There are small but determined new businesses brewing in the heady world of beer, writes Ed Charles
Entrepreneur, The Australian, August 25, 2006
THERE’S no going back. Cameron Hines, joint founder of the Mountain Goat microbrewery in Melbourne, says: “Once you start enjoying and appreciating your beer, it’s almost impossible to go back and drink crap.”
The founders of Australia’s latest crop of microbreweries became beer nuts while travelling abroad. Hines acquired a taste for boutique beers as he travelled through Canada in the mid-1990s, while his future business partner Dave Bonighton was quaffing home brew back in Australia. They founded Mountain Goat in 1997 after scraping together $10,000.
Barossa Valley Brewing (BVV) was founded in 2005 by former merchant banker Denham D’Silva, who discovered the microbrewery movement while at university in Michigan in the early 1990s.
And The Red Hill Brewery’s Karen and David Golding developed a taste for boutique beers while travelling through Europe. Almost eight years passed before they realised their dream and opened Red Hill in April last year.
BVV’s D’Silva says: “Wonderful beer was popping up everywhere. Back home during summer vacations the beer would be miserable. Australians are known for their beer and their love of beer but we had pretty average stuff.”
For the 320 staff of Australia’s 84 microbreweries, the main driver is a passion for the beer they produce. Each brews an average of 150,000 litres a year, turning over about $300 million in total.
All odds are against the microbreweries. First, their product, usually unpasteurised and without added preservatives, is temperamental. In the bottle it matures and has a “best after” date as well as a “best before”.
Second, the tax equation works against cash flow. Excise on beer is prepaid, unless the brewery produces less than 30,000 litres a year. Third, most of the best distribution outlets – pubs – are owned or dominated by drinks giants Carlton & United Beverages and Lion Nathan.
For the Mornington Peninsula-based Red Hill Brewery, the solution is to find the most profitable form of beer to sell. Co-owner Karen Golding says: “The important thing for us is to sell the beer ourselves. We don’t use a distributor or anything. Because we only wanted to do a small scale we want to sell the beer in the most profitable form.
“The most profitable form is when you are drinking it from a large tank into a pint glass. Because then you are not kegging, you’re not bottling and you are not selling at wholesale.”
Nevertheless, she still supplies kegs to a small number of selected pubs even though the brewery might only make $4 out of the $14 a litre charged. Also, bottled beers are part of the equation despite the fact it takes four people five hours to bottle and label 100 cases worth of the drop.
Mountain Goat’s Hines says his toughest challenge is still money despite the fact that the brewery is now a $1 million turnover business. “The cash flow in this industry is very difficult because stainless steel costs the earth. You are producing this product and paying the excise on it and shipping it out and waiting up to 90 days to get any money back,” he says.
At the Red Hill Brewery, David and Karen Golding were fortunate to have bought 2ha of land in 1998 before property prices boomed. But they still had to raise more than $400,000 for a copper-clad brewhouse imported from the US. They were able to raise about $100,000 from family, $90,000 from a federal government tourism grant, and the remainder as a mortgage and overdrafts backed by the value of their land.
The growth of the microbrewery industry itself causes cash flow and funding problems. At Mountain Goat, which is growing at 30 per cent a year, the company two years ago quadrupled the size of its buildings to 1200sqm. At the same time, rent more than doubled to $105,000, and the company later bought an automated bottling line. And it had to pay more excise upfront on its increased volumes of beer.
While Mountain Goat has remained independent, with 12 shareholders of family and friends, other brewers have turned to business angels and the stock market.
In Newcastle, the Blue Tongue Brewery, founded by four partners in 2003, brought in outside investors to finance its expansion in the shape of John Singleton and merchant bank Carnegie Wylie. It hopes to double capacity from 2 million litres a year.
Fremantle-based Little Creatures was founded in 2000 and initially partly funded by Lion Nathan, which took a 20 per cent stake as a sleeping partner. It plans to increase its salesforce, marketing and capacity to become a national brand and, with this in mind, in November last year the company raised $21.5 million through an initial public offering.
Hines says another challenge is building sales without spending large amounts on advertising. “We’ve always done it by word of mouth and web-based marketing,” he explains. “We’ve always relied on me and Dave just getting out there and talking to pub owners and bar staff and getting to know them and selling them on the story of what we are trying to do.”
In the early days he made the mistake on pushing tap sales. Hines says: “I worked my arse off to get a tap. And we’d think ‘fantastic, we’re in’ and the beer wouldn’t sell enough to make it viable. Now the profile is higher, the tap accounts are starting to come in.”
After hand-filling and sealing 3 million bottles, last year Mountain Goat installed an automated bottling line, passing its hand-operated machine to the Red Hill Brewery. Thanks to the increased volumes now available, Mountain Goat is now available through the high-volume Dan Murphy’s retail drinks chain.
Over at the Barossa, D’Silva went into partnership with McGuigan Simeon Wines. Its distribution network, Icon Brands, has been handling sales. But D’Silva has realised though that as hard as Icon Brands might try, he is the person with the passion for the product who has to go out and sell it. He says: “The original model has the brewery producing only and Icon doing all the selling. But what I’m finding is I’m more aware of the product than anybody. I understand it more as it’s my baby.”