believe that further milestones won’t be reached, whatever challenges lie ahead.