Two Heads Brewers decide to end Boutique

Info on the discontinued Beer boutique

- updated at April 9, 2019, 9:44 a.m.

Emails re closure - of Beer Boutique... summarise shortly.

SECOND EMAIL

Following my email last week, I just wanted to drop you a note by way of further clarification regarding The Beer Boutique, Two Heads and We Brought Beer.

[It's a long read, so grab a cuppa. If you don't want a long read, the Tl;Dr headline is: "It's been a shitty couple of weeks, but the overall business is in good health, and there's still money in the bank!" ]

There's been a few questions I've heard from chatting to staff, investors and I understand there may be some bits you're unsure of so I've put together a little FAQ along with some personal reflections.

Is there any crowdfunding money left?

Yes, there is still a significant chunk of the crowdfunding investment remaining in the bank. The decision to close The Beer Boutique was taken because all 3 sites had become loss making and, with high fixed costs such as rent and rates, we could not see a path to profitability. To this point, losses from TBB had been covered by Two Heads, but, without confidence of seeing a path to profitability, we had no choice but to withdraw this support, in the best interests of our investors, the wider group, and to safeguard the remaining funds.

To be clear though, the decision to put TBB into liquidation wasn't taken because the overall business has run out of money / splurged all the crowdfunding cash, whichever way you want to put it.

So, We Brought Beer is not about to fold?

No, absolutely not. We Brought Beer & The Beer Boutique are separate companies. WBB as a group generally breaks even although we expect to push into profit in the 2nd half of this year. So, to be clear, WBB is a cash positive part of the business.

What about Two Heads?

Currently Two Heads loses money by virtue of the fact that it doesn't sell anything but does have costs - e.g. warehouse, deliveries, staff. However, with fewer stores, we will be cutting the vast majority of the costs of Two Heads, meaning, with profit being generated in Balham & Tooting, the overall business should quickly move to being break even (i.e. not losing money) in the next 3 months. With the new products we're looking to launch this year (more on which later in this email), plus a renewed focus on existing store sales, we expect the group to become nicely profitable by the end of 2019.

What's going on with WBB Clapham?

Some of you will know, and we have officially announced today the sad news that We Brought Beer Clapham will be closing at the end of it's lease term which is April 18th. We expect our last day of trading there to be April 13th.

With the current lease term ending, we had to enter a new lease negotiation and unfortunately we were met with incredibly unreasonable lease terms, mainly driven by the landlord's desire to sell the freehold of the building for personal reasons. As well as a more than doubling of the current rent (£36k p.a. vs £17k p.a.), there was an equally as important but less headline grabbing issue - a small clause in the lease that takes away the option of automatic renewal at the end of any deal. What this means is that, however well the site trades, the landlord could come along at the end of the term and kick us out with no recourse from our end. This level of uncertainty makes things very difficult for any business in terms of having confidence to invest for the long term in that location. These two factors were a massive double whammy for us that just made the site too risky to continue on with. It was not a decision we took lightly and it wasn't one we wanted to have to make. It was thrust upon us, and the timing of it's announcement was not ideal, given the Beer Boutique news last week, but again, out of our hands.

To be clear though, it is unrelated to the closure of TBB, and is not a sign of any general/specific problems in the wider WBB business.

We have posted a blog about the closure on our website.

Why is WBB ok, when TBB wasn't?

Essentially this comes down to the fixed costs of operating each of the sites. The 3 TBB sites had higher rent & rates than the 3 WBB sites. When times were good, this was ok. But this became a problem when increased competition and reduced consumer confidence led to weaker sales across the group; essentially, WBB stores have been able to weather some of the turbulence better because their fixed costs are lower. Unfortunately, rates are pretty much impossible to get reduced and despite our best efforts, we only ever managed to achieve tiny rent reductions from landlords, nothing like what we would've needed. Even with some improvement in store sales over the past 6 months, we couldn't see us recovering sufficiently to make up the deficit.

So what are the plans for growth?

We're developing a new road map for growth with more of a focus online (although not sending beer out by mail - that's an even tougher business than high street (expect casualties there in the near future sadly)).

But we do think there are opportunities to develop revenue streams online that are focused around:

(a) education - online training/courses is a massive growth area in all sorts of sectors, but no one is really doing it in beer. The customer base we will be targeting is both consumers and trade businesses.

(b) community - our intention is to significantly grow our online community - i.e. taking our social following & email list from low thousands to tens of thousands, at which stage we have several options to generate revenue. Our plan to grow the community is to use a mix of content and paid online advertising.

(c) curated beer recommendations - we have a really cool plan around this - it's a bit more complicated but if we can make it work, it will be awesome!

In terms of store growth, the plan is to work to grow sales in Balham & Tooting by 15% in 2019 vs 2018. This will be achieved through continuing our in-house training, making events an integral part of our offer (already something we've relaunched with zeal), working to keep more of the hype beers in stock, focusing more on hospitality (i.e. adding tables & chairs & improving food options at Balham), improving dispense at Tooting. More focus on those stores, less distractions from having multiple stores along with improved & increased volume of content & events should all lead to the stores taking a step up in buzz, vibrancy and excitement for customers.

Are we opening new stores?

Right now, no. But it's not never. To be really honest, the high street is not a great place to be right now. Retailers are going under left right and centre (Oddbins, Majestic closing stores, one of our major suppliers Bottle Shop went into liquidation earlier this week, almost every major restaurant group is restructuring, Debenhams on the brink etc. etc.). But landlords haven't yet caught up with the new reality so they're still charging silly rents and don't even get me started on rates.

On top of that, Brexit is a massive red flag - whilst I hope things will get worked out (because our politicians seem really clever and sensible!!!), there is a strong possibility that we may be about to enter another recession. If that happens, we will be OK with what we have but we don't want to over-expose ourselves with so much uncertainty in the immediate future. Sorry to give such a depressing and ever so slightly boring answer to this question!

Does the business model work?

Well, yes, but you have to get a lot of factors right - location, rent, rates, timing, lease terms - Balham & Tooting have these things right. We will be able to find other sites that have these things but see point above about timing - is now the right time?

Possibly not.

But the model does work in general.

A personal reflection on where we stand

The last few weeks have been tough, on a personal and professional level. Last week was especially hard. Making people redundant is a horrible experience (although worse for those being made redundant I of course totally realise) and having to announce that we have failed with a part of the company feels pretty rubbish. The Beer Boutique is an institution of the London beer scene, one of the original bottle shops and we are really sad that we could not make it work. We're really sad that we had to say goodbye to some amazing staff members. We're genuinely sorry to lose some great customers. None of the decisions we made were easy and we (Jon & I) agonised over each and every one. Sleep was lost, stomachs churned.

Things moved quicker than we expected but one of the most important things when running any business is being open to change and flexible enough to make difficult decisions.

Six months ago, I didn't think we'd have a business 1/3rd the size of what it used to be. And when we raised money via crowdfunding, we genuinely did believe that this would be a business that we grew to around 15 sites before either selling or seeking further strategic investment.

But right now, that's not what we see as our future. Alcohol retailing is taking a huge hit right now, mainly driven by aggressive supermarket competition (across beer and wine). To truly compete, you need to be really big. Oddbins couldn't do it with 47 stores. Majestic will probably survive although they'll be a leaner operation. There will be other smaller independents that fall away this year I predict.

I am personally sad and disappointed that we couldn't make the Beer Boutique sites viable. And I'm sad that we've had the Clapham closure forced upon us.

But I am optimistic about the pivot we are in the process of making in our business. I think small can be great. I think having only 2 stores will make us more focused, better executors. There were times in the past 2 years when I've felt like running between 6 stores has been both exhausting and unproductive - it may have needed to have been done but it didn't always produce the best results. Focusing on just 2 stores should make for a better experience all round - for staff and customers.

I am also optimistic about our online plans - they are simple but I genuinely think they have huge potential for growth.

I am excited about focusing more on building a strong, cohesive brand.

I see a bright future ahead for our business, our team and our culture, once this very difficult period is over.

I understand you may all have felt a bit uneasy over the past week or so, and I hope the above has answered some questions. I hope you will feel confident and comfortable enough to ask me any other questions you may have. I hope if you have ideas to improve the business, you know that we would love to hear them.

We still have a great thing going on here. We've got genuinely good people in this team and we're in an incredibly exciting, evolving industry.

Where I used to work, there was a quote up in the office kitchen - "Tough times don't last. Tough people do."

They also had a counter-balancing quote that read: "You can't polish a turd".

They're both excellent pearls of wisdom.

I'm pretty sure we're tough people.

Thanks for reading.

James

First Email From: James.

Dear shareholders,

I'm sorry to say that we are emailing with bad news regarding The Beer Boutique Ltd, one of the companies operated by Two Heads Beer Co Ltd. Unfortunately we have had to take the sad decision to put the company into a Creditors’ Voluntary Liquidation (CVL), with all stores closing down with immediate effect. This affects all The Beer Boutique sites, in Putney, Wandsworth Town and Tunbridge Wells.

Whilst I'm sure this news will come as something of a shock, it follows several months of us trying to effect a turn around through improvements in store, staff training, events & promotions and new products such as coffee and pizza. All 3 sites were loss making last year and whilst performance has not been awful in terms of like for like sales (we were actually up in February), we are some way off the level that would make The Beer Boutique profitable.

As directors of Two Heads, we do not believe it is a prudent use of our remaining shareholder funds to continue to support The Beer Boutique.

Without the support of Two Heads, the directors of The Beer Boutique Ltd (Jon and I) have had no other option but to appoint an insolvency practitioner in order to effect a CVL. This process has started and will be completed within the next two weeks.

Why has this happened?

It is impossible to escape the almost weekly news stories of high street retailers struggling with high fixed rent & rates costs and we are unfortunately no different. Even with our success at pushing up gross margins to around 50% (higher than most of our independent competitors), it just hasn't been enough to cover the rent and rates of the 3 particular high street locations we currently operate as The Beer Boutique. Coupled with the supermarkets becoming much more aggressive in the craft beer market, means that even our core customers are now buying more than 50% of their craft beers from the supermarkets. Finally, uncertainty around Brexit has led to consumer confidence being consistently low which has meant the customers we do have, are spending that bit less.

Our initial instinct was to slim down, and we have been trying to assign the Tunbridge Wells lease and or sell the site as a going concern. As yet however, we have not had any takers. We also believe that the Wandsworth Town store will not become profitable: it is simply too small with not enough local customer interest. Whilst we did develop some good plans to turn Putney into a Beer Cafe, with all day coffee and breakfast, lunch and dinner food options, it would require a fresh investment in the region of £50-£60k for us to be able to realise this vision. Whist we believed it to be a strong concept, following a thorough review of our finances, and given the inherent uncertainties surrounding any new concept, Jon and I decided that the risk reward benefit of doing this is too great.

What's next?

As for the future of Two Heads Beer Co Ltd, the company in which you invested, we plan to continue to trade the We Brought Beer branded stores, using those as a base to supply our customers with beer whilst working on a new strategic direction for the business that focuses more on value add online services and less on physical bricks and mortar stores, at least in the immediate term. With fewer stores across which to spread our limited resources, or to put it another way, with a greater focus on the existing WBB stores, we are confident that we will not only be able to significantly improve in-store sales but also develop the other revenue generating ideas we have mooted in the past - using our expertise and reputation in the field of craft beer to (i) launch a trade focused beer training program and (ii) to pursue more corporate tasting opportunities, both of which are high revenue and high margin.

This was not a decision taken lightly and no one is more devastated than Jon and myself. We've taken a hit but our focus must now be on making a success of We Brought Beer.

I'm sure some of you will have questions. Please feel free to reply to this email and ask away, I will answer them as best I can.

Kind regards

James