Trouble brewing: Australian brewers struggling in ‘craft beer recession’

In 2015, Dereck and Diti Hales left their corporate jobs to open Bad Shepherd Brewing in Cheltenham, in south-east Melbourne – a spacious venue with craft beers on tap, a menu of American-style barbecue and trivia on Thursdays.

“We’re a small business. This is our life savings. This is our dream,” Derek says.

Business was going well. But Diti says what was a good growth story for their business unexpectedly soured when the economic environment changed.

“Covid hit right when we were a medium sized business ready to grow,” Diti says.

The initial cause of their trouble was a pandemic-era debt that became hard to service when, even after lockdowns lifted, diners were still hesitant to head out. Visits to the brewpub did not rebound to pre-Covid numbers. As the months wore on, things only became harder as production costs grew and interest rates rose, soaking up any extra cash people had for dining out.

In October, Derek and Diti called in the administrator to help them get a handle on the situation – and they weren’t the only ones.

Across the country craft brewers found themselves teetering on the edge, after enjoying years of growth. In March, Brisbane’s Parched Brewery entered voluntary administration while in April, Sydney-based Tribe Brewing avoided liquidation when it was bought out by a founder of Kathmandu. Running With Thieves in Western Australia announced it was also going into voluntary administration in August.

Ballistic Beer Co went into administration in January before it was bought out by fellow Queensland craft brewer Catchment Brewing in March, which traded the company out of trouble. Catchment’s Matt Newberry says it’s a tough time for the industry as “all mid-tier brewers are struggling at the moment”.

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“The last six months have bitten a lot of people, particularly smaller breweries that are mum and dad operators who had mortgaged their house and don’t have access to shareholders,” he says.

“There’s a whole range of things that are fighting against you all the time, you just got to keep pushing forward.”

Kylie Lethbridge, head of the Independent Brewers Association, says there are several factors behind craft brewers’ recent struggles , but the “catalyst” for many were external decisions made during the pandemic.

“One of the things we were allowed to do, because the federal government provided some support during the pandemic, was delays to payment of excise tax,” she says.

“Then a couple years in, the ATO, in all their wisdom, decided everything was fine and a brewery could start to pay that back, without taking into consideration any of the other external factors of where the industry was at or its input costs.”

From that point, Lethbridge says, Australia’s craft brewers were hit with one issue after another and as a result, her organisation’s 600-strong membership has been getting squeezed.

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Of 212 IBA-associated brewers who responded to a recent membership survey, 91% said they had been extremely impacted by the current economic climate and 66% said their business may not survive the downturn.

IBISWorld analyst Matthew Reeves agrees with the bleak assessment and says craft brewers are “facing a number of headwinds at the moment”. But looking into the future he expects conditions to ease as “inflationary pressure cools”.

“This should help support a recovery in demand for craft beer, with the number of breweries expected to rise over the next five years,” he says.

“However, craft brewers will have to contend with declining per capita alcohol consumption, increasing their range of low and no-alcohol beers.”

Peter Philip of Sydney’s Wayward Brewing says that after years of growth, craft brewers are now experiencing a recession. In response, Wayward has released a “Recession Ale” – with a breakdown of production costs on the back of the tin – to raise customer awareness about how much it costs to make a can of beer.

“A third of a can of beer is consumed in tax and what’s left at the end of the day when they’ve paid all their input costs is virtually nothing and that’s why breweries, very sadly, are struggling,” Philip says.

Partly in response to this operating environment, Wayward has adopted a novel strategy by partnering with Batch Brewing to create a beer cooperative. In October, the Sydney-based brewers founded the Local Drinks Cooperative, which acts similarly to dairy cooperatives.

Philip says he had the idea while travelling Europe. There, wine co-ops allowed individual winemakers to pool resources to sell and market their products, while retaining control of their brands.

“The breweries are the shareholders in the co-op, the co-op doesn’t own the breweries, the breweries own the co-ops,” he says. “Therefore, we’re all in this together and we’re all motivated to make the co-op work.”

If Australia’s craft brewers are going through a period of consolidation and reorganisation, for Derek and Diti Hales at least, business has recovered. As of November they are no longer in administration.

“For us it’s about investing in our community,” Diti says. “Our future is tied to the south side of Melbourne and Bayside community.”

“We’re not going anywhere.”