Australia: Fears for Australia’s craft brewers hit by Covid-19

The boss of newly ASX-listed malt producer United Malt fears some craft brewers won't survive the coronavirus shutdowns, but is confident his business will benefit from the long-term growth in craft beer around the globe once the pandemic eases, Brisbane Times reported on June 10.

Mark Palmquist said a survey of North American micro brewers found that more than 30 per cent said they would not be able to survive a shutdown of more than three months.

"We're hearing similar anecdotal evidence inside Australia," he said. "What we're hoping is that it won't be that bad in Australia just because you're relaxing the restrictions at a faster pace."

While some craft brewers could be forced out of business, their manufacturing might not be lost if their brewery was continued by another operator, he said.

Kylie Lethbridge, general manager of the Independent Brewers Association, which represents Australian independent brewers, said the coronavirus-induced lockdowns have had a significant impact on an industry that had been growing rapidly before the pandemic.

"Coming out of restrictions is a boon, but it's absolutely the case that some won't survive," she said, pointing to independent brewers that have been forced to stand down staff and cut or completely cease production.

"We've been told that businesses are falling back on capital reserves, taking loans, deferring their excise payments, so obviously going further and further into debt," she said.

United Malt has become one of the biggest maltsters in the world after it was separated from grain business GrainCorp nearly three months ago. The move generated two separate ASX-listed agribusinesses, with United Malt's market capitalisation now at about A$1.4 billion and GrainCorp's at A$1 billion.

Mr Palmquist was GrainCorp's CEO before the demerger and became the inaugural CEO of United Malt. He is based in the US, a crucial market for the company given North America generates about 61 per cent of United Malt's revenue. Australia generates about 7 per cent of its revenue.

Malt is produced from barley and is a key ingredient in beermaking as it's crucial to beer's flavour and colour. The company has processing operations in the US, Canada, Australia and UK and is a major supplier of malt to big international brewers.

But the company also has a sharp focus on the craft beer segment, which delivers higher margins.

Despite the shock to the craft brewing and wider beer industry from the coronavirus pandemic, once the dust settles United Malt sees a good future in increasing its malt sales in growing craft beer markets such as Mexico, South America, Japan and parts of South East Asia.

"Areas like Mexico are growing at 20 per cent as an example, and South East Asia is growing anywhere from 10 to 20 per cent. So those are very good spots for us to go after," Mr Palmquist told The Sydney Morning Herald and The Age.

"The craft business has been a very good business for us, not just because of its growth, but it allows us to be really taking advantage of [the fact] that we are a premium type of maltster," he said.

Mr Palmquist said the demerger of United Malt from GrainCorp had been a sensible move. "We thought it was important to allow United Malt to go its separate ways. It's just a fundamentally different profile industry than where GrainCorp is at, which is primarily a grain trading and oils and processing group. Our customers are different, our profile is more being a food company and we're also much more global in terms of where we operate."

Last month United Malt announced a A$140 million capital raising, along with a A$25 million share purchase plan for retail shareholders.

11 June, 2020