Under Pressure: A Perfect Storm Brewing For Beer

February 1, 2023, by Will Ziebell

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Under Pressure: A Perfect Storm Brewing For Beer

The cost of beer is set to rise again, with excise tax going up another 3.7 percent today. The latest hike follows a 4 percent increase in August last year; taken together it represents the biggest rise in a financial year in more than 30 years.

Yet it’s just one blow among many raining down on the beer and hospitality industries: excise is going up at the same time as pretty much everything else, leaving small business owners facing a fourth straight year of harsh challenges. 

At the Union Hotel in Newtown, owner Luke Hiscox says the changes are particularly noticeable this time around, with breweries talking about raising prices by between $13 and $15 per keg as well as needing to increase their freight costs. And it's a price increase he says they need to pass on to consumers.

“Obviously we're going to have to,” he says. “There are generally two increases a year every six months, and we kind of eat one of them, but we generally have to put it up on the February one.”

Raising the price of their tap beers is essential, he says, given how difficult it’s been to run a pub over the last six months as they've watched costs rise across the board.

“If you don’t pass it on, then it becomes like, ‘We don’t use lamps anymore’ or ‘We don’t open on a Monday’,” he says.

Beyond the larger energy bills everyone is facing, the cost of meat, other kitchen essentials, and wages have gone up too.

“I can't for the life of me get the same sack of potatoes one week to the next and it’s ridiculous,” he says, adding: “It's literally anything that gets delivered to the venue has seen an increase in price.”

 

Newtown publican Luke Hiscox (left) with Working Title and Bracket Brewing at a Crafty Cabal event late last year.

 

While he’s unsure what the reaction among beer drinkers will be, Luke suspects people’s eagerness to visit pubs since COVID lockdowns and restrictions ended will soften the blow for on premises businesses, but suspects bottleshops, where margins are tight, could suffer. (You can read more about the slowdown in bottleshop sales and how novel this is for the modern Australian beer industry here).

“[People are] far more likely to cut that as a bit of an indulgence or a treat,” he says.

Independent Brewers Association (IBA) CEO Kylie Lethbridge says brewers know when excise hikes are coming, yet this significant back-to-back increase comes at a time when many across the country are struggling. Only last week, Ballistic Beer in Brisbane went into voluntary administration, although their administrator, PKF, told The Crafty Pint they expect to put forward a proposal that “will see the company continue into the future.”

What's more, she points out that, on the back of three years in which bushfires led straight into the pandemic, business owners are simply exhausted.  

“Everyone's still hurting,” Kylie says. “And then you add the increasing cost of materials, the increased cost of energy in terms of producing beer, as well as the fact that, for consumers, everybody's tightening their belts a little.”

While day-to-day life has returned, for the most part, to normal, the impact of COVID remains an ongoing concern as it continues to impact staffing levels as well as attendance at venues; coupled with the economic challenges, it makes for a “perfect storm”.

“I use that tidal wave analogy,” Kylie says. “Where you get knocked down and you just get up and get the saltwater out of your eyes, and then another tidal wave hits you in the back of your head.

“How much can we take? How much can our members take? How much can a small business take before we start to lose more breweries and therefore not provide jobs and those local meeting places?”

 

IBA CEO Kylie Lethbridge (right) with Indies hosts Miro Bellini and Kirrily Waldhorn at last year's awards.

 

One way in which the IBA is looking to help the independent beer industry is through its calls for the Federal Government to overhaul the excise system.

“We continually advocate for a better and more fair taxation framework, generally,” she says.

“It's one of the oldest taxes as well as the most convoluted, and we’re the fourth highest taxed country in the world when it comes to beer.”

They’ve been working with the Federal Government to go through the IBA’s Ten Year Roadmap, with Kylie hopeful that, given Anthony Albanese’s longstanding support of independent breweries – including stumping for Willie the Boatman’s Albo beer in last month’s Hottest 100 – there will be continued support.

“The IBA’s job is to speak on behalf of beer and our 430-odd brewery members who are going through all these things,” Kylie says. “Because that might take time, any short-term respite that we can have, whether that’s as small businesses, hospitality, or as manufacturing industries, is welcome.”

One of many brewery owners trying to navigate a path through the storm is Hawkers CEO Mazen Hajjar (pictured below), who believes the entire tax system around alcohol needs to be overhauled due to the advantage winemakers gain through the Wine Equalisation Tax. With this system, wine is taxed on its wholesale value rather than its ABV like beer and spirits, so the cheaper the wine, the lower the tax price. 

“We’ve inherited an archaic system and are taxed stupidly high, but I think the inherent system dysfunction is that there’s no equal balance between alcohol,” he told The Crafty Pint.

He says the taxation system is compounded by the increase in excise and inflationary pressures means craft beer feels the brunt.  

“The problem is that every time we have high inflation and people are scrambling with the cost of living, beer is disproportionately impacted,” Mazen says.

“A lot of the people would love to support independent, small producers, who are actually the highest tax contributors and the highest employers. But [these people] shift to wine or cheap, mass produced beer and whatever is on sale.”

 

 

Mazen says taxation is one of myriad financial hits the beer industry is facing, including energy, freight and aluminium, with the war in Ukraine and the devastating floods across much of Australia playing their part in sending the price of beer essentials rocketing.  

“Look at the energy costs,” he says “Barley this year is going up between 20 to 60 percent, depending on which barley producer. That’s on top of last year's price hikes, which were anywhere between 12 to 25 percent.

“We import a lot of hops from the US and the Aussie dollar has been deteriorating and hop costs have been increasing for years now. We need to pay a living wage for our employees so salaries need to rise so they can put food on their table.”

He points out ongoing issues he’s raised in the past haven’t gone away either, such as tap contracts and the growth in the country’s major retailers selling private label beers designed to look like they’re from indie brewers.

Like Luke, Mazen can see the impact being most keenly felt at bottleshops; he believes beer drinkers are less likely to baulk at a price increase for a pint of their favourite beer if they’re already out socialising.

As for what this all means for breweries, he points to the weekly closures in the UK; while the local industry hasn’t faced that level of turmoil – in the UK, inflation is higher, Brexit has had a compounding impact, and the transport industry is under more strain – he says that doesn’t mean a similar situation won’t arise here.

“Our problems are not as acute as in the UK for various reasons,” he says. “Does this mean we won't see them? I think, given enough time, we will see the same problems.”

Kylie says there are potential bright spots on the horizon: inflation might have peaked, while there remains a desire to get behind local breweries and pubs among many beer drinkers.

“We know that consumers do their best to support local and support breweries that are in their community,” she says, “but you can only do that when it’s affordable. We thankfully have the benefit of that support from our citizens, but when they have to look through their budgets, that becomes more and more challenging.”

Luke also sees the eagerness of punters to have a good time as a ray of light.

“How good is having people in the pub?” he says. “Trade is great, live music has no restrictions, and everyone has a great time in here.

“Everyone's just excited and so thankful to be catching up and that’s great. We're lucky to have them, so we're really stoked too.

“We're stoked to be out of COVID. It's just business is tricky this year.”

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