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Chapter 1: What challenges are small breweries currently facing?
Who'd have thought that in New Zealand, stale beer would ever become an issue? But less than a decade on from the golden days of the craft beer revolution, the tide is going out on boutique breweries. They're facing hospitality-related headwinds, wild cost swings in getting that beer delivered to pubs, and a kegs crisis.
Not to mention a young generation that no longer heads to the pub for a pint with mates.
In my view, the worst thing that's happened to young people is the anti-alcohol movement. And my point is that the risks to your 25-year-old liver are dwarfed by the risk of social isolation. Think of all the amazing relationships you've had in your life and be honest. Did alcohol play a role? Get out, drink more, and make a series of bad decisions that might pay off.
I'm Alexia Russell and today on The Detail, is the craft beer revolution over? We look at the troubles with brewing and why some in the industry still think the glass is half full.
There's quite a few of us that started 2010, 2011, 2012 And, you know, for seven or eight years, it was the land of milk and honey. You know, everything was growing. Everything was up.
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Chapter 2: How is the keg leasing crisis impacting craft breweries?
The tide was coming in. The tide's going out, as it does in a lot of industries. It'll come back again. It's just a case of when.
That is Good George's co-founder and director, Brian Watson. He's also the board chair of the New Zealand Brewers Guild. We'll get back to him. But first, some background on the keg issue. New Zealand has two companies that craft brewers use to manage, track and truck empty and full kegs and get them into pubs without any disruption to the supply. They are Kegstar and Convoy.
Convoy is now in liquidation, meaning there will no longer be any competition in this area. Kegstar will be the only company left standing. Kegstar did offer to buy Convoy's assets, but the Commerce Commission ruled against the acquisition, not happy with the prospect of a monopoly and potential subsequent price hikes. Kegstar is currently appealing that decision.
The uncertainty has led to some breweries cutting back production, worried about their beer going stale if they can't get it out to the pubs.
Chapter 3: What role does the younger generation play in the craft beer market?
Christina Pickwell is the co-founder of Liberty Brewing, based in Hellensville. She says they're brewing less more often to keep the beer fresh. I asked her to explain how the system works.
So a lot of breweries, when they first start out, they kind of get their hands on random kegs, secondhand ones from anywhere they kind of can. And a few years ago, when Convoy or Keg Star actually was the one that started it years ago, they developed this leasing company so you could lease a keg. And this was good because buying a keg outright brand new is quite expensive.
So and when each batch of beer you need, I mean, you know, anywhere from 10 to 40 kegs. And that's a very expensive outlay.
just for one batch of beer let alone when you're doing four five six varieties so the leasing option was good because you didn't have to fork out for a keg fleet of 400 kegs for example so the problem is that it is it originally when kegstar first started it was quite a expensive model and it was quite challenging to use so when convoy came onto the market they saw how challenging it was
Used to be with Kegstown Convoy, just did a one charge per keg per use kind of thing. So that was really beneficial for us because we knew exactly what our costs were going to be.
So how much does it cost to get a keg of beer into a pub?
Oh. So that is all over the show. It'll depend on freight costs and everything else. Everyone has a different contract with their keg supplier based on how many we sold back. So when we first started with Convoy, we actually sold them all of our existing kegs that we actually owned. And we did have a fleet of over 400.
So the issue we had was getting them back from the bars once we had sold them the keg and they'd finished it. They would sometimes not tell us that the keg was empty. It was return freight and return couriers often quite expensive as well from different areas of the country.
So we're finding it really challenging to actually get our kegs back and they got lost in the New Zealand keg world and sometimes barbecue world.
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Chapter 4: How has the COVID-19 pandemic affected the brewing industry?
So now Convoy has gone under, basically.
Yes, they have. So we learned about that, and it was instant fear of how the heck are we going to sell our beer, basically, knowing we had sold all of our kegs and knowing the other option was more expensive and didn't have the same customer service and everything else. It was quite terrifying to think, Because our keg sales are quite a big chunk of our sales overall.
And they're also our higher margin product. So without the higher margin products being able to balance out the package stuff, it makes the profitability of the brewery overall not so good.
What's the proportion of bottled beer and keg beer for you? So for us, it is probably about a 70-30 split. So about 30% in kegs, 70% in packaged. But the kegs are the moneymaker.
Yeah, there is more margin because there is less process and less, obviously, you know, packaged beer, you've got the can cost, the lid cost, the box cost, you know, everything. You can get a lot more volume at 50 litres out in one keg fill compared to, you'd have to fill up quite a few cases of beer to get that same 50 litres out.
And the manufacturing process involved, I guess, in getting that bit into the can.
Yes, exactly.
Did you look at trying to buy your kegs back and taking it on yourself again?
I didn't even think about it because I knew that that was something we could not afford to do. Because the ones that we'd sold to them were already gone. They had already been scrap meddled and were done. So we would have to buy brand new kegs out of China and they're at about $230 each keg. That's just not an option for us at all.
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Chapter 5: What are the implications of the CO2 supply issue for brewers?
No, so Convoy is still running. They are still operating as per they are just running through the liquidators, basically are still kind of managing it. So they've still got a couple of people on the ground here in New Zealand and still just running business as normal. But everything's just going through the liquidators while all of this discussion is happening. That is my understanding of it.
It hasn't been too much of an interruption for us, apart from the fact when it first came out, people started hoarding kegs and keeping them at their breweries and stockpiling them in the fear of, you know, there may be a day, any day now, any day now where we might not be able to get any kegs.
And that has actually caused a problem for breweries across the country because the few people that are stockpiling it and hoarding them are hiding them. And it means that the rest of us can't get enough kegs on the days that we need them.
So you guys are just sitting on what's left of your kegs and biting your nails until something gets sorted out here?
Yeah, well, we are literally just having to operate as normal and we are hoping for the best outcome because there is no way that we can afford to purchase all of our own and I guess wait for a decision. And then because we can't knee jerk and make any decisions, I can't afford to go and buy a whole bunch of kegs on the anticipation that it may or may not happen.
I also I'm wanting to keep the competition going in the industry. between the two and then people can still choose. And also, I don't think there's going to be enough kegs in the country if Convoy do go under with Kegstar. I don't think they'll be able to provide enough kegs for every brewery in New Zealand. So we're still going to be at a loss at some point somewhere.
The keg issue is not the only one facing brewers. They've been hit, as many other businesses have been, by the cost of living crisis, by inflation, a downturn in the hospitality industry, a shortage of the food-grade CO2 that gives beer its bubbles, and now rises in freight prices thanks to the fuel crisis.
No one really knows what's coming next. We seem to have had year after year of challenges.
Over at Good George, Brian Watson says issues have been battering the beer industry since COVID.
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Chapter 6: What is the current state of excise tax on draft beer?
The best way to get your beer into customers' hands is on draft. And that requires kegs, you know, 30 litre, 20 litre, 50 litre kegs. And that means that you've got to be able to fill them, ship them, get them back and clean them and fill them again. And
Kegstar and Convoy have been very good at being able to basically take care of the back end of it, of getting it from customers and getting it back to us as brewers. And so that's been quite a bit of a game changer for us in the industry. And it means that we don't have to have hundreds of thousands of dollars tied up in kegs that we don't know where they are.
Will it make a substantial difference now that one half of the equation has been taken out?
Yes, I think it will. It always does when you have a monopoly. And so that was part of, I guess, a lot of the submissions from the New Zealand breweries around advocating for two competing companies so that we could maintain a fair and level playing field.
And does Good George use Convoy or Kegstar?
Convoy.
What are you going to do?
I think we've got to go to Kegstar. Oh, right. Or we're going to have to pay $100,000 and go out and buy our own kegs more, which would take six months.
What was the figure you used?
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Chapter 7: How are rising costs affecting consumer behavior in the craft beer market?
And the best beer is fresh beer, right, in kegs. Right.
Have you noticed it has had a significant impact on petrol prices to truck that beer to those various places?
Yes. And it feels like every week we're getting a new main freight, oh, look, the fuel surcharge is changing. And to be fair, actually, it's gone up, it's gone down, it's gone up again, it's gone down, it's gone up again, it's gone down again. And so it's just, you know, I think they're reacting to as much information as they have as well.
And we are trying to absorb some, but in some cases you just have to pass on what you can because it's difficult and supermarkets won't let us pass it on straight away either.
The brewing industry's asked the government for some relief from excise tax on draft beer, which, like all alcohol tax, goes up every year on July the 1st, in line with inflation. Christina says it's a real challenge.
Oh, my gosh. It's an absolute killer. Yeah, it's about 50% of the cost of our product and the production part of it and the sale. So it is up there. Excise tax hurts us because it's not tax deductible because it is a tax. So... For us, yeah, it hurts our bottom line a lot because our GST payments then go up and everything else. And it does, it goes up every year.
So it's a cost that we have to, we can't suck it up. You know, we used to be able to absorb it, but one year it went up by like seven and a half percent. And that's massive.
Brian says their argument to the government is that heavy excise increases do further damage to the already struggling hospitality industry.
We have been working, you know, and sort of lobbying the government to be able to, as a guild, to be able to pause or reduce draft beer excise, to be able to give hospitality a chance. It's hard work. The government has its view of excise and we have our view of excise as well, which is different.
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Chapter 8: What future challenges do craft breweries anticipate?
However, beer's not going away anytime soon. You know, it's a staple of New Zealand culture. And not only beer, but, you know, the pubs in which they're consumed, it's part of the fabric of New Zealand society. So, you know, that was why, as a Guild, we've been trying to work with the government to say, come on, give the hospitality industry a break because they need it.
They've had a hell of a hard time since they were shut down during COVID. And we know that you need the money, but it'll pay back more through what you can do for the industry as well. How receptive has the government been? But it depends on who you speak to. Some of them are pretty good. Some of them are like, no, it'll never happen.
What about things like barley prices? Are they still being affected by the Ukraine war or are you sourcing barley elsewhere?
Absolutely, because in fact, I'm down speaking at the Arable Farmers, I think, get together next Wednesday with Nicola, Greg and Christopher Luxton around, you know, just around the farming and arable farming compared to dairy. And so, yeah, we're having a hard time.
My role there is to be able to obviously talk about the challenges we face as a brewing industry, but purely as a good George brewer, we need malted barley. And so we need to convince the farmers to put malted barley in the ground rather than wheat or convert to dairy. So, you know, it's a challenge. We've been fortunate this year.
We haven't seen too many price rises because obviously all of the barley has been harvested and probably malted now. But we are expecting next season, which is 12 months, 11 months from now, to see a significant rise in malted barley, which is just another inflationary pressure we have to deal with as an industry.
Does New Zealand grow enough of its own now?
Oh, absolutely. Yeah, yeah. Yep, definitely. We do import some specialty malts from cool places like Bamberg in Germany because it's cool, but very, very little. It's fruity. And what we make here in New Zealand, particularly down in Canterbury and in Martin, the two main places, is outstanding, world-class malt. In fact, a lot of it's exported.
Let's talk about gas supply. So you can't... Brew beer without CO2. And a few years ago, there was a problem with the Marsden Point supply closing down. What is the situation now with getting hold of CO2?
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