Shepherd Neame Limited Business Information, Profile, and History

Company Perspectives:

Shepherd Neame has survived through three centuries of huge social change, financial ups and downs and various wars. It is now one of the oldest breweries in the country and is set fair to survive whatever is in store in the twenty-first century.

History of Shepherd Neame Limited

Shepherd Neame Limited has the distinction of being among the oldest British brewers as well as the 15th oldest registered company in the world. It operates the Faversham Brewery, which has been brewing continuously over the same artesian well since 1698. "Shep's" brews 50 million pints a year and exports three million. Bishop's Finger, Spitfire, and Master Brew are among its beer brands. The firm controls about 370 pubs in the southeast of England, where it also operates hotels.

Origins

The water at Faversham, in Kent, contains calcium and naturally lends itself to ale production. By the 17th century, the town was supplying this region one of its favorite beverages. Although 1698 is the traditional date given for the founding of the Faversham Brewery, evidence suggests that it was merely moved at that date and had been in thriving existence for 20 years. The predecessor to Shepherd Neame was founded by Captain Richard Marsh, a member of the militia. After his death, Marsh's daughter Silvester sold the property to Samuel Shepherd, a brewer and eminent citizen who had served as the town's mayor.

Shepherd took ownership of the brewery in 1742. Under Shepherd, the business also acted as an agent for London brewers and began acquiring its own local pubs. Shepherd's son Julius inherited the family business in 1770 after being active in the management for 15 years. He continued to acquire pubs, and in 1789 bought a Boulton and Watt steam engine to replace horses as the company's grinding and pumping muscle. The purchase prompted a progressive new name: the Faversham Steam Brewery. In spite of such entrepreneurial drive, in the early 19th century the brewery felt the negative effects of unrest among agrarian laborers (their jobs threatened by new threshing machines) and high levels of taxation due to the Napoleonic wars.

Victorian Expansion

Giles Hilton became a partner in the brewery after marrying a niece of Julius Shepherd's. Geographic expansion was a major concern during this time, and the firm acquired pubs as far away as Dover. Finding suitable tenants and maintaining ale houses accounted for a considerable amount of the partners' time.

The firm encountered financial trouble and had to mortgage a £3,000 piece of property in 1847. Hilton, who had diverse business interests, then withdrew from the partnership, making the brewery's position even more precarious.

Although John Henry Mares does not appear to have been experienced in brewing, he invested £5,000 in the venture, becoming a 25 percent partner, and pressed it to expand its brewing capacity. Its beers were proving increasingly popular around Kent, and when the railroad belatedly came to Faversham in 1858, Shepherd & Mares would capitalize upon the more convenient access to the London market.

Henry Shepherd, Sr., died in 1862, leaving his less capable son in the partnership. After the death of John Mares in December 1864, the firm therefore relied heavily on the young (28-year-old) Percy Beale Neame, who had only joined the firm that October.

The investments in capacity undertaken during Mares's tenure tripled production within a few years. A final round of investment came in 1869 as the company built a new headquarters at 17 Court Street. The company's property in the 1870s (boom years for England) included 115 pubs, some with cottages attached. The company also owned ten of its own rail cars for delivering beer. Its network of suppliers had similarly expanded; it supplemented its local purchases with hops from as far away as Bavaria.

Yeast became an important side business for Shepherd Neame. Another byproduct of the brewing process, spent grains, were sold to farmers as feed. Together, they accounted for about £2,000-£3,000 of turnover per year in the early 1870s.

The end of the 1870s saw another great depression, although Shepherd Neame & Co. continued to make money due to the strong pound. Private brewers such as pubs which brewed their own ale suffered much of the brunt of the decline in beer drinking which accompanied the availability of new diversions competing with the pub experience. The temperance movement also had an effect on sales. At the same time, competition intensified due to the newly increased capacity of rival brewer W.E. and J. Rigden. Unpaid bills and unreturned casks remained persistent problems.

Neame became sole proprietor of the firm in 1877. Three sons followed him into the business. Around the end of the 19th century, Harry Neame, the oldest son, began buying malt and barley from as far away as Spain and California. The brewery began purchasing barley in cooperation with Rigden. At this time, Shepherd Neame's annual turnover was £88,564 with profits of £19,132. There were 60 breweries in operation in Kent; Shepherd Neame would be the only survivor 100 years later.

Percy Neame died in 1913, leaving control of the company with his oldest son, Harry. He was not a sole proprietor, since a new business entity, Shepherd Neame Ltd., had been created, its shares allotted to the elder Neame's ten children as well as the head brewer, C.L. Graham. Harry Neame became chairman and managing director.

World Wars I and II

Although production rose until World War I, profits faltered, probably mostly due to higher taxation under a Liberal government. Beer sales increased during World War I on account of the troops stationed in the area. However, mobilization made both brewery personnel and pub tenants scarce. The firm therefore began employing women in bottling operations with good results. Neame family representation in management was thinned as Alick and Arthur Neame both died during the war, though not of service-related injuries.

Shepherd Neame shared in the booming economy immediately after the war and erected new buildings to bolster capacity. One piece of business the company declined was an offer to cater ferry service. Although the British economy faltered in the 1920s, Shepherd Neame survived rather well.

The brewery suffered a steep decline in barrelage in the 1930s, resulting in cutbacks in most areas with the exception of motor transport, seen as crucial to developing business. Shepherd Neame also invested in mechanized bottling equipment and bought a few pubs. The company earned between £50,000-£60,000 per year in the 1930s. Family and executive shareholders in the private enterprise were well rewarded.

Harry Neame's son Jasper became managing director and chairman early in World War II, when dozens of personnel were either consigned to the armed forces or served part-time in civil service units at home. Shepherd Neame supplemented the meager income of its employees serving in the military. The company also had to contend with falling bombs: several stores and pubs were damaged.

Beer was not rationed like sugar or gasoline; in fact, production was increased for morale. In order to save money on transport costs, brewers were assigned geographical areas to supply. Shepherd Neame did meet great difficulty in finding an adequate supply of barley. The firm bought its own hop fields in Kent in order to remedy a similar situation.

Postwar Problems--and Profits

After the war, although demand for beer fell, labor remained scarce. In fact, money and raw materials were scarce as well. Wartime rationing of mechanical supplies continued. Shepherd Neame responded by buying many more pubs in order to provide more outlets for Shepherd Neame's products. The company avoided coastal areas in order not to suffer the vagaries of the tourist trade. The rival Rigden brewery (then known as George Beer and Rigden) was acquired by Fremlins of Maidstone in 1948. In the next couple of decades, brewers would emerge as very attractive takeover targets due to the value of their real estate holdings. Shepherd Neame also had to contend with natural forces. In late January 1953, floods overran the brewery and damaged some of the company's pubs.

Shepherd Neame felt compelled to renovate its pubs to make them more attractive to a public confronted by a widening array of leisure options. Increasing motor vehicle use in the 1960s added to this mobility. Breathalyzers, introduced in 1967 to monitor drunk driving, made snacks and other non-alcoholic attractions even more important. Food service became one of the company's new specialties.

During the 1960s, the company modernized its 1930s era bottling operation, a feat which took seven years to accomplish. It also began offering beer in kegs. Shepherd Neame recognized the growing popularity of lagers by signing distribution agreements with Carlsberg and Hürlimann, a Swiss brewer. Another change was the end of horse-drawn ale carts.

Jasper and Laurie Neame had become joint managing directors in September 1951. When Jasper died in 1961, his brother retained his post and Kenneth Johnston succeeded him as chairman. Profits rose sharply in the middle of the decade, reaching £93,000 one year. The firm's real estate continued to appreciate as well. With the sale of the Cobb Brewery to Whitbreads in January 1968, Shepherd Neame remained the last independent brewery in Kent.

Laurie Neame died in December 1970 and Kenneth Johnston retired as chairman in the spring of 1971. In their wake came Colin (also vice-chairman) and Robert Harry Beale ("Bobby") Neame. The company bought an innovative computer system after Stuart Fraser Beale Neame, a ten-year IBM veteran, joined management. Profits exceeded £100,000 in 1971.

Shepherd Neame was becoming a modern brewery, both in terms of production and marketing. It had installed a laboratory and begun advertising on television. The company replaced its wooden, copper-lined fermenters with new stainless steel ones, and particular attention was given to streamlining the production process, which shrank the workforce to about 200.

The British government, wanting to break up an oligarchy, ordered Whitbreads to sell off pub houses in 1972. Shepherd Neame bought 32 of them, a major expansion. The purchases produced decidedly good results. The company bought another 33 houses in the next eight years. It also invested in upgrading existing ones.

Expanding Throughout the 1980s and 1990s

Shepherd Neame bought 46 pubs in the 1980s. Perceiving a need for moderately priced hotels in the Southeast, the company acquired three Invicta Inns. It installed new fermenters to accommodate increased demand for lager. Once a rarity in Britain, by this time it accounted for 40 percent of pub sales. More new fermenters were installed in 1995.

Shepherd Neame began bottling wine from vineyards at its farm, the first English brewer to do so. However, the company sold much of this land in 1982 when hop production failed due to falling prices and disease. By the mid-1990s, Shepherd Neame had withdrawn from all its farm-related enterprises such as using spent grain and yeast as livestock feed. The mad cow disease crisis helped bring this to an end. The vineyard was also shut down, and the land leased out.

In 1988 Shepherd Neame bought Grants, founded in Dover in 1774. Nine years later the firm's Morella Cherry Brandy would win Shepherd Neame its first royal warrant. The brandy was a favorite of Queen Victoria's and had been marketed under the priceless slogan "Keep it near, keep it handy." Other new products in the 1990s were Kingfisher beer, which Shepherd Neame licensed from Bangalore to sell in Indian restaurants. It developed its own Sun Lik beer for Chinese restaurants.

Profits were £3.6 million on sales of £26.7 million in 1990. As the brewing industry in Britain consolidated, Shepherd Neame launched a new massive round of acquisition. It bought 33 houses from Allied in 1990, 22 from Bass and Courage in 1991, and followed this by another 60 leased (and later bought) from Whitbread.

Colin Neame stepped down as vice-chairman in 1984. The loss of him and other experienced managers prompted the company to create a technical board of outside professional talent. The company was restructured in July 1999, and Johnathan Neame, a qualified barrister, became managing director.

As its bottle washing equipment reached obsolescence, Shepherd Neame stopped reusing returnable bottles. Its new disposable packaging gave longer range exports new viability without the problem of returning the empties. A new long-necked half liter bottle was introduced to compete against nitrogenated cans. The success of these bottling innovations kept plants busy around the clock, as Shepherd Neame shipped to 12 countries. Its Bishops Finger brand became the bestselling British import in Sweden. Shepherd Neame began selling Bishops Finger in Calais to compete with the cheap beers British vacationers took back home with them. When it proved wildly successful there, the company began expanding its domestic distribution.

Triumphant Tricentennial

The problem of cheap imports from France, where duties were a fraction of those in the United Kingdom, was a recalcitrant one for Shepherd Neame. One of every three pints of beer consumed in Kent was estimated to have been bought across the Channel. Shepherd Neame fought against increasing taxation with high profile advocate Cherie Booth, wife of prime minister Tony Blair. The company won a judicial review; however, the House of Lords refused to override an Appeal Court decision not to refer the case to the European Court. The campaign did succeed in bringing the issue into the political arena, and Shepherd Neame gained an estimated five times the value of its legal fees in free publicity.

Principal Subsidiaries: USBN Limited (50%); Pubco PLC (20%).