E-Malt.com News article: Australia: Small private equity firms and wealthy families expected to increase investments in craft beer

Craft beer in Australia is about to transform from small business into big business, at least for some brewers, New Zealand Herald reported on July 28.

The sector has been growing strongly and some brewers are seeking external capital to expand, but they will need to be careful that their expansion doesn't cost them customers.

According to Deloitte, small private equity firms and wealthy families are likely to put more funds into the craft beer segment in the coming years as they try to benefit from the increased liking of Australian drinkers for more unusual beers.

Craft beer has grown exponentially in Australia, with about 420 craft beer companies around, up from just 30 brewers in 2006.

Even so, craft beer accounts for just 4 to 5 per cent of beer sales in Australia. Yet sales in the US point to the potential of the market. In America, craft beers hold a market share of about 12 per cent and account for 20 per cent of total beer sales because they sell for higher prices.

In fact, in the US, private equity firms are already very active in the craft beer sector.

In many ways the private equity trend is at odds with the fiercely independent nature of craft brewers.

One of their big selling points is that they are small and independent, and when drinkers buy their products, they are supporting a local business and the individuals who own it and work in it.

Replace the brewers with clean-shaven financiers in suits and much of the allure of craft beer disappears.

Small breweries will have to juggle the benefits of tapping extra financing with the risk of losing their independence.

It's a juggling act that all growing businesses have to face, but it will be a particularly tricky one for the brewers whose smallness and independence is so central to their success.

A couple of months ago, craft beer industry group, the Independent Brews Association, ejected multinational brewers Asahi and Lion, saying they were too large to belong and could use their size to get an unfair advantage over other brewers.

The two Japanese-owned brewers are among those large beer companies which have been snapping up craft brewers around the world as they have witnessed their increasing popularity.

Asahi, which acquired the Mountain Goat boutique brewery in late 2015, is being excluded as part of the reshuffle.

Japanese-owned Lion, which produces the Little Creatures brand and operates the Malt Shovel brewery, which makes James Squire beers.

While there is more growth to come for the craft beer sector, it is already very crowded. The reality is that taps in pubs will continue to be dominated by the products from the major breweries, with only two or three given over to craft brews.

With most craft beers making 10 or more different brews, there are many thousands of beers competing for those precious spots. It's much the same with bottle shop fridges.

It means that without additional funding for marketing, distribution and production, many craft brewers will remain small localised businesses, which is just the way most of their drinkers like it.

Why should Australian consumers pay so much more for the same product than shoppers in other countries, Coles supermarkets boss John Durkan is asking.

Launching a report on cost of living pressures, Durkan noted that several multinational manufacturers "seem happy to charge Australians more for their products than is the case in overseas markets".

He named Coca-Cola, Mars and Heinz among those companies charging too much.

He said the price differences cover baked beans, cola, coffee and razor blades and often relate to exactly the same products.

"The bit I don't understand is when it’s made in the same factory across the world - yes the shipping will cost a bit more - but the rest of it doesn't cost much more. I can't understand why it [Australian prices] can't be close to other people's prices," he told attendees at an American Chamber of Commerce lunch in Sydney.

"In many cases, the cost price we pay is higher than the retailers I see somewhere else. Next question is why don't we just cut our margin? But I can't even buy at the retailer price they are selling. We have to fix that. I think it's unfair for Australian consumers."

Heinz baked beans cost Coles - with its massive buying and negotiating power - more to purchase than they do individual British consumers, who obviously buy only a few cans at a time.

This is a shot across the bows for the multinational food and grocery manufacturers.

If this turns into a stoush, the power balance lies very much on the side of Coles and Woolworths.

Already shoppers are increasing their purchases of supermarket branded products instead of name brands, particularly in lower socioeconomic areas.

The supermarkets can easily reinforce this trend, cutting back on the number of branded products they stock and reducing the shelf space devoted to them in favour of their own brands.




01 August, 2017