What’s next for BrewDog as CEO James Watt steps back?

The Scottish brewer and bar operator announced this week its co-founder would be handing over the reins to chief operating officer James Arrow to “concentrate on his other projects and interests”.

Watt’s achievements at the helm of BrewDog hardly need restating. Founding the brewery with Martin Dickie from a garage in Aberdeenshire in 2007, he has turned BrewDog into a beer behemoth, with annual revenues exceeding £300m, breweries on three continents and 130 bars across the globe.

In the UK, BrewDog has transformed the beer landscape. With Watt at the helm, the Scottish business has made craft beer truly mainstream, turning a previously niche product into one stocked on every supermarket shelf in the country.

So what does his decision to step back mean for the future of BrewDog? How should we view his time as CEO, and how will his successor Arrow run the business (of which Watt will remain a non-exec director and major shareholder)?

How Watt’s instinct drove BrewDog’s early success

A key part of BrewDog’s success was down to the ability of Watt to “fly by the seat of his pants, making decisions by instinct”, explains beer writer and author Pete Brown.

In one early gutsy move, Watt and Dickie told Tesco they could supply “2,000 cases a week” despite selling just two cases a day at farmers’ markets at the time. The gamble paid off, with Tesco listing its flagship Punk IPA, and the retailer remains its biggest customer today.

“I’ve never met anyone so determined to do what they wanted to do,” says Patrick Thompson, a sales manager for BrewDog between 2014 and 2018. “He wanted to make Punk IPA the biggest craft beer brand in the UK, and he was ruthless about it.”

During his four years working for Watt, Thompson says it was the former deep sea fisherman’s ability to convert people – be they staff or drinkers – to his vision that drove BrewDog’s success.

“People were taking pay cuts to come and join us from bigger breweries because they wanted to come and work for BrewDog,” he adds.

Brown agrees. He highlights the success of the brewer’s Equity For Punks crowdfunding initiative, launched in 2010, in creating legions of fans loyal to the BrewDog brand.

“It was like a cult,” he says. “And the genius was making people feel like they owned a part of the brand. James was obviously a huge part of that.”

‘Growth at all costs’

As BrewDog grew, so did UK craft beer. In 2008, there were 668 breweries in the UK, according to figures from CAMRA’s Good Beer Guide. By 2015, this figure had swelled to 1,424.

Of Thompson’s initial sales team, all four remain in beer, either as founders of their own businesses or working in senior roles for others. Brown notes many people in the industry “would still be working in corporate jobs if BrewDog never appeared”.

But the bigger the brewer became, the less well-suited Watt appeared to the role of leading it. Its stunts, which initially helped to cultivate a self-styled ‘punk’ image, began to veer toward the offensive. A 2015 video promoting EFP saw Watt and Dickie accused of transphobia and caricaturing sex workers and the homeless, while a bright pink ‘beer for girls’ brought charges of sexism in 2018.

Then in 2021 came an open letter signed by more than 100 former BrewDog employees, accusing Watt and Dickie of fostering a “culture of fear”. BrewDog’s tremendous success, they said, had been “built on a cult of personality”, with “growth at all costs” having been prioritised over staff’s physical and mental wellbeing.

“The thing that underpinned everything was growth,” says Rob MacKay, who worked in BrewDog‘s marketing department between 2013 and 2018. “There was always a desperate desire for growth ahead of the curve.”

As BrewDog expanded, Watt’s ability to control all areas of the business was diminished, but his desire to run the company his way wasn’t, MacKay explains.

“The less control he had, the more he pushed back by asserting himself over everything,” he says. “He wanted to control every aspect of the company. The clash between that and the incoming expertise and experience needed to grow the business was where a lot of the conflict came from.”

Why has Watt chosen to step back now?

Further headwinds came with the airing of a 2022 BBC documentary, The Truth About BrewDog. In it came scrutiny of the brewer’s environmental credentials, as well as serious allegations of inappropriate workplace behaviour by Watt – claims he denies. The documentary led to the brewer being stripped of its ethical B Corp status.

The cumulative impact of these controversies, Brown believes, is what will have persuaded both Watt and BrewDog’s board that the time was right to make a change.

“I think he’s been fighting against it,” he says. “It should probably have happened some time ago, but maybe he’s been hanging on to try and sort out all the scandals.”

And Arrow’s background (before joining the brewer in September 2023, he held positions as MD of Boots Opticians and worked for Dixons) could hardly be further from that of his predecessor. His appointment, Brown says, is an acknowledgement BrewDog is far from the scrappy underdog it was when Watt founded it 17 years ago.

“They’re a mainstream consumer brand now; they’re in every supermarket and one of two beers sold on EasyJet. If that’s who you are, you need that competent business-focused CEO.”

Is BrewDog about to IPO or sell out?

Arrow’s appointment will be viewed by some as a step closer towards BrewDog’s long-mooted IPO. “Anyone looking at the business from an investment perspective will have been thinking ‘I’m not sure about the guy in charge’,” says Brown. “So I think this will accelerate that process.”

Sources close to BrewDog insist the timing is still not right for a floatation, but the clock is ticking. Its private equity partner TSG is still awaiting a return on the £213m it parted with in return for a 22% stake in the brewer in 2017.

The terms of that deal guaranteed TSG a punchy 18% compounding annual return on its investment by August 2024. With its stake now worth close to £700m, any floatation would need to value the business at nearly £3bn to avoid other shareholders – including BrewDog’s 200,000 plus ‘equity punks’ – seeing a shortfall.

An IPO with a valuation of more than seven times annual revenues – and with BrewDog yet to turn a meaningful profit – looks fanciful. As its new CEO, Arrow may decide selling to another private equity house, or even a multinational brewer, is the only way to ensure TSG gets what it’s owed without long-standing investors missing out.

And Watt – who once said he would rather “shoot himself in the head” than see BrewDog fall into the hands of “big beer” – may find this route more palatable if he is no longer the one having to justify it.

As MacKay puts it: “If in the next six months BrewDog sell out, then he can say hand on heart that he wasn’t running the company when it happened.”