Brewpub strategy delivers $1m earnings in six months for owner of Gage Roads, Atomic

The West Australian owner of beer brands such as Gage Roads, Atomic and Matso's has delivered a 29 per cent lift in revenue for FY22 to $70 million, fermented by a hospitality division that is expected to drive profit increases over the coming year.

Good Drinks Australia (ASX: GDA) co-founder and managing director John Hoedemaker describes the January opening of the $10 million project Gage Roads Freo on the Walyalup waterfront in Fremantle as an "immediate success", with more than 300,000 visitors in its first six months of operation.

The venue complements existing venues Atomic Brewery in the Sydney suburb of Redfern, and Joe’s Waterhole in Eumundi on the Sunshine Coast where development of the new Matso's Sunshine Coast is due for completion in FY23 at an estimated cost of $5 million.

"Originally designed to provide direct touch points for consumers and relevance for our brands in key strategic markets, the hospitality business has transformed from a purely consumer marketing-driven strategy to now delivering material earnings for our business," Hoedemaker said in the group's annual report released today.

"Contribution from the hospitality businesses amounted to $1 million EBITDA in FY22, from six months of trading.

"With unrestricted trading and the return of domestic and international tourism, we are expecting our hospitality businesses to contribute a meaningful $3 million in EBITDA in FY23."

This is out of a total EBITDA for the 12 months of $8.4 million, which chairman Ian Olson noted was down $2.3 million year-on-year due to higher investment in sales and marketing, a trail-off in government COVID stimulus payments and investments in market share.

"Importantly for FY23 this additional investment in sales and marketing is expected to underwrite further growth in Good Drinks core brand sales and margins, whilst the new Hospitality and Agency Brands business units are also expected to generate material contributions to group earnings into FY23 and beyond," Olson said.

The agency brands unit refers to a deal struck in May with Chicago-based Molson Corrs for GDA to exclusively represent the Miller Chill, Miller Genuine Draught, Coors and Molson Canadian brands in Australia.

In today's report, Hoedemaker reiterated the agency business is expected to add 15 million litres of incremental sales volume and $40 million in extra revenue in FY23.

"Importantly, this sales volume and associated revenue comes at a very low capital cost, and significantly improves our value proposition in the Australian drinks market," he said.

"These brands will continue to be brewed by the brand’s owners, either domestically or internationally, leaving us to continue to devote our brewing capacity to our owned brands. The more than 50 per cent expected growth of revenues from these agency brands will leverage Good Drinks’ respected and capable national sales and marketing teams.

"The expected $3 million to $4 million in incremental EBITDA is clearly earnings per share accretive and represents a significant up-lift in potential shareholder value," he said in relation to the new division.

The co-founder added GDA was working on securing an iconic location for a Gage Roads branded venue on the east coast, and highlighted the planned acquisition of Victorian brewer Stomping Ground which was announced last week, comprising a mix of $7 million in cash and 4.5 million GDA shares in payment (worth around $3.4 million at the current share price).

"Stomping Ground provides a great opportunity to accelerate our strategy of driving improved margins and sustained earnings growth through the production and sale of higher-margin products," Hoedemaker said today.

"It also improves Good Drinks national reach, while adding key venues to our growing hospitality business.

"Stomping Ground founders Steve Jeffares, Guy Greenstone and Justin Joiner will remain key leaders within the business, joining Good Drinks Australia as shareholders."

GDA's revenue growth outpaced growth in volume sold, which was up 13 per cent to 19.5 million litres with independent retailers contributing $4.9 million in sales, followed closely by national chains at $4.3 million. As a sign of a return to pubs following lockdowns, draught sales jumped 25 per cent in 12 months to $3 million.