Australia: Brewing market more competitive than ever, CUB says

CUB has told the Parliamentary inquiry into dynamism in the Australian economy that the Australian brewing market is more competitive than ever and the company has been nimble to beat the challenges competition has brought, the BrewsNews reported on August 31.

Represented at the hearings by Amanda Sellars, Group Chief Executive Officer at Asahi Beverages, CUB argued that the competitive landscape had changed from 132 breweries 15 years ago to more than 600 now.

Sellars said these new entrants had created a “more fragmented and diverse market.”

She said the combined volume share of CUB and Lion has declined by around 10 per cent to roughly 80 per cent since 2009.

“As smaller brewers and retailer private label products have grown to around 15 per cent share,” she said.

“Coopers remains stable at around 5 per cent.”

In her opening statement Sellars told the inquiry that there are two key challenges that make for a tougher environment for all brewers, including CUB.

“Firstly, there’s been a progressive decline of more than 30 per cent per capita of pure alcohol consumption from beer in Australia over the last 25 years.

“Secondly, beer as a category has seen a significant decline in popularity when compared to wine and spirits.

“Fifty years ago, beer consumption represented around 70% of total alcohol consumption compared to one’s 16%.”

She said the latest statistics have beer at 39 per cent market share, only marginally ahead of wine.

“There are now more brewers competing, the share of the major brewers has declined, albeit off a high base, and all the brewers are fighting for a share of a shrinking per capita alcohol market in which beer is relatively less popular.

“To stay competitive, and indeed to win share in such a competitive market, CUB has been nimble in adjusting to new market conditions and evolving consumer demands.”

Sellars told the hearing that since 2009, Australia’s largest brewers have lost almost 13 per cent of their share of beer taps to control just over eighty per cent.

“In that same period smaller brewers, excluding Cooper’s, grew their combined draft beer share from around 2.3 per cent to where it stands today at 16 per cent,” Sellars said.

She referred the Committee to the ACCC’s 2017 decision that contracts did not substantially lessen competition, quoting the finding that the ACCC’s “investigation found that the venues were responding to consumer demand for certain beer brands, rather than restrictions imposed by the big brewers,” before noting that CUB entered formal contracts with its on-premise customers.

“These formal contracts offer a mix of rebates, upfront incentives or other support for providing a specified minimum tap representation for our products,” she said.

“In a great majority of our customer venues, it is a fact that there is flexibility to range small brewers craft beers on tap.”

Sellars described the packaged beer market as another example of the decline in share for the two large brewers, saying the combined volume share of the two majors has fallen by around 10 per cent since 2009 to 80 per cent.

“With more than 600 brewers and thousands of beers available for sale competition for pack beer sales or retail space is intense,” she said.

“Major liquor outlets have all dedicated sections and space for craft beers and have done so for several years.

“This competition is good for the category and provides many opportunities for smaller brewers to secure ranging, and competition for pack beer sales is also heightened by the private label beer offerings of major retailers.”

“We consider the principal reasons that CUB has continued to do well across via strong brand recognition, constant new product innovation, substantial investments in marketing, promotions and competitive pricing.”

Committee Chair Dr Daniel Mulino noted that, with more than 80 per cent of the market shared between two brewers, the industry was highly concentrated, even when compared to other scrutinised industries such as banking.

Sellars said that she can’t comment on other industries and their relative share.

“What I will say is the Australian beer market remains highly competitive,” she said, reiterating her opening statement.

“CUB, Lion and Cooper’s continue to be highly competitive in the market.

“I’d say if you think about the increase in the number of breweries over the past 15 years, I mentioned from around 130 to 600, that also provides for intense competition.

“Thirdly, the private label market is also creating competition with our customers.”

Dr Mulino questioned whether, at 5 per cent share, Coopers was in the same competitive league noting it trailed significantly behind Lion and CUB, asking whether the reality was that it was a “duopolistic market by most people’s reckoning”.

Sellars wouldn’t be drawn from her talking points, arguing the market was highly competitive noting the growth in small and the expansion of brands available in retail.

CUB’s evidence came despite the ACCC finding in 2005 that Lion’s then-proposed acquisition of Coopers would not lessen competition as Coopers market share was substantially smaller than the two major beer producers in Australia, CUB and Lion.

Dr Mulino returned to the evidence given by Coopers and the Independent Brewers Association, noting Dr Tim Coopers claim that the tap market was “pay-to-play”.

Sellars said she disagreed.

“The majority of our customer venues are free to arrange smaller brewers and craft beer products,” she claimed.

“Really, it’s for the Publican to determine what they range in their venues based on consumer demand.”

Her evidence mirrored Lion Managing Director David Smith’s the day before, in which he claimed it was “absolute policy” that Lion didn’t get in the way of taps for independents.

Smith’s evidence came despite Lion directly targeting brewers such as the previously independent Stone & Wood and Coopers by name in its contracts, or popular beer styles and categories.

Coopers has since advised Brews News that it has been advised by a number of publicans in all States that Lion contracts often exclude Coopers by name and by beer style, such as pale ale, or both, noting the company identified as an independent brewery.

In her opening statement, Sellars noted that one of the biggest challenges the brewing industry faces is the level of tax on the product through excise.

“Australian beer drinkers and brewers are getting an unfair deal from high rates of beer excise,” she said.

“Beer excise is increased by CPI twice a year and if you contrast this with the way the wine equalisation tax operates, the wine equalisation tax percentage hasn’t increased since introduction in the year 2000.”

“The tax has continued to increase at a time where beer consumption as a percentage of overall alcohol consumption continues to decline.

“It’s time for a rethink.”

The complexity of the excise scheme was highlighted when Committee member Dr Andrew Charlton sought to link the cost of beer with the high margins large brewers charge due to a lack of competition.

A lengthy exchange became bogged down in calculations on the contribution that excise makes on an “average carton of beer” with Dr Charlton saying it was “about 18 bucks” with GST on top, and stipulated retailer margin at about five dollars.

Dr Charlton disputed CUB’s claim that Government taxation was the “most expensive ingredient in beer” saying that tax contributed just “23 or 24 dollars” to the average case of beer.

For the record, Brews News calculates that at the advertised price of A$55 for a carton of VB, excise constitutes A$19.93, GST A$5 and Dr Charlton’s retailer margin of A$5, leaving A$25.07 for all elements of the beer, packaging and margin itself against a tax take of A$24.93.

Despite the discussion over details, Dr Charlton concluded his question noting “the reality of this industry is we have two players that have 80 per cent plus market share.”

“These businesses are so valuable, that one was recently sold for A$16 billion dollars.

“They’re running margins of 40 per cent and they’re driving some of the highest prices of beer in the world.”

31 August, 2023