Looking to find new distribution partners in Australia for your Craft Brewery?
Wondering if you should open your own Brew Pub retail store or partner with large wholesalers?
With 3000+ local and imported beers regularly available in Australia and room for only 150 beer SKUs in a bottleshop, or 30 in a pub, does a craft brewery open their own retail venue to guarantee distribution, but lack volume, or go for volume in the wholesale market with lower margin and fierce competition? Beer Distribution in Australia has a lot less barriers to entry in the supply chain compared to the 3-tier system in the USA. However, with a small population and high production costs per carton compared to imported beer, local craft brewers really need to do their business planning prior to start-up to ensure the route to market chosen suits the target retail price, category/style of beer, brand story and cash flow of the business.
Distribution and excise are two of the most underestimated items in the business of brewing by craft breweries.
1. Have a quality product and credible brand identity/story/packaging
- Invest in a consultant brewer or appoint a head brewer for the recipe development
- Invest in a design agency for the packaging (label, cluster or other, cartons, bottle, decal, tap handles)
- Invest in research (Roy Morgan and Survey Monkey or media readership/subscriber lists for e.g.) on what consumers are the target audience and sales data (IRi Aztec and the LMAA) on what styles and categories your beers will sit in (i.e. what are the best-selling beers in the regions and categories you are positioning your brand in.)
- Enter your beers in competitions to prove quality as some retail beer buyers will buy based on gold medals and trophy winners even though consumers will rarely buy craft beer based on awards. Consumers tend to buy based on occasion, price and the brand story most of the time.
- Ensure the brand story is authentic, original, credible, and you have brand notoriety in your local market to prove its popularity. The brewer is the rock star and consumers love meeting the brewer while the region the brand is from (or the history or circumstance the brand was established) is important to promote the story. Don’t just focus on selling the brand based on quality and awards.
Heat is a major contributor to aging the beer, particularly in transit from brewery to retailer as it’s expensive to transport beer in cold-freight. Pasteurization heats up the packaged beer for a short period of time, it is not affected by heat in transit as much as an un-pasteurized beer. Craft beer is all about flavour; it’s a selling point to be unfiltered and unpasteurized. Pasteurization is said to remove 30% of flavour, however it all depends on your distribution model and the style of beer.
If you have a brew pub then there is no need for pasteurization as there is no time period from beer being transported from the brewery to the retailer and very little time sitting on a shelf or in a keg. However for the wholesale market, flash or tunnel pasteurization should be considered to control quality rather than let heat affect the beer for extended periods of time. Given beer is very rarely cold-freighted all the way from brewery door to the retailer shelf, the beer is not being consumed as the brewer intended. This is particularly the case for lagers, which are fermented at colder temperatures and affected by heat more than ales. The cardboard smell of heat affected beers is particularly noticeable in lagers that have little aroma or full-flavoured taste to hide behind.
2. Understand Australian distribution (on- and off-premise), regulations, excise, and parallel importing
When the brewer understands the challenges, pressures, margins and price points of the importer/distributor and retailer, it makes the relationship and sell-in professional and respectful.
There are approximately 14,000 on-premise and 9,000 off-premise licensed outlets nationally. However, there are a lot more licensed venues when you include Restaurants, Clubs and Cafes. In NSW (18,000+) and Vic (20,000+) alone there are 38,000+ non-traditional licensed venues. Restaurants are a great target for craft beer. Given the beer lists are small, it makes the chance of getting picked by the consumer much better. Restaurants are also more willing to pay the listed wholesale price because they can mark the beer up more than bottleshops. Craft beer is all about pairing great beer with great food and restaurants also give the consumer that ultimate experience.
Parallel importing is legal in Australia, meaning an imported beer can be imported via a wholesaler and not the brewery. Retailers can buy direct from breweries and exporters, there is no 3-tier system like the USA.
Tap and Fridge Contracts exist in the on-premise and, with the average number of taps per pub being 8, venues are very limited in what they can put on tap outside the contracted brands. The opportunities for third parties (not in a contract) are guest taps, approaching freehouses with no contracts, or hoping the hoteliers catch on that customers are demanding more variety than what the contracted breweries are offering. The last opportunity hinges on the hotelier having not contracted out 70-100% of their taps, and hoping for 50% or less.
Given tap contracts, alternative routes to market are using growlers or stand-alone draught beer systems which provide the venue another tap point for the bar or event/function room.
Excise is an indirect tax as a fixed cost to draught and bottled beer. It goes up every 6 months by CPI. Its payable in seven days of leaving the brewery or bond store, even though it’s not paid for, for up to 90 days by retailers which can create a cash flow crisis for many craft brewers. There is an excise rebate for local microbreweries, up to $30,000 per annum received in the following financial year. Microbreweries are able to apply with the ATO to pay excise in 30 days rather than seven days. Many distributors or brewers will use a bond store to postpone payment of the excise until the beer is ordered and dispatched from the bonded site to allow maximizing production runs as well as minimize costs per carton and help margins and profitability.
3. Understand COGS, margins and retail pricing for the category your beer sits in – are you competitive? Do you start contract brewing first or own equipment?
Distributors work off around 30% margins and retailers will buy cartons around a 25% margin while making around 40% on 6-packs and more on single bottle sales.
Repeat business is crucial to run a sustainable business. If your price is too high you run the risk of your beer being ordered once by consumers looking to try it one time before they move back to their regular, more affordable craft beers (known as repertoire drinkers.) However if you have low COGs or low fixed operating costs and are happy with less profit dollars, then higher prices can work if you sell the volumes needed to cover your costs.
The average retail price for a carton of local craft beer (any style, any ABV) in Australia is $64.50, whereas for imported craft beer its 13% higher at $74 per carton (8 litres). As mentioned in a previous article on the AuTT blog, the average ex-excise brewer wholesale price for imported craft beer is $17.50 and local craft beer is more like $35. Being 100% higher, local craft brewers are faced with a lot of competition from imported beer. However with the AUD/USA drastically softening (end of 2014) this will help local craft brewers’ price competitiveness.
Most consumers are purchasing craft beer as 6-packs, mixed 6-packs, or by the bottle. If you are pricing your beer to be sold above these prices then volumes will come down. It’s a matter of summing your COGs, the fixed operating costs you need to recoup, and your distributor and retailer margins to arrive at a retail price that is competitive against the mainstream craft or smaller craft brewers.
To work out excise here is the calculation: You need to find out the excise per litre of alcohol for kegs (>49.5 L) which is 40% less than kegs/bottles (less than 49.5 L).
Formula: Volume in Litres of the package x (Alcohol strength – 1.15) x Per Litre Cost of Alcohol.
E.g. from excise prices in February 2014
· Carton of 24 x 330mL 4.3% ABV = 7.92 x (4.3-1.15) x $46.30 = $11.55+GST.
· 50 L keg of the same beer 4.3% ABV = 50 x (4.3-1.15) x $32.60 = $51.35+GST.
If price is important then you could contract brew to begin with, then once beer volumes get large enough you can invest in brewing equipment. This option allows the capital to be invested in sales teams, recipe development, packaging, promotion, travel, events, etc, and not sitting in stainless steel.
4. Decide on the route to market and volumes to be profitable – wholesale or retail?
For the most part, this comes down to how much capital you have or can raise (for items in point 1), how much profit you wish to make for shareholders, and if you going to work in the business with long hours or hire staff. The retail route is very profitable from a production and sell price perspective, while high costs in rent, staff, loadings, and other overhead such as marketing, is needed to ensure enough daily patronage. From a production point of view, you can make decent returns from producing 100,000 litres a year. On the other hand, if you go the wholesale route, you need to produce around 1-1.5 million litres a year to be sustainable and decide on owning equipment or contract brewing.
5. Retail Distribution – Fresh beer and recruiting or partnering with a hospitality and marketing team to ensuring daily patronage
As mentioned in point 4, this is the most profitable form of selling craft beer and requires a fraction of the beer to be produced to be sustainable, as long as the venue itself is run efficiently and marketed to the local community. There are approximately 70 brewpub/breweries with hotel operating hours out of the 200 breweries in Australia.
6. Wholesale Distribution – Pasteurization and deciding on whether you will have a sales team, use a warehouse/logistics company, or appoint a distributor/retailer
As mentioned in point 4, given the costs of packaging and the fact that excise is 40% higher in bottles (unless you focus on 50L kegs, which is stifled by tap contracts), you need to brew a lot more beer to make the business sustainable. See point 1 regarding considering pasteurization for the wholesale market, it’s a necessity for export.
There are three clear options in deciding the route to market for wholesale and they depend on your capital raising and how much volume you plan or need to achieve to meet profit targets:
(i) Have your own sales team
This is the most ideal scenario. As you have your own employees representing only your brand(s) in a highly competitive market, you know your brand is #1 on the list and #1 priority. The biggest obstacles in being able to use this route are having enough beer sales to support the sales team and a retailer or distributor’s insecurity in ccommitting to such large volumes with no track record, unless you have some serious ATL and BTL marketing budgets. A logical plan would be to start with point (ii) or (iii) then aim to get to have your own sales team in the medium to long term.
(ii) Use a warehouse/logistics company with brand ambassador(s)
Start-ups with little budget or small overheads, can do the sales themselves, and grow the distribution organically, albeit over a longer period than point (iii) below. The important part of this route is to ensure you have warehouses on the east and west coast (given the sheer size of Australia) to store product close to customers. The reason for both warehouses is so that you can provide customer service with a short turnaround time from order to delivery and you can provide metro freight costs, rather than interstate freight costs. You will need to do the sales yourself, or appoint brand ambassadors/sales reps to generate the orders, for the warehouse/logistics company to pick/pack the orders for you. Consider if you can find bonded stores to warehouse your stock on the east and west coast, to help paying excise later. See point 7 below for a company list.
(iii) Appoint a distributor/retailer
More and more these days, retailers are time poor and getting bombarded by sales reps from individual brand owners. Retailers will see around 40 reps a week for existing supply, let alone new brands/SKUs. Retailers prefer to talk to distributors who they already deal with that represent a number of brands all handled by the one account manager. This step ensures your brand is sitting in a portfolio that has relationships already in place. There are a number of distributors to choose, such as wine only (where you beer brand is their exclusive beer brand), a drinks distributor, or a dedicated craft beer distributor. It’s important, for any of these, that you ensure your brand doesn’t sit in the portfolio. You need to be continuously communicating with all reps looking after your brand. Inform them of the product, its USPs, sales data success in other markets, awards, festivals/dinners at which customers can meet the brand team, sales targets, incentives and promotional support (as mentioned in point 9 below). It’s a matter of asking what they need and what you can afford, to ensure volumes are met so that both you and the distributor are making profit.
Another option is go direct to the retailer as they can act as importer / distributor / retailer. This can be achieved via offering your brand exclusively to the retailer (if they are large enough), certain SKUs exclusive to the retailer, or brewing specific SKUs under an exclusive brand name for the retailer. The last option gives them a lot of rapport with the beer to sell it, as it’s their own beer and they make more margin.
7. Warehouse/Logistics Companies in Australia
|Warehousing & Distribution Solutions||NSW||www.wads.com.au|
8. Distributors in Australia
|Type||Distributor/Logistics Company||State||Web site|
|Beer||Artisans of Amber||NSW||www.artisansofamber.com|
|Beer||Beer Importers & Distributors||National||www.bidbeer.com|
|Beer||Experienceit / Birra Italiana||NSW||www.birraitaliana.com.au|
|Beer||Hops and More||NSWemail@example.com|
|Beer||Nordic Beverages (Balmain)||NSW||http://nordicbevs.com/|
|Beer||Micro Beer Club||NT||www.microbeerclub.com.au|
|Beer||Australian Trade Partners||Qld||www.australiantradepartners.com.au|
|Beer||Calibre Craft Beer Trading Co||Qld||www.calibrebeer.com|
|Beer||Europacific Liquor Pty Ltd||Qld||www.europacificliquor.com.au|
|Beer||Fluid Boutique Liquor||Qld||www.fluidboutiqueliquor.com.au|
|Beer||Beer Importers & Distributors||Vic||www.bidbeer.com|
|Beer||Better Beer Imports||Vic||www.betterbeerimports.com|
|Beer||Boutique Beverage Distributors||Vic||www.boutiquebev.com.au|
|Beer||Kaya Group for Efes Pilsener||Vic||www.kayagr.com|
|Beer||Northdown, Craft Beer Movement||Vic||www.northdown.com.au|
|Beer||Trumer Australia Pty Ltd||Vic||www.trumer-australia.com|
|Beer||Beverage Australia Pty Ltd||WA||www.beverageaustralia.com.au|
|Beer/Cider||The Beer & Cider Company||WA||www.beerandcider.com.au|
|BWS||Beach Ave Wholesalers||NSW||www.baw.com.au|
|BWS||D’Aquin Group (NILWA)||NSW||www.daquinogroup.com.au|
|BWS||G H Cole & Son||NSW||www.nilwa.com.au|
|BWS||Peter Doyle Cellars||NSW||www.nilwa.com.au|
|BWS||Pure Beverages Pty Ltd||NSW||www.purebeverages.com.au|
|BWS||Suntory (Aust) Pty Ltd||NSW||www.suntory.com.au|
|BWS||Liquid Specialty Beverages||Qld||www.liquidsb.com.au|
|BWS||Rivercity Wholesale Liquor||Qld||www.rivercity.com.au|
|BWS||Beach Ave Wholesalers||Vic||www.baw.com.au|
|BWS Food||Combined Wines and Foods||NSW||www.combinedwines.com.au|
|BWS Food||Blackwood Lane||Vic||www.blackwoodlane.com|
|BWS Food||Festival City Food & Liquor||Vic||www.festivalcitywines.com.au|
|Chinese BWS Food||ETTASON Pty Ltd||NSW||www.ettason.com.au|
|Distributor||Hotel Liquor Wholesalers||National||www.bottlemart.com.au|
|Distributor||ILG Co-operative Ltd||NSW||www.ilg.com.au|
|Distributor||S & P Liquor||NSWfirstname.lastname@example.org|
|European BWS||Urban Beverage Imports||NSW||www.urbanpurveyor.com/urban_imports|
|Hospitality||Stirling Global Services||NSW||www.gohospitality.com.au|
|Japanese BWS Food||Japan Food Corp||NSW||www.jfcaustralia.com.au|
|Logistics/Warehousing||Warehousing & Distribution Solutions||NSW||www.wads.com.au|
|IBEV GLOBAL P/L||Vic||www.ibev.com.au|
|RTS||The Daiquiri Group||Qld||www.daiquirigroup.com|
|Spanish wine/cider/beer||Broadway Liquor||NSW||www.broadwayliquor.com.au|
|Wine||Red & White||National||www.redandwhite.com.au|
|Wine||Bacchus Wine Merchant||NSW||www.bacchuswinemerchant.com.au|
|Wine||Off the Vine Wine Merchants||SA||www.offthevinewines.com|
|Wine||Samuel Smith & Son (Yalumba Wine Company)||SA||www.samsmith.com|
|Wine||Dave Mullen Wine Agency||WA|
|Wine/Beer||Wines of Chile Pty Ltd||NSW||www.winesofchile.com.au|
|Oz North Food & Liquor Wholesalers Pty Ltd||NT||www.ozfcws.com.au|
|G&S Wasseige – Belgian Imports||QLD|
|Australasian Imports Pty Ltd||SA||www.aimportg.com.au|
9. Promotion and Marketing
Support the distributor/retailer with social media, events, eNewsletter, marketing dollars, PR, point of sale, merchandise, in-store tastings, meet the brewer, dinners, festivals, samples, Buy 10 get 1 free, etc.
Join and support the industry associations (the retail association members are your prospective customers and helps you understand their challenges and opportunities). Some industry associations are: ALSA, CBIA, ARCBA, AHA, LMAA. Also see the retail associations for their member lists for retailer banner groups and retailers to target as sales prospects.
10. Growing Pains/Customer Service – What contingencies are in place to cope with excess demand?
When the great thing happens of demand exceeding supply, what plans do you have for access to more capital for more fermenters and bright beer tanks. Rather than buying equipment, you could contract brew your excess demand. Don’t forget to go over all considerations for ensuring you don’t miss out on any sales and you can provide good customer service to existing and future customers.
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.