AFR article on craft beer market in Australia

Nothing new and Gage Roads not mentioned as such.
But it does re-enforce what we all think could happen.
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Craft beer shake-up as world's biggest brewer Anheuser-Busch InBev muscles up



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by Simon Evans

Andrew Fineran makes three predictions about the rapidly evolving craft beer industry in Australia, where two rivals have been swallowed by the world's biggest beer company, Anheuser-Busch InBev in an aggressive swoop in the past three months.

He says there will be even more small players gobbled up, the might of "big beer" and its deep pockets will result in a fierce step-up in competition among the existing 450 craft beer players. And, heaven forbid, the beards may disappear from some of the faces of the traditional "bearded hipsters" synonymous with the industry, in line with shifting fashions.

Mr Fineran, who co-founded craft beer company Batch Brewing Co in the inner western Sydney suburb of Marrickville four years ago with fellow American Chris Sidwa, doesn't expect to be one of those swept up by brewing giants. He's vowed to independently build the business further from its current output of 300,000 litres of beer annually, towards 500,000 litres. Batch employs 18 people and has significant support from local pubs and bottle shops, and regulars making special trips into the brewery to watch the flurry of activity. "There's no pretensions or anything," he said.

They started from scratch with ambitious dreams but plenty of hard-headed nous. "We ran very conservative numbers," Mr Fineran said. Mr Sidwa was a deal-maker from way back, having worked with JP Morgan in New York and Australia as an investment banker before turning his hand to brewing. "We'd like to continue to manage our own destiny," Mr Sidwa said.


The craft brewing industry is abuzz after AB InBev bought Sydney's 4 Pines in late September and then Adelaide's Pirate Life in late November. Soft drinks and water giant Coca-Cola Amatil acquired Western Australian firm Feral Brewing in mid-October.


Simmering Tensions
There are simmering tensions between "big beer" and the loyal band of craft brewers who are part of the Independent Brewers Association, which ejects craft beer companies from its ranks as soon as they fall into the arms of a large owner.

AB InBev became the owner of Australia's Carlton & United Breweries business, which makes Victoria Bitter and Carlton Draught, last year through a global merger. The group's top executive in Australia, AB InBev's president of Asia-Pacific South, Jan Craps says 4 Pines and Pirate Life both had the characteristics that were high on its shopping list.

"The brands need to be very appealing to consumers," Mr Craps said.


"We look for companies that create a unique culture". He won't discuss the price tags or the earnings multiples AB InBev paid. "They are confidential".

He says AB InBev and CUB won't be trying to disguise who owns Pirate Life and 4 Pine. "We're not hiding anything," he said.

Mr Craps believes too much spotlight is being put on the big beer and minnows tension, and that most beer drinkers simply don't care that much.

Beer More Important Than Capital Structure

"I think that first up most consumers think this is the beer for me rather than thinking about the capital structure behind the company," Mr Craps said. AB InBev can preserve the entrepreneurship and anti-establishment feel of the craft beer companies it has purchased, and deliberately ensures they run at arm's length to keep that harmony. "I believe that is possible".

Craft beer, worth around $740 million, now represents about 7 per cent of the total beer market, but the levels of penetration are running behind the United States where it is about 9 per cent. Craft beer sales are growing by 20 per cent -plus in Australia, while mainstream beer is flat.

"We want to be part of that growth. The acquisitions make sense for us," Mr Craps said.

Batch Brewing's Mr Fineran said there are both pluses and minuses to the acceleration by the big players. It will make it tougher for the smaller fish to gain access to taps in pubs and to shelf space in liquor retailing. "That's the nature of the ball game," Mr Fineran said. But the extra spending on advertising and marketing does give extra momentum to the entire craft beer category. The industry is awash with speculation about other buyout approaches. It's a difficult conundrum and causes much angst as brewers wrestle with their independence and the opportunities for their brand to become a global player. "If you're getting a huge paycheck staring into your face, it's kind of hard to turn down," he said. But he emphasises that Batch is charting its own course, with 10 smaller outside investors involved. He said there are plenty of other options for small brewers to consider in the pursuit of growth.


Pirate Walks the Plank
Pirate Life is running out of room at its original brewery in the inner western suburb of Hindmarsh in Adelaide and can't grow at that site. It is moving to a new brewery site at Port Adelaide where AB InBev will fund a $10 million showpiece capable of pumping out eight million litres of beer annually.

It had been producing about 3 million litres of beer a year after being established by Michael Cameron and his son Jared Cameron, along with Jared Proudfoot.

Conscious of the sensitivities and being labelled a "sell-out", Pirate Life's young turks, Jack Cameron and Jared Proudfoot explained themselves to their loyal followers in mid-December on their regular blog. "Despite what some of our peers may have said over the past couple of weeks, independence doesn't brew great beers, good brewers do," they said. Both learned their craft in Scotland with independent brewer BrewDog earlier in their careers before working in Western Australia in craft brewing. Pirate Life was the culmination of their own ambitions.


They said when first approached by AB InBev a few months ago they were in a tough spot. "We had reached the end of a long 12 months trying to secure investment to help us expand. Private equity, debt, equipment finance, government grants and loans were all explored and a lot of the time we found ourselves at a dead end, no better off than where we started".

Pirate Life followed a long list of previously small brands acquired by large players. Japan's Asahi scooped up Melbourne's Mountain Goat in 2015, while Little Creatures, White Rabbit and Byron Bay Brewing Co are all owned by Lion, which also makes XXXX Gold and Tooheys for its ultimate Japanese owner, Kirin Corporation.

Batch Brewing's Mr Fineran says the "bearded hipster" - so entrenched in the mindset of craft beer lovers may soon have run its course as a fashion signpost. "I think people like to see it," he says. But there may be shifting sands on that front too. He gives it two years. "I think that maybe we'll see more and more clean shaven craft brewers soon".