Scottish brewer Innis & Gunn was set up more than 20 years ago by former Caledonian Brewery executive Dougal Sharp.
Over the course of two decades, the Edinburgh-based brewer has built a solid position in its home market – its lager is among the top five sold in Scotland’s on-premise – and carved out footholds in a select number of territories overseas.
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While Innis & Gunn’s lager and its barrel-aged Original brew are central to the product range, the business continues to innovate, releasing beers matured in whisky casks each year. The latest release has seen the brewer team up with Laphroaig. It has also developed a Tequila-infused beer set for launch in the UK, in North America and Sweden.
Just Drinks met Sharp in London as Innis & Gunn showcased some of the latest products to roll off its production line.
Just Drinks: When do you make that choice to put a new product into the core Innis & Gunn range?
Dougal Sharp (DS): Commercial success. It’s all about what the consumer says, what is the sort of reaction and response to it. When I launched Rum Cask back in 2007, it was exactly the same thing. We’d done it as a limited [edition], had enjoyed success in the core markets we’d trialled it as a limited and it was, like, we must simply launch this, we just have to put it in our core range, it’s too good.
Just Drinks: What level of churn or success rate do you have with the limited editions?
DS: Very few make it to the core range. Tequila will be the fourth product in that part of our portfolio.
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By GlobalDataJust Drinks: Would you like it to be more? Or is it part of the fun almost of the innovation process, testing out limited editions, to get consumers interested in the wider range that way? Is that part of the sales strategy as well?
DS: I hear you. Experimentation is very much part of what we like to do. We’re based in Scotland and you can imagine all the different casks that come into Scotland because of the Scotch industry. We’ve got access to so many different things. It’s quite natural for us to try and get hold of a few casks of this and that and just see what happens when you put beer in it.
I’m always wary of over-adding to the core portfolio because you then have to keep it going, it gets complicated, it’s working capital. It’s only products that we think are exceptional that make it in from both a consumer reaction and a flavour perspective. With Tequila Cask, we think we’ve got one of those.
Just Drinks: In terms of export markets, have you got an eye already on where the Tequila Cask can go?
DS: It’s already going. We’re launching in the US. It’s launching in Canada. It’s launching in Sweden probably later this year. We’ve presented it to grocers here and the reaction has been phenomenal.
Just Drinks: When you think about Innis & Gunn’s export markets, is the US your biggest by annual sales?
DS: No, Canada is our biggest one by annual sales. We’re not trying to be in 50 different markets. We’ve got a small handful of markets that are core.
Just Drinks: Of your turnover, what is generated outside the UK?
DS: About 30%.
Just Drinks: Has that stayed relatively stable?
DS: In the early years, we were significantly skewed internationally, 70-80% international. It was one of those where, because I’d come out of a British-focused beer business with our old family company Caledonian, I knew what it took to build a business in the UK. It’s not easy and you need lots of people. For a fledgling company in its early years, we couldn’t afford it. We could make more margin internationally and that’s what we did. We developed the international side of the business and built up the revenues and profits to the point when we could redeploy that to create the UK marketplace for our brand.
Just Drinks: How do you feel about the proportion now?
DS: The good thing about international is that there is no duty, so you’re not having to pay a whacking great big duty bill every month, which is nice. If we could develop the international side further, it would be great. Our product, Original, which is our lead international product, is just ripe for internationalisation because it’s a single-malt whisky cask-matured, Scottish beer. The proposition is really simple and it makes a lot of sense. That’s obviously the one we really focus on overseas. We’d love to open more markets but, again, we’ve got, in the UK domestic market in Scotland now, our lager is in the top five. We’ve beaten some very big brands to do that and our aim is to be the number one.
Just Drinks: Have you put out your ’23 numbers yet?
DS: We just closed 23/24. We did an elongated financial year, so we’ve only just come out of a 15-month period. We won’t be publishing those numbers until January. Turnover has grown. Last year, turnover grew.
Just Drinks: Is that 15 months versus 12 months?
DS: Oh, no, 12 months. Before we made the change, we were a calendar-year business. If you look calendar year to calendar year, we grew but it was a fight to grow. Revenue went up, volume went down and I think you probably hear that quite a lot. The price goes up and volume goes down. It’s that simple.
Just Drinks: Can you hint at what you’re expecting for this new financial year? Are you expecting to try to get volumes back?
DS: No. We forecast flat volume and revenue growth. Obviously, we are working very hard to deliver volume growth as well as revenue growth but, at this point, I think it’s probably safe to bet on a flat volume year and to make sure the business can live within those parameters of flat.
Just Drinks: Are you looking to again push through some level of price increases?
DS: We’ve gone into the on-trade with a 4% ex-duty [increase]. In terms of the off-trade, the reality is that although cost pressures have abated, we didn’t pass all the price on in the first place. We couldn’t pass it all on, so there is still an overhang there. We will need to look at that.
Just Drinks: Is the business profitable?
DS: We’ve had a couple of years of losses [with] the surge in prices.
Just Drinks: So, this last year just ended, did you manage to get back to being profitable?
DS: We’ll have ended with a loss but a much smaller loss. This new financial year, we’ll be back in profit.
Just Drinks: What are the main levers you’re looking to pull to grow UK sales this year?
DS: Obviously, premium is now becoming a massive feature of the UK on-trade landscape. Premium and ’world beer’ lager is about 10% of the marketplace in the on-premise. Pre-pandemic, it was nothing near that. There’s been a seismic shift in the market and you’re seeing the effect of consumers sitting at home in lockdown saying: ’If I’m not going out and spending £100 on a night out, I’m buying some good stuff to drink at home.’
A lot of brands have benefited from that, which is great to see as we sit squarely in that premium world. The difference from our perspective is that we’re not coming from Spain or Italy or wherever. We’re a homegrown, premium brand. Having launched lager nearly ten years ago, [it is] in the top five, overtaking some huge brands in the process and having done that with only a fraction of the marketing budget.
Just Drinks: How do you think you managed it?
DS: Great product, great brand. People identify with the originality that we bring through our brand positioning. We do our own thing and we do it as best we possibly can. It’s about that expression of originality that I think the consumer really identifies with.
Just Drinks: In terms of UK distribution, you are a national brand but is there still white space to go after?
DS: Massively. One of the really interesting things we’re seeing at the moment is our original, flagship product – Innis & Gunn Original – you’re beginning to see that grow right across the UK off-trade now. Interesting, it’s the big-bottle format that seems to be really growing. People like to sit down with a big, strong beer with lots of flavour, sip and savour it, whether they’re cooking, having some food or watching some telly and want to unwind in a one-beer moment. That does seem to be hitting the mark. We see there’s significant scope for growth of that product in the big-bottle format. Our big question is what other products do we put alongside that? That’s an exciting space to be in. These products sit in that world, speciality beer fixture alongside brands like Leffe, Hoegaarden and Duvel, which is a very natural place for those products to sit. It’s a similar bottle size, similar abvs, similar price points.
Just Drinks: There have been concerns among all sorts of FMCG companies about consumer spending, consumer confidence, the trading down. Is that something you’ve seen affect your portfolio and then the sub-segment of the market you’re in?
DS: We’re not immune. If you look at the different parts of our business, in our on-trade business in Scotland, particularly with lager, people are going out less. Pubs aren’t as busy as they once were. There’s no doubt about that. You’ll hear that across the UK hospitality landscape and we’re working very hard to make sure that our brand continues to maintain a share of voice and awareness and things like that. But, of course, if people aren’t going out twice a week, they’re only going out once a week, if they’sre going to sit at home and drink something, you want something decent. We do then get the opportunity to talk to them about products to drink at home. Products like Innis & Gunn Original and our lager in can or bottle do seem to be fitting the bill.
Just Drinks: Any concerns about the plans for minimum unit pricing in Scotland?
DS: If you think about it, it’s going to drive a 30% price increase in alcohol. The politicians blithely quote that there’s not going to be any effect on businesses. You do wonder what planet these people live on? If you put the price of anything up by 30%, it’s going to have an effect. We’ll just have to deal with it. It’s brutal, in the middle of a cost-of-living crisis when we’re all trying to get inflation under control. There’s actually no thought nor listening going on. They claim to be listening to the industry. It’s all lip-service.
