The Business Of Beer: Australia’s Once Booming Craft Industry Is Now On Life Support
— 20 June 2024

The Business Of Beer: Australia’s Once Booming Craft Industry Is Now On Life Support

— 20 June 2024

Editor’s Note: This story originally appeared in Volume I of B.H. MagazineSubscribe here.

Following the nine-figure sales of Balter and Stone & Wood, it’s not unreasonable for Aussie beer fans to imagine that life is good in the craft brewing industry. However, if you think of the Australian craft brewing industry (or the owners themselves) as a drinker in a pub, the once gregarious bearded bloke — holding court with tales of his own multi-million dollar buyout — is now facedown in the gutter outside, muttering profanities about the evils of duopolies. 

According to the Independent Brewers Association (IBA), while craft beer — made by small brewers who measure output in thousands of litres as opposed to millions — makes up just 8 per cent of the Australian beer market, it directly employs just over half of the country’s brewing industry. Yet today, the Australian craft beer industry, which rakes in annual revenues of $1 billion a year, according to IBIS World, is rapidly shrinking.

In the week that BH spoke to IBA CEO Kylie Lethbridge, two of Australia’s larger craft breweries — Big Shed Brewing in South Australia and Melbourne’s Hawkers Beer — entered voluntary administration. In a recent survey, 66 per cent of Lethbridge’s members, of which there are more than 450, said they feared their business would not survive the current economic downturn — craft beer sales are down 25 per cent on the previous 12 months.

Philter Schooner

While the current cost of living squeeze means drinkers have less money to spend, recent and ongoing global events such as the war in Ukraine (the home of grain) and the wider cost of key ingredients — soaring by as much as 40 per cent in the past two years — has hobbled the market. Elsewhere, the cost of CO2 is up by more than 50 per cent while brewers’ utility bills have also hit record highs.

Lethbridge says things are beyond grim, darker than a perfect storm and heading towards terminal.

“Quite simply, we won’t have a craft beer industry in 12 months if something is not done and that’s why we’re asking the Government, ‘Do you want a beer industry, do you want to keep these jobs, many of which are in rural and regional areas?’”

What the IBA, and plenty of others, are asking for is a pause in the legislated biannual raises of the excise on beer — “Just for 12 to 18 months, we’re not asking for handouts or for debt to be wiped, just a pause” — as the UK Government recently did to protect its industry. Australians pay around $20 in tax on every slab purchased, with local excise rates the third highest in the world.

Now, you might think you’re doing your bit by drinking craft beer, but do you know where that money is going? If it’s Little Creatures, Balter or Stone & Wood you’re buying, your dollars are ending up in the same place VB and Great Northern drinkers’ money goes — into the Japanese pockets of the two companies that rake in more than 90 per cent of Australian beer sales, Lion (owned by Kirin) and CUB (Asahi).

Perhaps you’re into the likes of Zytho or Sail & Anchor? “Those beers, and plenty of others, look like craft beers but they’re actually owned by Coles,” adds Lethbridge. “I call it ‘craftwashing’ and that’s the thing, people don’t know where their money is going.” Coles and Woolworths own 5 per cent of the beer produced in Australia, a similar market share to the 161-year-old family business Coopers Brewery.

“Yes, there are plenty of people who don’t care where the profits are going, because VB is their beer and that’s it. But plenty of other people say to us, ‘If I’d known that beer was owned by Asahi, I wouldn’t be drinking it.’” 

Mick Neil of Philter
Mike Neil of Philter is providing grassroots Australian jobs.

Mick Neil, co-founder of Philter Brewing in Sydney, admits to being horrified by recent happenings in his industry.

“The biggest thing is that consumers have less in their pockets, so if you don’t have your six-pack on special, you’re not getting picked up,” says Neil. “But how do you cut your margins further when you’re already struggling with big jumps in costs, that’s why a lot of people are struggling.”

Multinationals can more easily navigate change, “they have the economies of scale and the profit margins,” adds Neil. “But we can’t afford the amount of automation the big companies have — machinery that will package 5000 or 10,000 cartons an hour, all operated from a control room. We’ve got young blokes, doing it by hand… But the great thing is we’re providing grassroots Australian jobs.”

He points to the controlling ways of the local duopoly. “In most countries, it would be seen as unfair, but then it’s a lot like the Coles and Woolworths situation with supermarkets. People need to know that the next time they go out and choose a beer they might be putting people out of a job. So buy local where you can.”

One independent brewer that is flying high is Mountain Culture, based in the NSW Blue Mountains. The label recently won top place in the GABS Hottest 100 (beers in Australia) — a consecutive win given its Status Quo Pale Ale beat all comers in 2022.

Mountain Culture founder Harriet McCready says the first title came as a shock. “So winning the second time was really validating, like, OK, people genuinely do like Status Quo and Mountain Culture,” she enthuses. “When you’re competing with hundreds of other beers, being able to say, ‘Hey, out of all the beers, this one was chosen by people like you as the best beer in the country.’ That’s probably the best marketing you can get.”

Despite the success of Mountain Culture, which McCready runs with husband and brewer, DJ, she’s acutely aware of just how tough the Australian beer industry is for small players.

“The tap contracts in Australia are incredibly unfair. Out of, say, 10 taps in a pub, the big guys might control nine. That leaves one tap for the 600 or so independent breweries to fight over,” McCready explains. “It’s incredibly difficult for smaller, independent breweries to compete on price.”

Harriet and DJ McCready
Harriet and DJ McCready celebrate Mountain Culture’s first GABS win.

Stone & Wood — the ‘overnight’ Byron Bay success story started 13 years ago by three former CUB employees — sold to Lion in 2021 for a rumoured $500 million. The label’s head of marketing, Ed Jamison, refutes the claim about the taps.

“People are always saying to me, ‘You guys are so big, you just force everyone else off the taps’. It’s not true — it’s up to the publicans and lots of them will decide to keep one or two of their taps open for small, craft breweries because they want to give their customers something different.”

Young Henry’s co-founder Oscar McMahon says that while both statements are, technically, correct, there are financial benefits for pub owners accepting big contracts from the duopoly. 

“No independent can afford to purchase a percentage of taps in the same way that Lion and CUB can. They [publicans] can get direct investment for signing a deal like that — and then further volumetric rebates are often built into those deals,” he says. “I think what makes it difficult for independents is the focus and investment that’s been pumped into their own craft brands, heavily promoting them in trade to mop up a lot of indie craft volume outside of their owned percentage. It just doesn’t feel like a fair fight.”

“It makes no sense that beer, spirits, RTDs and wine all have a different taxation scheme and that it is negatively biased against beer,” McMahon says. “But, at least it does set a precedent to look at tax rates differently; like Australian independent and foreign-owned brewers on a case-by-case basis.”

There needs to be some benefit to smaller producers, he adds. “The most significant factor in many of these indie brewers going into administration is tax debt and it’s clear this broad-stroke approach to taxation is not working.”

There is an opportunity to look at a solution that could be more supportive of these small Australian businesses and our industry — recognising them as significant taxpayers, employers and contributors to the local economy — instead of just “bleeding them dry.” 

It is now very clear that the multinational beer companies can afford to pay these tax rates and the independent, Australian-owned sector cannot, having to pass it on to an end consumer already feeling the pinch of the cost of living. When they enter administration, the bad debts affect their suppliers, who are, in the case of independents, Australian farmers and businesses. 

And if the current landscape wasn’t stressful enough, the independents also have the Queensland government-assisted Suntory facility opening this year, possibly presenting an additional threat. The project promises 160 long-term jobs — a number that Young Henry’s and Mountain Culture employ collectively.

RELATED: The 19 Best Breweries In Sydney

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