Beer Monopoly




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Posted July 2017

Independence writ large

Craft beer in Australia | Is this the new entrepreneurial swagger: “My house, my car, my wife, my dog, my brewery”? Arguing that “craft” has become too blurry a term, the Craft Beer Industry Association recently redrafted its membership rules which now put the focus on ownership. What was the CBIA has become the Independent Brewers Association. The implications are momentous. By signalling the end of cohabitation with corporate craft brewers, Australia’s independents have opened a political front of “us against them”.

In May 2017, Australia’s small and independent brewers voted “overwhelmingly” to remove the large craft brewers, which are corporate owned, from their national trade body. After months of discussions, the decision had been widely expected. On the face of it, members of the IBA had taken inspiration from their American colleagues whose membership statutes too revolve around ownership and size. But the new Aussie rules are stricter than those set out by the Brewers Association (BA) in the US. They stipulate that no brewing company that is more than 20 percent owned by a large brewery or other businesses (ie private equity firms), or has significant brewery holdings in Australia or overseas, is eligible for membership. The cap on size is also far lower. It is set at 400,000 hl per year and not at 7 million hl.

In practical terms, the new rules mean that Australia’s number three brewer Coopers, though family owned, cannot become a member because of its larger size. The new rules also entail that the craft brewers Mountain Goat (Asahi) and Matilda Bay (CUB/AB-InBev) can no longer be members. In the case of Mountain Goat the decision might grate with founders Cam Hines and Dave Bonighton, who established their brewery in 1997 and sold it to Asahi in 2015. Mr Bonighton even once sat on the board of CBIA and has since been involved behind the scenes. But the new owner, Asahi, probably could not care less.

The same applies to Little Creatures, Malt Shovel (the James Squire brand) and White Rabbit, which are all owned by Lion/Kirin. However, sparing themselves the humiliation of getting expelled, prior to the vote Lion issued a statement from Chuck Hahn, the founder of the Hahn and Malt Shovel breweries, which said that Lion’s craft brands were quitting the association. Chuck Hahn is one of the most prominent figures in the Australian beer industry since the 1980s, as well as a longstanding board member of CBIA.

For over two decades, the Australian beer market has been a duopoly of Lion and CUB, controlling a combined 90 percent. Like in the US, beer consumption has declined over the years, standing at 18 million hl in 2016, which puts per capita consumption at 76 litres. As mainstream brands have lost traction with consumers, craft beer has become the shining light ever since the first craft breweries were founded. Chief among them are Matilda Bay in 1984 and Little Creatures in 1997, both established in Western Australia by a group of entrepreneurs including the brewer-turned-winemaker Phil Sexton, and the Malt Shovel Brewery, which was started in Sydney in 1998.

Unlike in the US, the nation’s two major brewers are also the biggest producers of craft beers. Lion especially has placed its bets on growing some big craft brands. With Lion’s full support, Mr Hahn created the James Squire brand – inspired by a “convict brewer” who was among the first immigrants to Australia – and built it to a segment dominating brand, whose volume share of the craft sector is believed to be in excess of 30 percent. Lion also bought out Little Creatures and its White Rabbit brewery near Melbourne in 2012. Between these three brands, Lion Nathan has an estimated 45 percent of the craft beer market.

David versus Goliath

Driving the recent move by the IBA was a consensus within the association that its smaller members had got the short end of the stick while the larger brewers had the “size, scale and capital” to work the beer market to their own advantage. “In the five years [since the CBIA was initially formed], there has been a lot of change in the marketplace and it probably was right to step back and look at this,” IBA’s chair Peta Fielding and co-owner of Burleigh Brewing Co in Burleigh Heads, was quoted as saying. “As a board we went back to the membership base to understand if is this the broadly held view or a few noisy voices and overwhelmingly the sense we got back was it’s time to have a discussion.”

It was a really difficult path to tread,” she added. “We are very lucky there’s a camaraderie and respect and sharing of knowledge [in the industry] which is pretty special. We wanted to make sure this process didn’t put any of that into jeopardy. There is still that absolute respect and love for the people in the industry.”

Describing the independent craft beer industry as “one of the great success stories in Australia’s otherwise declining manufacturing sector”, the IBA released a report detailing the national economic impact of the sector on 3 July 2017, which highlights that there are now more than 420 small, independent brewing businesses in Australia, up from just 200 when the association began. 65 percent of these businesses are based outside the big cities. Collectively, the independents produced 590,000 hl beer in 2015/2016 or AUD 280 million (USD 220 million) in revenue. They employed more than 2,400 full time equivalent workers, which is three in four brewing industry employees, and generated an estimated AUD 740 million (USD 580 million) in economic output.

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