Trouble brewing: craft beer market under pressure as consumers tighten belts

Trouble brewing: craft beer market under pressure as consumers tighten belts

Sign of the times: Recession Ale is one of Wayward Beer Co's most popular drops 

It may be business as usual for Sydney craft beer company Wayward Brewing Co after it was placed into voluntary administration this week, but the latest hit to the sector exposes the reality of a niche hospitality market that is being weighed down by lower demand and rising costs.

Wayward Brewing Co and its distribution business Local Drinks Collective called in voluntary administrators on Tuesday with plans currently under way to restructure the loss-making businesses.

While Local Drinks Collective was established in 2022 by Wayward Brewing Co and fellow Sydney craft beer company Batch Brewing Co, the latter is not embroiled in the voluntary administration process and continues to operate as normal.

The commercial woes for Wayward Brewing come on the heels of a tough 12 months for the sector, brought to light in January last year when Queensland’s Ballistic Beer Co was placed into administration with debts of more than $5 million, including $2 million owed to the Australian Taxation Office.

While Ballistic avoided liquidation after creditors accepted a deed of company arrangement (DOCA), the challenging conditions for the craft beer market have not eased.

Peter Philip, the sole director of Wayward Brewing and Local Drinks Collective, says the craft beer market has been hit by a double whammy of declining consumer demand and a significant increase in production costs.

Wayward, which operates a craft brewery and taproom in Camperdown in Sydney’s inner west, says the administration process will not impact the company’s ongoing production, distribution and taproom operations.

Philip is hopeful of working with administrator Atle Crowe-Maxwell, of DBA Reconstruction & Advisory, to put forward a DOCA that will deliver a framework to restructuring the combined business.

Philip, the former chair of the Independent Brewers Association, tells Business News Australia that the issues confronting the craft beer market are being felt across the board by the hospitality sector.

“Consumers have been hit very hard by rising interest rates and inflation, so everyone has had to tighten their belts,” he says.

“When we speak to our partners in the hospitality industry, they’re telling us that people are buying pots rather than pints and they’re going for the $10 steak rather than the deluxe meal.”

The Wayward Brewing Co boss says it’s a trend also being felt by craft brewers with lower average sales per customer.

“The sad fact is that people are going to buy cheaper beer at this time, so rather than buying a $40 Penfold they are buying a $9 Aldi wine.”

Among the key challenges faced by the craft beer market is the rapid increase of input costs.

Mighty Craft reported a deterioration of craft beer sales across its portfolio in FY23 

 

“The perfect storm is consumer confidence on one side and, on the other, small brewers have been hit by massive inflation with aluminium can costs going up 25 per cent and some of our transportation costs up 50 per cent.

“Excise also goes up every six months whether we like it or not. When you buy a six pack off the shelf a third of that cost – or two cans - goes straight to tax.”

While loyal consumers are keen to support craft brewers and local jobs, Philip says the sector is up against beer giants Carlton & United Breweries and Lion, respectively owned by the world’s biggest beer companies Asahi and Kirin.

“They have massive economies of scale and can produce and sell beer at a much lower price point than the smaller independent craft breweries,” Philip says.

The tougher trading environment was noted in the FY23 full-year results of listed brewer Mighty Craft (ASX: MCL) which reported a deterioration of operating conditions during the year as cost of living and inflation impacted consumer spending. Craft beer sales fell 5.4 per cent for Mighty Craft in FY23, after recording double-digit growth in previous years.

The ongoing fallout in the sector over the past year has claimed the likes of Port Macquarie's Wicked Elf Beer, a business that previously endured for 15 years.

Wicked Elf, which was founded as Little Brewing Co in 2008, was placed into administration in 2017 and emerged from the process with a new name and ownership, managing to operate for another six years until closing last year.

Prior to that, Brisbane-based West End Craft Brewery, trading as Parched Craft Brewery, was also placed into administration.

This week, Moffat Beach Beer Co on the Sunshine Coast is the latest craft brewery to be caught up in administration rumours.

Business News Australia has sought comment from Moffat Beach Beer Co, but company founders Matt and Sharynne Wilson are reported to have quashed these rumours, revealing that they are restructuring their business interests amid the challenging market conditions.

“I know a lot of brewers in the industry and no one is doing great at the moment,” Philip says.

“Everyone has had to tighten their belt and unfortunately a lot of jobs are being lost.

“We had to make personnel cuts and we are trying to manage the business in a fiscally responsible way. It is unfortunate that it has come to this point.

“But we have a very loyal customer base and we appreciate the support that our local community is giving us.”

The craft beer industry is taking a proactive approach to keeping the dream alive by encouraging community support. Among the initiatives is Local Beer Day coming up on February 24 with the event encouraging consumers to visit their local craft brewer, pub or bottle shop on the last Sunday of summer.

“The industry is pivoting and we’re trying to attract consumers with our offering,” Philip says.

While the Independent Brewers Association, which has 419 brewery members, has been agitating for several years for a moratorium on the biannual federal excise increases, the federal government has not yielded to the pressure.

“That’s not going to make a massive difference, although it will make some difference,” Philip says. “For us, it really comes down to consumer support.”

Philip, who is remortgaging his home to in a bid to support a Wayward Beer Co restructure, is confident his company can successfully navigate the voluntary administration process and protect the 35 jobs it currently supports.

The beer industry veteran says he is confident the financial restructuring will lead to ‘a stronger and more resilient business’.

“We are trading through this, and we are working closely with the administrator to put a DOCA together,” he says.

“We are confident that the restructuring will ensure the business is on firm footing and we can look ahead with confidence.”

Get our daily business news

Sign up to our free email news updates.

 
Unpacking equity: Finding your funding fit
Partner Content
Armed with a growing business and a great opportunity, a business owner’s next challe...
Australian Business Growth Fund
Advertisement

Related Stories

Meta slammed over "dereliction" of commitment to Australian news

Meta slammed over "dereliction" of commitment to Australian news

The decision by Meta (NASDAQ: META) to "deprecate" the Fa...

AF Legal acquires Armstrong Contested Wills & Estates in deal worth up to $3.75m

AF Legal acquires Armstrong Contested Wills & Estates in deal worth up to $3.75m

A year on from the failure of an $11 million merger with Go to Cour...

GreenCollar buys into EnergyLink Services to tackle agribusiness decarbonisation

GreenCollar buys into EnergyLink Services to tackle agribusiness decarbonisation

Environmental markets project developer GreenCollar has made a stra...

Going concerns notices raised for ASX cannabis players Cann Group and Althea

Going concerns notices raised for ASX cannabis players Cann Group and Althea

Material uncertainties have been raised about two of the largest&nb...