Jonathan Neame, CEO of Britain’s oldest brewery, talks to Jane Gray about family management and the challenges of future proofing a heritage-bound company.
“It’s a good time to own a family business in the UK,” says Jonathan Neame while being quizzed on the challenges of keeping a company with a heritage dating back to the fifteenth century moving forward.
“We are at the dawning of a new golden age of beer around the world.”
“The UK used to have extremely adverse tax laws for family firm,” he says. “In the 1960s, estate duty was very high and that ‘did’ for many family businesses, certainly in the brewing industry. But today, privately controlled family businesses are inheritance tax free and there are other benefits in a newly benign fiscal environment which help family firms promote continuity.”
But even though his CEO’s chair was occupied by four generations of Neames before him, Jonathan Neame is pragmatic about succession planning. “The business has to come first,” he says. “You can’t run a business for sentimental reasons. If you want to keep a company under family management you have to be sure that there is sufficient passion, but also sufficient capability.”
By which he eludes to the quality of management. Happily for the Neame family, around nine of whom still work in various jobs at the company, annual turnover of £133m and operating profits of £12.7m in 2012 indicate that beer still runs in the blood. Although no doubt support from 1,170 employees across the business helps keep the family firm open-minded.
“But balancing old and new is a constant challenge as we grow,” continues Mr Neame, who took the job of managing director just as the company faced up to an important decision over whether or not to relocate for expansion.
The brew’s home
The choice to remain on the six acre site in the town centre of Faversham, Kent is a prime example of the concessions that sometimes must be made to preserve points of heritage that younger firms might not consider so deeply, says Neame.
The energy ultimatum
Asked what he believes is the biggest single challenge for sustainable brewing in the UK, Jonathan Neame is clear.
“It is not just brewing but all UK industry. The biggest barrier to growth and competitiveness is the cost of utilities.
“Brewing is hit particularly hard by the increases in the cost of energy in the UK. Both directly and indirectly, the brewing process is energy intensive, with indirect contributions coming from the malting process and glass production for instance.
“The government has got to get its act together on energy policy. I am not at all convinced by the current strategy. It is not viable to rely heavily on wind and nuclear.
“I’d like to investigate the new technologies coming through for self-generation, but at the moment I don’t see anything which is economically viable while meeting the planning permission requirements of our listed site.”
“Any drinks manufacturer will naturally be concerned by the need for a quality supply of water. But we have access to an aquifer from the heart of our site which has superb mineral qualities that really affect the flavour of our beers. It’s what has kept a brewery on this site for hundreds of years. And it is something the company can’t afford to change.”
Instead of relocating, Shepherd Neame has had to be cunning in modernising production facilities within its shell of listed buildings. It has done well, with the site now housing a highly efficient bottling line, installed in 2009, and a water treatment facility that has helped reduce the amount of water required to produce a single pint of beer to three pints from five and a half. This is an efficiency measure most UK brewers are struggling to address.
But optimising the limited footprint of the brewery has not all been about plant investment, says Neame. “Overhauling all our internal processes so that we could implement our SAP ERP system is one of the most valuable things we have done in my time at the company.”
“Getting a system like that in place is profoundly difficult,” he winces. “But the quality of management information it gave us was transformative. Five years on we are still gaining incremental benefits in production and elsewhere and I expect to continue doing so for some time yet.”
Investment in IT may not be at the top of every CEO’s agenda, but Neame says he regards it as “critical,” saying that the company “could not have achieved as we have in the pub management market and could not be contemplating the export plans we have without getting that grip on our data.”
Execution of export plans will be essential to the future of the business, says Neame. “We’re only exporting about ten per cent of our total volume at the moment, but that will undoubtedly grow in the next few years as we see strong demand from regions that have no cultural link with the UK. Previously our modest exports have mainly satisfied demand from expat communities.”
Japan and Brazil are two particular hotspots for the development of the brewery’s international trade says Neame. He says that the company is working hard to invent new marketing styles and packaging to appeal to consumer tastes that it has never encountered before – while always striving to remain true to its heritage brand.
Adjusting to the varied demands of a more globalised industry is difficult for a brewer which has traditionally worked within an established national network of regional control. Shepherd Neame’s stamping ground was always Kent and Sussex, Adnams and Greene King ruled Suffolk and the Fens, Badger held the South West and so on.
Perfect pint and off-barrel
Jonathan Neame’s best and worst business moments
Best: “I tend to live for the day, but I can honestly say that I feel more motivated and excited about the potential of this company now than I have done at any stage in my career.”
Worst: “We had some family challenges in 2003 – well publicised at the time – which were very uncomfortable. In addition, the industry has declined against most metrics in the past 20 years and really went through the mill with the introduction of the smoking ban.”
The “challenges” referenced above relate to the resignation of Stuart Neame, then vice-chairman, after a fall-out with his cousin and the current CEO’s father, Bobby Neame, who was chairman until 2005.
Biography: Jonathan Neame, CEO, Shepherd Neame
1987: Qualified as a Barrister at Law following study at City University and Inns of Court School of Law.
1987: Joined COBA Group, as a strategic consultant. The London-based firm specialises in mergers and acquisition work and due diligence investigations into major capital projects.
1991: Joined Shepherd Neame as company secretary
1994: Became tenanted trade director and subsequently trade director
1999: Appointed managing director of Shepherd Neame
2003: Appointed chief executive
Jonathan Neame is also chairman of the British Beer and Pub Association, non-executive director of St. Austell Brewery, a small Cornwall-based producer and a member of the Kent Ambassador network for the support of economic prosperity and quality of life in the county.
Jonathan Neame is married to Lucie and they have one daughter, Violette. His favourite Shepherd Neame ales are Masterbrew and Spitfire.
But now things are different and, to allow focus on getting the product right for a more varied customer base, Neame recently decided to make several radical changes to the company’s warehousing and distribution strategy.
“As the balance of our business changed from regional to national and then international, and as our pub and grocery interests grew, it became obvious that it was time to rethink our route to market,” he says. “The decision to select one external partner for national and international distribution is a big departure for us but, we hope, a means of accessing a very big opportunity.
“We have to think about our ability to get our products to where demand is growing, quickly and efficiently. Our new distribution partnership will support that,” says Neame, who adds that it is critical for a brewer to have a distribution partner it can trust to transport and store its products appropriately as it extends and diversifies its reach.
All hail the age of ale
There is an urgency in Neame’s tone as he describes the range of strategies designed to keep his long-lived company alive and well. And it’s not hard to see why.
Volumes of beer consumed in developed markets have declined sharply in the last decade and they continue on a downwards trend. “Even Germany’s volumes contracted by around four and half per cent last year,” he says. Then there is the consumer’s move away from drinking in pubs, meaning that around 50 pubs close in the UK every week – a worry for a brewery which owns around 350 pubs in the South East.
And yet, Neame is optimistic. “It will be a difficult change for some, but the future of the industry will be value-led not volume-led,” he states confidently.
“It will all be about pace, relevance – and appealing to women,” he continues. Surely daunting prospects for Britain’s oldest brewery with a management which remains male dominated to this day?
But he is not to be put off. “After some very hard years there’s clearly an exciting future in brewing. We are at the dawning of a new golden age of beer around the world.”