How the consumer market is driving diversification projects.
With the current challenges facing the agricultural industry many businesses are required to look at the efficiency of their business model and really assess the viability of the business following the implementation of the evolving Agricultural Bill. For some of our clients this focus is will be environmental, however others will continue to branch out into unique diversification projects which often focus on the consumer market and trends.
An undeniable trend in the consumer market has been the boom in niche UK based Gins, which has bounced back with sales tripling in the last decade. The market quickly responded to this demand with HM Revenue and Customs reporting 49 distilleries opening across the UK in 2017 while just seven closed. Driven by consumers who are increasingly willing to purchase high-end alcohol the market value soared from 2014 to 2017, making the industry highly lucrative with an estimated 172,000 people directly employed in the spirits industry and further 105,000 within the supply chain.
Although larger players in the market such as Chapel Down have also diversified into distilling gin, it is the unique style which the smaller niche distilleries bring to the market which enables product to retain its high value position.
In 2017 we were approached by business partners Richard Williams and Charles Turner who were running a successful orchard of cherries and apples alongside growing strawberries and blueberries, with a view to diversify their business into a distillery.
Passionate about gin, their vision was to create small-batch, artisan, copper distilled spirits using their orchard and farm botanicals, grain spirit and own natural water.
After discussion of the business plan and objectives for the new business venture Brown&Co assisted the partners in applying for a grant under the Local Action Group scheme on behalf of the partnership in order to purchase the 150-litre copper Still for the processing of the product. A former cattle shed was also converted to form the basis for the distillery and from that ‘Penrhos Spirits’ was born.
The Local Action Group scheme (LAG), actively encourages farm diversification and rural enterprise. The grant funding is competitive and awards up to 40% of the project costs. As the scheme was competitive it was important that grant application was both detailed and also dealt with the key priorities and objectives which the LAG had.
The key to driving a successful diversification project is planning. With many farm businesses venturing into diversification it is important to note that this as not an answer to an inefficient or failing business structure. There are many elements which need to be taken into account when considering development projects, such as strong core business, it is vital that the cash flow of the current business is analysed and the effects that the new enterprise will have to turnover and profit is forecast.
As well as creating further income streams, diversification also offers a spread risk portfolio. Quite often diversification requires investment, whether this is solely by using assets as collateral against a bank loan or partial funding from government schemes. In either case establishing a range of enterprises across the farm may help balance the cash flow, which is becoming more of an importance for single income stream businesses with the reduction of current support payments.
Brown&Co have worked with a range of clients across the sector, many of which have undertaken diversification projects in response to uncertainty around Brexit, and in order to achieve a more financially sustainable and robust business model. However success lies with those who are passionate about the new venture which is clear in our case study of Penrhos Spirits. As a firm Brown&Co are passionate about innovation and advising our clients on how to adapt to the ever-changing agricultural market. Our specialists are able to work with clients through all stages of the diversification process, from initial business analysis, through to planning, application and implementation. We are positive that with change brings opportunity, and that we can help businesses grow in efficiencies and income streams especially as the industry develops as a consequence of the new proposed Agricultural Bill.