Craft brewers financial troubles – from costs, tax, contracts and more

From Brothers Beer to Deep Creek, Epic Brewing to Boneface Brewing – there has been no shortage of well-known breweries hitting financial trouble in recent years.

But what is really ailing our brewers, and what might the future hold for the craft beer sector?

Here are the main factors that are causing headaches.

The cost-of-living crunch

Brewers are not immune from the slowdown that has affected almost all parts of the economy. People who are paying more for their mortgage do not have the money to buy as many luxuries, like beer, and do not tend to go out as often to the pubs and restaurants that might serve it.

Stats NZ data shows there was 281 million litres of beer available for consumption in the year to March, down from more than 294 million in each of the three years previously and almost 300 million in 2019.

As overall spending as fallen, so too has the amount being spent on going out – Stats NZ data for May showed a 2 percent drop in hospitality spending in the month.

Dylan Firth, executive director of Brewers Association, which represents Lion and DB Brewing, said the market was quiet as people tried to save money.

The drop in alcohol available for consumption in the year to March was the biggest in “quite some time”, he said.

“The hospitality sector is a really important channel to market for brewers. Compared to retail, it’s got a higher value proposition, there’s more profit in it.

“And so, people not going out to bars and restaurants as much because they are obviously looking to save money or put it on their mortgage or something, we’ve definitely seen that hurt a lot of people, especially smaller guys who sell direct to market more as a percentage.”

He said everyone was hoping to push through the next six to 18 months until interest rates could drop back and people would have money to spend.

Luke Robertson, of Shortjaw Brewing in Westport, said it had been noticeable that the last few months had been tougher.

“Even in the quiet months, you would expect a certain level, and it’s dropped off by 30 percent in the last two or three months.”

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Excise tax

Excise tax is applied based on the alcohol level of beer, and increases every year in line with inflation.

From the start of this month, it went up 4.1 percent, after a 6.92 percent increase in 2022 and 6.65 percent in 2023. In 2022/23, $443 million came from brewing.

Firth said excise was up 18 percent over the past three years. He said a mid-size brewery might have to find an extra $200,000 for excise this year, and larger brewers would pay millions of dollars.

“That’s got to come from somewhere and it can’t go straight on the price of the good … [Brewers] have got to absorb it in one way or another.”

Robertson said excise was up 6c or 7c a litre since he opened the brewery a couple of years ago. “That’s a jump to our overheads before we even get the beer into people’s hands. It has kept on going up.”

Brian Watson, chairperson of the Brewers Guild and co-founder of Good George Brewing, said the guild wanted to cap the excise increases at 2 percent a year to create certainty for businesses and their employees. “So we can make sure we can be sustainable as an industry.”

He said some brewers would put their prices up a bit if they could, but there would be a point where consumers would turn away.

Cost of production

Firth said the cost of production had increased substantially over the past few years. There had been problems with CO2 supplies, and the cost of transport had increased.

Supermarket margins

In March, the Commerce Commission received a complaint which claimed supermarket pressure for higher margins risked pushing craft breweries out of business. The commission opted not to investigate.

Firth said supermarkets would work hard to keep product prices down for consumers.

“There’s tension between retailers and producers as to what the price should be at the shelf … there’s definitely those pressures going on, margins are pretty tight at the cash register.”

Robertson said the margin he made from beer sold in supermarkets was very slim.

“It needs to be competitive on the shelf – especially for smaller brands, if you’re not, no one is going to pick you up, essentially. We’re all looking at each other’s brands and seeing what everyone else is doing – we would all like to be charging more.”

Lynmall, New Lynn, Auckland, May 2024

Woolworths said any supplier who had concerns should get in touch.

“We’re always open to a constructive discussion … Regarding craft beer, right now we stock more brands and varieties of craft beer than ever before.

“As has been widely reported, price is top of mind for customers and we have seen some moving towards cheaper options and away from craft products. Beer is no exception to that trend.”

A spokesperson for Foodstuffs said it worked with more than 100 craft beer suppliers.

“Both co-operatives hold quarterly supplier forums and have monthly calls with suppliers to share news and information.

“In the North Island, we hold quarterly craft beer supplier connect meetings where our teams present data and trends on what customers are purchasing. These free events give suppliers the opportunity to understand where opportunities might exist.”

Economies of scale

Robertson said smaller craft brewers faced challenges because they did not have the economies of scale that would come with buying in bulk for things like cans, labels and boxes.

“All those things scale rapidly. The price for us is a lot higher.”

Tap contracts

Robertson said another challenge was the practice of tap contracts, where big brewers provided support to local bars and restaurants in return for them primarily stocking their products.

“That’s a massive issue. Most pubs have contacts with the major brewer to have beer from them on their taps – they offer rebates on litreage.

“What that means is we don’t get a look in at our local pubs. I don’t blame the publicans, if someone offers you a cheaper product that customers will enjoy, you’ll take it. But it restricts the amount we can sell and keeps the duopoly in force.”

What’s the outlook?

Marketing expert Bodo Lang from Massey University said it would be a difficult category to compete in until consumers were spending more freely again.

“And that will only occur once consumers have a sense they have greater disposable income. Until that is the case, craft beer brewers will be under pressure, particularly small domestic brewers.”

Bodo Lang

Firth said many people had probably expected things to bounce back a bit sooner than they had.

“I think everyone wants to be positive, things on the horizon are looking all right, inflation is dropping, we’re heading in the right direction.”

Watson said, while a number of brewers had gone, it was not as high a percentage of the industry as some other sectors, where a growing number of businesses are also failing.

He said many small breweries were the heart of their local communities.

“As long as we continue to support our communities and the people who support us, that’s what is important.”

Beer was an affordable treat, he said.

“You’re not going to go out and buy a Maserati, even a bottle of wine might be $60 or $70 but you can buy a really nice six-pack of beer for $25. It’s an affordable treat and I don’t see that going away.”

According to the news on Radio New Zealand

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