Where To From Here For Local Beer?

February 13, 2024, by James Smith

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Where To From Here For Local Beer?

If you had asked anyone with a reasonable knowledge of the local beer industry to name a brewery they thought might enter voluntary administration, the chances of anyone picking Hawkers would be slim to none. Yet the Reservoir-based brewer, which continues to record year-on-year growth for its brands, this week became the second brewing company to make that decision in 2024. UPDATE: Since followed by Adelaide-based Big Shed Brewing.

The full picture behind their announcement won't become clear for a few weeks, when they will hope to exit administration, yet the fact such a well-respected business has joined the list of indie operators to follow this path in the past 18 months puts an even keener focus on the challenges facing the industry.

As well as the three administrations this year – Wayward Brewing and their Local Drinks Collective business filed on January 2 – Wild Life Brewing in Shepparton closed for the last time last Saturday, while industry publication Brews News announced it was ceasing operations on February 2, a few weeks after Beer & Brewer decided to call time on their quarterly print mag.

With the Independent Brewers Association (IBA) cancelling their annual conference, BrewCon – which was set to take place in Perth – yesterday, the sequence of events poses the question once again around what can – or needs to – happen to turn things around.

When it comes to the businesses that have entered administration over the past 18 months, there's no one-size-fits-all answer to describe the sequences of events that have led them to this point. Some have entered administration owing significant amounts of money to a broad range of creditors; in other cases, the owners have felt they had no other choice due to an inability to agree payment plans in order to clear tax debts – often those accrued during the early years of the Covid pandemic.

While some businesses have been able to negotiate repayment plans with the ATO, others have had proposals rejected. As Independent Brewers Association (IBA) CEO Kylie Lethbridge puts it: "There's no rhyme or reason we can ascertain as to why some are given extensions and some aren't, even though they've never missed a payment or had any issues in the past.

“We know that the taxpayer is losing out," she adds. "We also know the Federal Treasurer is trying to get the largest tax debt in history down and off the books. But nobody is benefitting.

 

Kylie Lethbridge, from the Independent Brewers Association, is leading a push for systemic changes to support the local beer industry.

 

"The ATO is not being flexible and everyone loses as a result. There's downsizing and job losses across the industry as those not closing their doors or going into VA are restructuring.

"We're not asking them to forgive the debt, but to extend payment terms so the taxpayer gets 100 percent rather than ten cents on the dollar through a DOCA (deed of company agreement). The only one that can change the the approach being taken by the ATO is the Federal Government."

Indeed, a willingness to show greater flexibility when dealing with breweries' excise tax debts is at the heart of this month's IBA pre-budget submission. Within it, the association has called for the extending of terms for repayment of debts deferred during Covid, as well as other forms of relief, including a freeze on the indexation of alcohol excise for a period of two years, and for the excise remission cap of $350,000 introduced in July 2021 to be indexed in line with inflation.

In a media release accompanying the submission, Kylie said: "The biggest issues are structural and economic and only the Federal Government can address them. The Federal Government needs to act now if it wants the sector to survive – and to show Australians they do care about local small businesses. We are simply asking for common-sense reforms that go some way to creating equity for small breweries in a market stacked against them.”


IBA chair and co-owner of BentSpoke Brewing, Richard Watkins, warned of the potential consequences of inaction too: "It is a very unhealthy situation for our industry at the moment. Beer tax has jumped by nearly eight percent in the past three to five years and local brewers can’t match the prices of overseas-owned producers.

"We're worried the cost of craft beer from a local Australian brewery that has employees in Australia, pays tax in Australia, will start to be out of reach for many Australian consumers."

It's not just brewing businesses and the taxpayer that are taking a hit either, with those supplying breweries with ingredients, support and services often losing out too.

One of the largest is Bintani, founded by Pete Meddings in 1995 and still operated by the Meddings family. Joint CEO Phil Meddings describes the impact of this run of administrations as “huge”, and also multifaceted.

He cites a combination of the ATO’s clamping down on the industry on the one hand with administrators seemingly "rolling out a template process and deed of company agreement, where paying just ten cents on the dollar is palatable” as a major cause for concern.

“I’m worried that the actual process of executing a DOCA is very, very quick and doesn’t necessarily give the best return for creditors,” Phil told The Crafty Pint.

“These businesses are going back to the existing owners for a nominal sum without an extensive process of courting the market.”

 

Phil Meddings (right) with brother Dale and dad Pete.

 

In the cases where Bintani have been among the creditors, they’ve experienced a range of circumstances. On one end of the scale, they and other suppliers have taken an additional hit after receiving increased orders mere days before a business enters administration; in other cases, the businesses in question have been up-to-date with the majority of payments and it’s the ATO, as he puts it, “forcing their hand”.

Whatever the detail and however long the creditor’s list, like Kylie, Phil believes there are no winners in this ongoing spate of administrations, with the ATO's seeming inflexibility when it comes to accepting payment plans – at least in some cases – meaning “they’re trashing the industry and trashing local, small businesses.”

When it comes to other creditors, there are impacts whether large or small.

“The impact on us as a supplier is just growing and growing,” Phil says. “We are one of the larger suppliers, which you might think provides insulation, but we’re not insulated from it, whether it’s holding stock for these producers or from not collecting our debts – they are both significant.”

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One result is a need to alter terms offered to customers, whether they are up-to-date with their accounts or otherwise.

“We’re struggling to justify credit accounts,” he says. “We have to become more and more cautious across the board.”

Phil is keen to highlight the impact on other suppliers too.

“The smaller tradespeople or the fruit and veg suppliers – they’re all local business, so when they lose one or three of five thousand dollars it might not sound like much, but it could be a week or a month’s wages for someone. So the local community gets hurt.”

As for the events of the past few years that have brought the beer world to this point, he says: “There’s no doubt the industry has copped significant headwinds – it’s unprecedented.”

With growth grinding to a halt so quickly over the past couple of years in the economic downturn, he believes businesses require time to adjust to the current reality, not least as many had been planning and spending for growth – and that the ATO should be willing to allow them more time too.

“We see a real resilience in demand and in breweries,” Phil says. “Things aren’t flying like they were but there’s still demand. That’s why I think working with [breweries] will get a better outcome for the business and the industry.”

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