Australian Craft Beer Market Update June 2015

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The overall beer market in Australia continues to be challenged in volume by wine and cider, with craft beer the consistent savior, albeit off a small base and realistically large enough sustainable volumes enjoyed only by those brands with national distribution.

This is the first part of David’s (Australia Trade Tasting MC) update and outlines the general trend of craft beer in Australia for the half of 2015.  Future posts with detailed insight into the industry will be posted regularly leading up to the conference. Please check back regularly.

Australia has traditionally been a beer drinking nation, however current trends are seeing Wine equaling Beer consumption by 2018 and Cider being the overwhelming fastest growing liquor category. The growth categories in beer continue to be Craft Beer, both in off- and on-premise outlets, however the trends appears to be moving towards off-premise with consumption at home on the rise.

Craft Beer continues to see exceptional year on year double digit growth in liquor stores with 24.2% for local craft and 12.1% for imported craft value growth, from premiumisation with more consumers becoming more discerning with their choices and spend on beer. There is a real opportunity for craft brewers to work with liquor stores to drive sales particularly with events and social media. There is some PR currently for excise tax reform being driven by the Spirits Council for one volumetric tax system.

australia-mapAustralian Bureau of Statistics Beer Volume Year ended 30 June 2009-2014

  • Total Beer Volume -6.7%
  • Full-Strength Volume -7.6%
  • Mid-Strength Volume +16.7%
  • Per Capita 92.37 L p.a. -14.5%

Full strength beer remains the most popular type of beer, accounting for around 75% of all beer in 2013-14”. “Over the past decade we have seen the popularity of mid strength beer (19% of total beer consumed) grow at the expense of low strength beer (5% of total beer consumed). Between 2012-13 and 2013-14 the volume of mid strength beer increased 6.8% while full strength beer increased 0.4%. Low strength beer recorded a decrease (down 9.0%).

The volume of pure alcohol available for consumption in the form of beer increased by 1.0% and wine by 0.2% between 2012-13 and 2013-14. The volume of beer available for consumption increased 1.0% The volume of pure alcohol available for consumption in the form of Ready to Drink (pre-mixed beverages) decreased by 4.3% and spirits by 3.6% during this period. “Across all alcoholic beverages, there were 9.7 litres of pure alcohol available for consumption in 2013-14 for every person in Australia aged 15 years and over,” said Louise Gates from the ABS. “This is the lowest level since the early 1960’s.”

According to data on ‘Apparent Consumption of Pure Alcohol, Beverage type as a proportion of all alcohol from 1961 – 2014, Beer is down to 41%, all other liquor is up – Wine continues to converge to equal beer, now at 37.5% and expected to equal beer by 2018.

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Get inside insight into the craft beer industry and how to position your company to succeed in the competitive marketplace at the Australia Trade Tasting Conference on Sept 1 and Sept 2, 2015.  Learn more about the AuTT Conference here.

 

In Depth Data Analysis on the Craft Beer Industry in Australia from David Lipman, Founder/Director of Drinks Hub

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Australia Trade Tasting gets in-depth insight into the Australian Craft Beer and Cider Industry from David Lipman, Founder of Beer and Brewer Magazine and Drinks Hub.

The Craft Beer and Cider Industry has seen steady growth in Australia over the past decade.  With it’s increased popularity, more and more offerings are popping up as novice and pro brewers take their passion to the marketplace.  While excited consumers rejoice because of the extra options in bars and retail stores across the country, trade professionals question the industry’s capacity and wonder if the market is saturated.  We caught up with one of the industry’s leading professionals, David Lipman, to get his perspective.

Here is our Q & A with David and his interpretation of the most recent Australian craft beer and cider industry data available today.

What Craft trends are appearing in Australia? 

1. On-premise, premiumisation, drinking less, spending more
Barscan who report on around 3% of on-premise sales trends across Australia, said in the three months to March 2014, 45% of pubs in the BarScan sample set had a craft beer available on tap with the growth from the previous three months to December 2013 being 20%.

In the three months to October 2014 56% of pubs in the BarScan sample set had a craft beer available on tap with the growth from the three months to March 2014 being 24% (representing a 6-month growth period).

With this growing trend of craft beer on tap, Barscan says “Craft Beer is the fastest growing beer segment in pubs, largely due to the growth in taps, and being sold at a price premium”. March figures from BarScan reported Volume of beer in pubs was -2.2%, while value was +1.6%. Dramatically in the UK volumes were -6.5% year on year), interestingly in the USA volumes were +1% (over a 10 year period 2002-2012). Looking at share of draught beer versus total beer, in the USA draught is only 10% (cans being 65%), whereas in Australia and the UK it’s more like 48% draught.

I am seeing more venues open being dedicated (themed) to craft beer, more craft beer events such as Tap Takeovers, Festivals, Dinners and Meet the Brewer Tastings. Some craft beers are being packaged only in kegs, being exclusively available in pubs, so as to provide pubs a point of difference to the off-premise, and allowing brewers to collaborate with venues on recipe development (e.g. Bridge Road Brewers, Beechworth Vic). Also in pubs I see the growth of House Beers, where an individual pub will work with a brewer to produce their own brand of beer, with the style to meet their customer’s tastes and provide more margin to the pub. E.g. Opera Bar (Sydney NSW) Organic Ale by Redoak, NSW and Sail & Anchor Hotel (Fremantle WA) from Feral Brewing, WA. Pubs are also improving their food/bistro offering to pair with the diverse spectrum of flavour in craft beer, which is helping attract more customers and increase spend per customer.

Looking at growth in pubs having a craft beer and/or cider on tap, according to BarScan, craft beer is growing twice as fast as cider in pubs, with 24% growth for craft beer versus 12% for cider, in the three months to October 2014.

2. On-premise Consumer Insights, from Drinks Hub survey of Beer & Brewer magazine readership in March 2014

Consumers demand four different craft beer brands per month in pubs
That’s up to 50 different beers per year – if only one tap dedicated to craft, then it needs to be rotated weekly. According to Barscan, the average sell through of a keg of craft beer per week is 75% of a keg, which needs to be 100% to allow for one keg sold per week, to ensure beer freshness, quality and paying its way. Some specialty craft beer venues are selling 300-500 different beers per year.

80% want to try a new craft beer when they visit the pub
The challenge is only 33% of craft beer drinkers visit the pub weekly – therefore pubs need to offer at least two different craft beers per month to appease the craft beer drinkers’ repertoire and keep them coming back to their venue.
100% of respondents want craft beer on tap
At least one craft beer tap in every pub, as respondents are spread all over Australia. Venues have on average 8 taps, and if one needs to be craft beer, it’s up to the publican to ensure their tap contracts or suppliers have the selection to appease their customer’s current tastes and preferences and entice new customers with updates to the tap bank seasonally or by occasions.

60% want craft beer to be more affordable on-premise
Excise on beer packaged in kegs (49.5 litres) is 40% less than beer packaged in kegs or bottles (less than 49.5 litres). However with high labour costs and rent, craft beer on tap is too expensive in the eyes of 60% of respondents. Craft beer prices are competitive from the large brands; however it’s the smaller craft brands that are not able to be price competitive due to much smaller production volumes. The trend of consumers drinking less and spending more (on craft beer and premium imported brands), comes down to do the top 20-30 craft brands on-premise receiving most of the volume growth, as they have the tap space. It’s one thing for a small craft beer to gain a tap, however the higher wholesale price leads to the consumer paying more, drinking less, and then that tap not selling as much as other taps and making the publican need to try other craft beers, or essentially keep that tap rotating to appease the consumers that want to taste 2-4 different brands a month in pubs.

3. Limited retail space and the importance of distributor relationships
With 3,000 plus local and imported beers available in Australia, and retail space to accommodate these beers being limited in on-premise to on average eight taps and 30 bottles, and in off-premise 150 bottles, it means the market is highly competitive and retailers wanting to deal more and more with distributors that represent a portfolio of craft beer, rather than the individual brand owners themselves. Local breweries entering the wholesale market that need to hit around 1.5 million litres a year to generate decent profits, need to consider their distribution model to maximize volumes, be that via a distributor, wholesaler, direct via their own sales force, or direct with retailers. Brewpubs or cellar doors are of course a guaranteed distribution channel, albeit a high capital investment.

The strong Australian dollar and growth in consumer repertoire drinkers has greatly attributed to the high number of imported beers available in Australia, not to mention the ease of access from parallel importing.

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Is Cider going to continue to be a popular category in Australia?

IRI-Aztec, who are Australia’s leaders in off-premise sales stats, state on the popularity of the Cider category, “Whilst we are seeing volume declines in Total Liquor in the Australian off-premise we are still seeing value growth as shoppers consume less, but are willing to pay more. Cider continues to be the stand out with strong growth of the last few years. Although this growth is not as high as it has been it appears to be holding at a very healthy rate (double digit). In the last 12 months we have seen 11% value growth in the category. We have seen recently that volume growth has overtaken value growth as the key driver within Cider”.

BarScan, who lead the industry in on-premise sales stats in Australia, state that a pub is more likely to have a cider on tap than a craft beer. In the three months to March 2014, 67% of pubs in their sample set had a cider available on tap, compared to 45% for craft beer. Now in the three months to October 2014, 75% of pubs having a cider on tap. The trend here is showing cider is getting closer to 100% of venues having a cider on tap, and hence still a popular category in Australia.

Cider will continue its growth, however it should be mentioned that cider can take many forms, based in the amount of juice or concentrate used in the base cider, and as a generalization the huge growth in cider, particularly off-premise, is thanks to Rekordelig and the Swedish ciders. Given Barscan’s stats it appears cider may be slowing its growth, albeit off a large base.

2. Where do you see potential for budding craft companies?

Distribution
Local craft brewers and distributors of imported beers alike, may like to focus on non-traditional liquor retailers, such as restaurants, clubs and hotels – which represent a far bigger number of licensed venues (38,000 in NSW and Vic alone for example) compared to the traditional liquor store or hotel licenses, with approx. 23,000 across Australia.

I believe craft brewers should focus on restaurants, as their beer lists are small, meaning the chances of getting picked are much better than in a bottleshop or pub, plus once you’re on the list, and the beer is selling each week, why would the restaurant change? More chefs and sommeliers are realizing that beer has a much broader spectrum of flavour than wine, and hence is an excellent match to any food on any menu, be that to complement, cleanse or contrast the food flavours.

Alternative routes to market for craft brewers are standalone draught beer systems that can operate on bars, in function rooms, and so on. These also work for non-traditional liquor outlets such as cafes and restaurants that done have any taps installed, nor the space or budget.

It’s interesting also the new Dan Murphy’s connections online platform that allows suppliers to sell their complete portfolio, rather than only what Dan’s could fit on the physical store floor. Drop shipping is a scenario many online retailers offer to share the risk of retail sales with suppliers.

Styles of beer and packaging
As at July 2014 sales data, IRI-Aztec, who gain sales data from most independent and banner group off-premise retailers nationally, say, “we are seeing Mid-strength, Premium Imported brands and Craft the real drivers of growth in Beer with the other segments in decline”. “We have seen a number of new multipack SKUs being introduced recently ncluding 10, 12 and 18 packs. It is very early days, so we don’t have any reliable performance information, however consumers are becoming more and more driven by convenience and occasion based purchasing, which would suggest an opportunity for new pack formats that cater to this”.

Diversifying
There is a trend of craft brewers branching out to craft distilling, plus distillers not just focusing on whisky or gin, or vodka, but producing all three. If it’s hard enough maintaining retailer relationships and distribution, then craft brewers look at offering their loyal customers another craft product from their company. E.g. Young Henrys in Newtown NSW.

Social Media, Online Marketing
Doing the online basics well is very cost effective for budding craft companies – such as having the social media handles as the same name as the brand across all the social media channels, ensuring the brand has a regular eNewsletter and/or blog, plus keeps their web site up to date with events, new releases and awards. Some venues have an App when and what new beer is going on tap, when bottled beer menu changes, events dates, etc. which is excellent marketing. E.g. The Wheatsheaf Hotel in Adelaide SA.

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Is there encouraging data in on-premise channels, tastings, etc.?

Yes there is very encouraging sales data in on-premise, as mentioned above. However there may be only 20-30 brands that see the sales from this data.

Yes tastings are the way to build a brand, and have a direct positive impact on sales. Dan Murphy’s seem to be the champions of in-store tastings, and while previously brands were said to be built on-premise, it’s now a case of any venue, either on- or off-premise that engages new customers with products via tastings, will see a positive impact on brand awareness and sales.

3. Is Craft Beer finding new retail homes easily as competition increases with the number of brewery offerings continuing to grow?

Australia is already saturated with 200 breweries (approximately 290 beer brands), from a per capita perspective, compared to 3000 breweries in the USA for example. This number isn’t too high, however when imports are factored in, as mentioned previously, the number of beers grows to 3,000+, making the competition fierce and the ability for individual brands to grow very challenging.

As mentioned above, given craft beer on tap in pubs is growing at 24% during the three months to October 2014, it may seem craft beer is finding new homes easily, however I believe this is very much only enjoyed by the top 20-30 selling craft beers, given most pubs only have eight taps, these beer brands have the ability to supply large volumes at competitive prices and are willing to promote their products with pubs (i.e. offer contracts, rebates, equipment, point of sale, promotional dollars, etc.). I believe craft beer as a generalization for all sizes of craft brewers are finding new retail homes in pubs relatively easy in selling 1-2 kegs, or a pallet of kegs for one month on a guest tap. The problem is once that keg sells or that month is over, the brewer loses that tap and they are left needing to find another venue, meaning growing draught beer volumes is very difficult.

Specialty Beer off-premise venues are proving great retail homes for craft beer, from large fridge space, growlers and events, such as Warners at the Bay (NSW), Plonk (ACT) and Mane Liquor (WA) however these are few and far between when you pool them with the 9,000 off-premise shops nationally.

There is a lot going for imported beer in Australia, given the economies of scale, and consumer willingness to pay more for international beer.

Imported beer in Australia is a good profit margin for importers and distributors; given the average retail (off-premise, looking at random online retail prices for an 8 litre carton of craft beer) price incl. GST for international craft beer of $74 is 13% higher than local craft beer at $64.50. Importers are buying imported craft beer at an average $17.50 (Drinks Hub wholesaler research) per carton (24x330mL) when the average ex-works local craft beer carton is approximately $30 ex excise, representing imported craft beer as a 42% saving. When you add the International craft retail price premium of 13% (approx. $6.50) to the 42% wholesale price saving (approx. $12.50), that means distributors of imported craft beers are approx. $19 per carton better off, not taking into account customs, warehousing and freight, etc. costs.

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Given Australia is only 1% of global beer consumption, local craft brewers will never be able to compete with imported craft beer as imported beer being brewed in the USA, Asia and the EU/UK is able to be brewed at much larger annual volumes to gain brewing efficiencies where the cost per carton will always be better than local craft beer wholesale prices. And it doesn’t cost much to freight beer ambient around the world. The largest fixed cost apart from the liquid, for local brewers in Australia is excise (it’s drastically less in the USA for example).

If Government excise on craft brewers in Australia wasn’t so high, it would help local craft brewers’ profit margins and ideally they pass on those savings to retailers, thereby becoming more price competitive (if they scale down their wholesale prices that is) – then as volumes grow, the local craft brewer gains brewing efficiencies and perhaps the Government charges a higher rate of excise. The flip side is, this may encourage even more entrants to the local brewing scene, and craft brewers don’t pass on the savings in excise.

Australia is already saturated with breweries per capita, when compared to the USA. We need the existing beer brands selling more, so they are more sustainable, and if more price competitive to imports this will help, particularly when 60% of consumers from the Drinks Hub research of Beer & Brewer magazine readers in March 2014 want craft beer to be more affordable at the pub.

This case study justifies why so many small craft brewers and associations in Australia lobby the Government for excise tax reform. It comes down to will the Government ever see a net benefit from excise tax reform? Surely there can be, just like income tax-free thresholds, why not have a volumetric tax system based on annual production volumes with rebates (more like $300,000 not the current $30,000) for local brewers (and free trade agreement country members)?

I strongly advise budding entrants to the craft beer space to do their due diligence in business planning on deciding on the retail or wholesale market for sales. If wholesale to budget in tough competition from tap contracts, parallel importing, high excise and the growing retail liquor home brands, all competing for shelf space.

4. What resources do breweries that are looking to export have at their disposal?

Brewers have Government agencies Austrade and DFAT, and brewing associations (ARCBA and CBIA) as industry resources to help them with preparations for export and join in Embassy and Trade tastings/shows abroad. I have recently launched Drinks Hub, which is an Exporter of Australian Premium Drinks, being craft beer, cider, gin, whisky, wine sachets.

It’s important to mention that many Australian beer brands have tried/dabbled in export, and don’t seem to pursue it, as the initial orders don’t turn into repeat orders – mainly due to price as mentioned above. I recommend only largely produced craft beers consider exporting as they can be most price competitive and gain enough volume to fill up containers and make it worth their while. Drinks Hub can help brands export who don’t plan on exporting a great deal, or large craft brands export and assist growing their local brewing volumes to improve local wholesale pricing and profit margins.

5. Where do you see the craft industry in five years?

With distribution growing on- and off-premise giving consumers access to more craft beer and consumer tastes being more and more educated, the craft beer industry in Australia in five years will be higher than what it is today, and if I take a guess I think approx. 6% of total volume (or at least value). I hope in five years every pub in Australia has at least one craft beer available on tap (guest/rotating or regular), as craft beer drinkers are all over regional and metro Australia and pubs wouldn’t want to be alienating prospective customers. I hope the number of local beer brands stays around 300, so that the increase in volume benefits the existing, and allows them to be more price competitive and profitable.

Many of the Australian Whisky brands cannot keep up with demand both locally and export, and therefore with the growth in craft distilling, I see a lot of excess demand being available for these new entrants as the existing brands struggle to fulfill existing demand.

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David Lipman, Bio

David’s passion for beer began in 2002 as a Cellarman at The Whitehorse on Parson’s Green and The Porterhouse Covent Garden, two institutions for great local and imported beer in London. In 2007 David founded Beer & Brewer magazine and www.beerandbrewer.com, and finished up as Publisher/Editor in May 2014. David has published as Editor-in-Chief five books on beer, including Ultimate Beer Guide Australia & NZ (2011), Craft Beer Trade Buyers Guide (2012), Breweries of Australia: A History 2nd Edn (2012), Best 100 Beers Australia (2013) and Beer Buyers’ Guide Australia & NZ (2013) www.beerbuyersguide.com.au. David has also published booklets on beer & food matching for Beer & Brewer magazine and BBQ School. David has launched three beer events including Beer & Brewer Expo (2009, Melbourne), Beer & Brewer Awards (2010, Sydney) and Beer & Brewer Conference (2012, Melbourne). These days David continues his passion hosting corporate tastings (including at the Sydney Opera House and Taste Festivals Australia). David has also just launched Drinks Hub, an exporter of Australian premium drinks, including craft beer, cider, spirits.

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Are you a craft beer or cider brand looking to expand your distribution and grow brand recognition?  Get involved and network with top industry buyers and media  at Australia Trade Tasting.