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(Image: Tina Tiller)
(Image: Tina Tiller)

BusinessAugust 18, 2023

Is this the beginning of the end for craft beer in Aotearoa?

(Image: Tina Tiller)
(Image: Tina Tiller)

With one stalwart figure of the local brewing scene folding and another familiar name on the brink, the future is looking rocky for craft beer. Michael Donaldson explains.

The shock liquidation of Epic Brewing in July sent the craft beer world into a spin. How could an iconic brand – once synonymous with the hoppy beer revolution – have failed?

And then 12 days later, one of Auckland’s most popular on-premise brands, Brothers Beer, went into voluntary administration.

Was this the start of Armageddon for craft beer? 

Epic and Brothers are neither isolated nor new incidents. Last year, Dunedin’s New New New folded, after the owners couldn’t sell the brewery. Smaller brew brands have come and gone over the past 10 years, barely making a ripple on either their way in or upon their exit. I could rattle off a dozen or 20 but the names would mean nothing to most people.

Epic, on the other hand, meant something. 

A selection of independent New Zealand craft beers with Epic on the left (Photo: Supplied)

There is a litany of factors that went into the Epic failure – both micro and macro. On the Epic-specific front, the team behind the brand had pinned their hopes on an investor to build a brewery and taproom in Mount Wellington that they hoped would get them to the promised land of better margins, as opposed to their model since 2005 of brewing under contract. Under inflationary pressures and a cutback in spending, craft beer took a downturn while resource consents got bogged down at Auckland Council. The investor – who had been helping Epic through a cash-flow crisis – got cold feet and left the brand hanging with a negative cash flow and nowhere to turn.

The macro factors that put Epic in a jam are simple: falling sales coupled with rising prices. The rising prices are well documented: malt has gone up astronomically, as has freight, packaging (aluminium and cardboard), excise tax, carbon dioxide, salaries. 

But all breweries are facing rising costs, right? At a presentation at the BrewNZ23 conference earlier this month, Mazan Hajjar, the founder of Hawkers Beer in Melbourne, said that despite growing by 14% the previous financial year, the brewery still ran at a significant loss as costs skyrocketed. Faced with similar cost increases here, Epic didn’t grow, or cut costs, and if you’re standing still, you’re losing.

Australia’s brewing scene, like Britain’s in recent years, has already suffered massive damage through closures and liquidations. New Zealand is now suffering the delayed arrival of a global profit and loss pandemic.

Breweries like Epic make money in two main channels – selling kegs to pubs and selling cans in supermarkets. 

The supermarket crunch is real. The pressure on small- to medium-sized breweries comes in two directions – a top-down price push driven by their rivals in the “boutique” craft space and bottom-up push from big brewery-owned brands (Lion/Kirin-owned Mac’s, DB/Heineken-owned Monteith’s and Asahi-owned Boundary Road) improving the flavour of their “mainstream” craft.

Panhead started the push down in price for six-packs, selling huge volumes of its Supercharger at almost ridiculously low prices as a way of flirting with a big buyer, in this case Lion, who snapped up the brand for $25 million in 2015. Since then, what’s an acceptable price for a six-pack of craft now hovers between $20 and $25.

The big “boutique” players in the supermarket space right now are Panhead, Garage Project, Parrotdog, Emerson’s, Behemoth, Cassels, Good George, Tuatara, Sawmill and Urbanaut. 

If you’re a brand that can’t live with sub-$25 six-packs or can’t find new buyers, it’s hard to compete. Epic found this. They tried to increase the price of their flagship Thunder APA and sales fell 40%. 

For most punters, who are not brand loyal (that’s the nature of craft), the choice between, for example, Epic Thunder and Parrotdog Falcon comes down to price as they fit into a similar “flavour space”.

At the same time as price is being pushed down, the mainstream craft brands (the above plus Moa and Stoke) are offering much cheaper beer that tastes very good. Monteith’s Tight Lines Pale Ale and Mac’s Hop Rocker were in the New World Beer & Cider Awards Top 30 this year. These brands have paid attention to what craft has done and then done it cheaper. Flavour on a budget. And when money’s too tight, even the discerning craft beer drinker might well be tempted to lower their gaze.

When great flavour is everywhere then great flavour is not the differentiator any more between success and failure. So what’s left is marketing, advertising, awareness, brand story … all those intangibles that do add up. It’s been pointed out by some critics that Epic hadn’t invested in their brand in terms of keeping it relevant to a new and younger audience for beer. Nor had they innovated to the level of some rivals.

The other way to make money is to sell kegs in bars.

The on-premise situation is almost the opposite of the supermarket shelf. Punters going into a bar want a new experience, a new taste, a new brand to try, a new story. When Epic started out there were a few dozen breweries to compete with in that space; now there are 200. That means selling fewer kegs of beer. Bars want to rotate kegs and showcase new products; as good as Epic Armageddon might be, craft drinkers want the latest IPA, always. 

And the on-premise space is hard in a post-Covid, inflationary world. This is what tripped up Brothers. They had multiple venues across Auckland and struggled through Covid. They tried to sell off the venues to free up capital to invest in the brewery but couldn’t move them fast enough. The administrator, PwC, is trying to restructure the brand, no doubt with the aim of keeping the brewery alive. 

Because underneath all the negatives, structurally the beer market is sound. New Zealand is blessed with a good ecosystem – a mix of big breweries, exciting craft brands, and a host of smaller regional heroes and great taprooms. There are plenty of tiny breweries that make a modest living for owner-brewers who have no interest in ever being in a supermarket. 

The finite shelf space in supermarkets and finite number of independent taps is the problem.

If you can’t meet the pricing required for supermarkets and don’t create the interest and intrigue to have your kegs on tap, you’re cooked.

I’ve had one brewer tell me that they now cannot put beer in cans at the price needed to be competitive in supermarkets. It can’t be done as their volume is not high enough, costs not low enough. Plenty of brands have already come to this realisation.

So we are undergoing rationalisation in the supermarket space, and soon the six-packs of hoppy craft will come from maybe two dozen to 30 breweries. Those same providers will deliver one-off 440ml single cans that will offer the buzz and FOMO the embedded craft beer geek seeks. The single 440ml can is a good “high-value” asset for both the supermarket and the brewery.

More experimentation will happen in bars and taprooms but with fewer taps available, breweries will have to build their own networks of loyal supporters and make money selling direct-to-consumer via their own website and/or taproom, and preferably both.

Most breweries now have webstores and those with a cult following can and should make them work, but that will require investment in advertising and email marketing to get cut through.

Beer, they say, is recession-proof but recessions also take the weak and unwary, so breweries not continually building their brand, keeping an eye on costs and looking to stay relevant in a crowded market will be lost.

Keep going!