Australia: Craft beer industry in trouble after ‘alarming rate’ of closures

After a decade-long craft beer boom, more than a dozen independent breweries across Australia have been pushed to the brink of insolvency in the past 12 months, The Sydney Morning Herald reported on March 1.

Some, like Red Lion Brewery in regional Victoria, have shut up shop entirely. Others, like Wayward Brewing Company in Sydney, have pushed on with a restructuring plan, cutting up to a third of their workforce to break even. And still more await their fate, like Melbourne-based brewery Hawkers.

After going into voluntary administration with $1.7 million of unpaid tax debt on February 12, the “fiercely independent” brewery faces a March 6 ASIC hearing to determine its future.

Hawkers co-founder Mazen Hajjar is frustrated as he describes the “all-out assault” on the industry since the end of the pandemic.

Many challenges, like slowed consumer spending (down 10.2 per cent between December and January) and inflated prices for electricity and transportation, are not unique to craft brewers.

“But many are,” Hajjar says. Beyond the rising cost of key ingredients like malt and hops (each up around 50 per cent since 2020), there are costly regulatory requirements and, most significantly, a hefty alcohol (excise) tax which rises bi-annually alongside inflation.

For Hawkers, that means a carton of their award-winning West Coast IPA now costs about 23 per cent more to make than it did in 2018, and 45 per cent of that cost is tax. Less than half of the increase has been passed onto consumers.

“They’re taxing us out of existence. It’s crazy,” Hajjar says. He highlights the disparity between the beer and wine industry. According to advocacy group Independent Brewers Association (IBA), beer drinkers pay twice as much tax per standard drink as those drinking bottled wine.

The price is higher again for breweries that put off repaying their tax bill over the COVID-19 period, as they waited for a strong market recovery that failed to eventuate.

“[The consumer downturn] caught people unaware,” says Peter Philip, who founded Wayward Brewing Co. in 2012. The brewery went into administration on January 2, with about $2 million in debt. It has since entered a restructuring plan.

“We were faced with the hard reality that we owed a lot of money to the ATO and … the debt was just unserviceable.”

Other breweries that entered external administration and appointed restructuring practitioners or entered a deed of company arrangement include Queensland breweries Revel Brewing and Moffat Beach Brewing Co and Dainton Beer in Victoria.

In a budget submission to Federal Treasurer Jim Chalmers, IBA CEO Kylie Lethbridge said independent breweries were closing at an “alarming rate” and a further 66 per cent of 425 members surveyed stated their business may not survive the economic downturn. Sound Brewing in Western Australia is among the closures.

Mid-size breweries relying on wholesale distribution into pubs, clubs and liquor stores have been hit hardest.

Despite an ACCC inquiry in 2017 that refuted claims foreign-owned brewing giants Carlton United Breweries (CUB) and Lion Pty Limited (Lion) used exclusivity contracts and cash incentives to lock craft brewers out of beer taps in pubs and clubs, allegations continue.

Lethbridge claims the big two have used their market power to secure “at least 85 per cent” of beer taps across the country and negotiate preferential treatment in national liquor retailers.

But it is “craft washing” that is of key concern, as major retailers Coles and Endeavour Group introduce home-brand products offering the sought-after craft beer aesthetic at cheaper prices. Examples include Tinnies from Coles, and Zytho Brewing under Endeavour’s Pinnacle Drinks umbrella.

“They’ve shamelessly mimicked the style of craft beer so the average consumer, who doesn’t know what to look for, is none the wiser,” says Matt Kirkegaard, of industry publication Brews News.

“It’s had a major impact on craft brewers because … they’re not increasing the amount of shelf space they have, but reducing the amount of independent craft brewers they stock.”

A spokesperson for Endeavour told Good Food their range of craft beer at Dan Murphy’s and BWS stores increased significantly from 350 craft beer products to more than 1500 across 1000 brands over the past decade.

But the term “craft beer” no longer exclusively refers to independently brewed craft beer – it could include Byron Bay’s Stone & Wood, acquired by Lion in 2021, or Sydney’s 4 Pines Brewing, acquired by CUB in 2017.

For many independent craft breweries, a strong, onsite hospitality offering is the way forward. Breweries such as Molly Rose (Melbourne), Range Brewing (Brisbane) and Pickled Monkey (opening in Sydney in April) have diversified their taproom offerings to include full-scale restaurants, event spaces and bars.

“Having a strong venue is massively important for a small brewery like us because it’s become really hard out in trade to compete with the multinationals,” says Molly Rose founder Nic Sandery.

The Collingwood brewery more than doubled its capacity when it opened a bar and chef’s table restaurant last year, and now sells more than 65 per cent of its beer in-house.

“Our profit margins are highest when we sell our beer at our own venues,” says Range co-founder Gerard Martin.

“We knew the economy was starting to feel the pressure, and there was uncertainty about how it was all going to go, so we chose to shift our business sideways into hospitality and design venues where our beer was at the forefront.”

Since opening neighbourhood bar Patio and wedding venue The Bethnal last year, Martin says 80 per cent of keg sales are now made in-house.

“People are doing it tough, and people are tired, and it’s been years of one challenge after the other, but the industry has also grown so much,” says James Smith, founder and editor of The Crafty Pint.

“There’s hope there’ll be some policy change, whether that’s excise relief or a fresh investigation into market access, but for now, brewers have to strip back, change their business model, and just hold on.”

02 March, 2024