Founders First Continue To Accelerate

Given they call themselves a craft accelerator, we shouldn’t be too surprised at how fast they've become major players in the local beer world. Yet the recent activity of Founders First, which continues today with the announcement they've taken a stake in SA's Sparkke, is quite remarkable.

Since launching late in 2017, the group has taken an interest in Jetty Road, FogHorn, Sauce, Ballistic and Slipstream, with the last three of those announcements coming within a month of each other. As Sparkke become the latest brewery to become a part of the Founders family, they join distilleries Something Wild Beverages and Brogan's Way, plus the alcoholic kombucha company K.Booch.

In terms of ownership, Founders have a majority stake in both Jetty Road and FogHorn, with varying levels of minority shares in the others. Taking a stake in six breweries has turned the two-year-old company into a significant player in the independent beer space and, while we can expect more breweries to join the Founders fold soon enough, the group’s CEO and managing director, Mark Haysman, says there is a limit to the number they’ll look to work with.

“If we ended up with about ten craft brewery partnerships across the country, where we have a couple in each of the major markets that are complementary and can support each other’s growth, that feels like about the right balance for us over time,” he says.

The last few weeks haven’t just seen them invest in a steady stream of companies, either. Mark has been spending most of his time on the road, talking to potential investors ahead of an initial public offering (IPO) within the next month. The stock market float will offer between 20 and 35 million new shares, at a price of 50 cents per share, with the aim of raising between $10 million and $17.5 million. You can view the full Founders First prospectus for the company's IPO here.

Following two rounds of capital raising, both of which were oversubscribed, Founders First have already raised more than $21 million this year, with Mark saying by the time of the IPO their investors will be in the hundreds.

“We create more flexibility in independent craft for these brave founders who have started their businesses to potentially take a lot of financial pressure off,” Mark says.

“Because we’ll be listed on the ASX, it means we’ll have liquidity ongoing; we’re not dependent on someone buying out Founders First or buying out one of the brands.” 

However, with somewhere around 600 brewing companies in Australia, how do they choose who to invest in? Mark says they focus on businesses in the early to mid-stage of their growth; each of the breweries they're involved with was less than five at the time of investment.

“Our model is all about backing the founders that have had the courage to go out and create these businesses and have made a start,” Mark says.

“We look for great people with a big dream that we can back and help. Ideally, they know what they’re good at and maybe what they’re not so good at so we can help them in the areas they need that help in.”

They've also created the Indie Craft Collective: the sales teams from each brewery have been brought under one banner, led by sales manager Cameron Buckland, who, like Mark, worked at CUB and was more recently responsible for beer at Dan Murphy’s.

 

Left to right: Chairman Robin Levison, CEo Mark Haysman, finance director Stuart Morton, category and marketing director Dan Wales, and director John Hood.

 

“We know that the craft category is really important for the retailer to do well in," Mark says, "because it’s highly profitable in terms of people buy less cartons and buy more six-packs, four-packs and singles. To have a bunch of IPAs and pales, for example, helps grow the category and point the shopper to that category.”

A challenge with having a bunch of IPAs or pales to sell is that you need to sell all of them. Each beer might be unique in its brewer’s eyes but if an amalgamated brewery sales team has eight American-hopped, pale beers to sell, whose beer do they prioritise?

“Each state has slightly different priorities,” Mark says. “Not all the businesses we partner with are going to be national brands but some need help to become more locally dominant and grow in their own state.

“To be able to help bring Ballistic into Melbourne on the back of Jetty Road will be beneficial to both. And the ability to leverage off Sauce in New South Wales to get Jetty Road in there would be great.”

As much as the craft beer industry remains collaborative, with Ballistic and Slipstream being less than five kilometres from each other, they’re not only competing in wholesale but as venues too. However, Mark believes working with a limited number of breweries who have complementary goals reduces the risk of outright competition.

“I think if we ended up with 25 breweries then I’d say yes,” he says. “But we’re about brand led businesses and building these brands in these local markets. There will be some overflow but I think that can be coped without any dramas.

“We look at it [as] making sure the brands support each other and grow rather than be in conflict with each other. 

“The craft category is growing at around eight percent per annum, but independent craft is growing at about one and a half times that; so there’s a lot of growth still ahead of us.”

Ballistic founder David Kitchen says much of the appeal of working with Founders First was based around the sales capability offered by the Indie Craft Collective. He's been open about his intention to make Ballistic a national brand but says the price of having a presence in each state is prohibitive.

“The cost of expanding nationally is huge and the cost of having reps is significant and I’ve often wondered why we all have our own reps and why we can’t possibly cross rep other companies,” he says, mirroring Mark’s view that a flexible portfolio of beer can make life easier for retailers who have beer reps constantly walking through their doors.

“If we want to sell beer in Victoria, we don’t sell that much in the way of IPAs, lagers and pales,” he says. “We’d love to but that’s not really what a Victorian beer consumer is looking for from a brewery that’s out of state; what they’re really looking for is our Single Hop, Twang and our Sleep When You're Dead ranges.”

David showing off the beer released with Ballistic's Springfield brewpub


David is on the board of the Independent Brewers Association (IBA) and says their decision to become part of the Founders First group doesn't create a conflict with their independence.

“These are the guys who sell the pick handles in the gold rush,” he says.

“I know that everyone who gets out of the big companies always says this, but it is the case for us. There is no input on the brewing side, that’s really clearly delineated in the whole agreement, they’re simply providing backend services.

“You’ve still got to win one tap in a bar and that’s a hard thing to do. But, at the same time, I think it’s a move towards a more professional and capable sales capacity and I think that’s something that needs to be done as an industry.

“We’re so far past where we were ten years ago in terms of what was acceptable when you had craft in front of your name, in terms of what people expect in terms of quality, consistency and professionalism.” 

Mark hopes the ability of Founders to connect with so major retailers can help grow the independent beer pie. 

“What we’re trying to champion is the independent craft category overall and help grow it for the benefit of everyone and not just those we’ve invested in,” he says. “We’re trying to help educate the retailers around the opportunity in this space and we hope there will be a tailwind that all independent craft can have.” 

As it stands, there’s only a few large breweries and distributors in the country who have beer ranges as broad as the Founders First, which begs the question: are they becoming another big brewery?

“Our job is to really back the founders that have the courage to start these businesses,” he says. “If you look at Balter and Stone & Wood, that are independently owned as well, they are wonderful brands and businesses and they have a lot more scale than we’re working with and people really want to really champion those independently-owned business."

As for the future, he says they’re looking to export both spirits and beer into the Asian market and, earlier this month, they took outright ownership of Australian export business Momentum Food & Wine.

Ash Cranston, who previously worked at Little Creatures and helped launch Felons in Brisbane, has come on board to run the hospitality side of the business. As well as entering into joint ventures to open new venues for both Jetty Road and Sauce – in South Melbourne and Cairns respectively – there will be a Founders First venue opening in Moonee Ponds next year to sell their brands.

Mark says they look to partner with breweries for the long term, although the IPO prospectus states that “divestment of some assets may also be undertaken to create or protect value for shareholders,” while pointing to the fact that “large beverage companies have a history of acquiring high growth craft operators.”

If brewery owners want to leave the breweries they started, Mark says they’d look for ways to accommodate that but he feels it would be the exception to the rule.

“If they wanted to trade some of their equity … to get some liquidity to pay down some debt to help have a better life then they can do that," he says. "But they don’t have to give up their dream of running that brewery.”

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