Mainstream vs craft: what’s the difference?
The line between mainstream and craft beer blurred some time ago. Starting with the sale of Mountain Goat to Asahi in 2015, the major players (Lion and Asahi/CUB) have continued to buy up craft breweries to capitalise on the growing demand for craft beer, where industry revenue has grown steadily from FY15 to FY19 by 7.7% per annum.
However, recently consumers are reverting to easier drinking styles with sessionable flavour and lower ABV% as well as a lower price point. In order to capitalise on this new trend and appear contemporary, mainstream brewers created new brands (e.g. Furphy) and are reviving old brands (e.g. Reschs, Fosters) which aim to meet the current demands of the consumer yet appear boutique and/or distinct from their more traditional volume brands.
Independent craft beer brewers are also meeting the market by introducing ‘basic’ lagers to their range (e.g. Stone & Wood’s Green Coast lager, Moon Dog Lager), expanding their offering past the now all too common IPAs, smoky porters and milk stouts.
The distinction between mainstream and independent beer is becoming increasingly difficult for consumers to discern, so much so that the industry has shifted focus on whether a beer is ‘craft’ or not, to whether a brand is independent. The Independent Brewers Association was formed in 2017 but its relevance and reach has increased substantially since the flurry of corporate activity in 2018-2019, notably the sales of Balter (to CUB), Green Beacon (to Asahi, which is now part of CUB anyway), Gage Roads’ purchase of Matso’s and Tribe’s acquisition of Mornington.
Impact of COVID-19
Craft beer revenue declined by 6.6% in FY20, attributable to:
- government lockdown restrictions impacting demand from hospitality venues and limiting craft brewers’ ability to sell product onsite in brewpubs; and
- falling consumer discretionary spending due to the COVID-19 economic downturn.
Despite this, retail beer sales increased in FY20, as having a cold one at home over a video call became the norm. However this largely benefited the major players (Lion and Asahi/CUB) which dominate retail sales.
Independent craft brewers were hit hard by lockdowns around the country, particularly as a number of craft brewers have brewpubs or hospitality revenue streams which generate material revenue, have great margins (capturing the full margin from manufacturing to retail) and deliver cash at point of sale.
Victoria has the largest number of craft beer establishments, closely followed by New South Wales. As such, the strict and long lockdown in Melbourne disproportionately affected the industry’s aggregate performance.
Victoria and New South Wales currently have patronage restrictions in place. Whether or not these current capacity limits are sufficient to maintain margin is unclear. Hopefully easing restrictions and vaccine rollout will allow brewers to bring their venues back to capacity, where there are lines for the bar and bathroom!
Regardless of the restrictions, punters who value local independent brewing need to be diligent in understanding which brands are actually independent, and need to support those brands by getting out of the house and onto the tiles. Drinking onsite off the tap must be the designated driver of the craft beer industry’s recovery. The Independent Brewers Association has created a ‘seal of independence’ which can assist in driving choice.
M&A activity in craft
COVID-19 called last drinks on M&A in 2020 in the craft/independent space, and with the Asahi/CUB mega merger, there are now fewer places for independents to ‘exit’. 2021 may present some opportunistic M&A for big players to plug holes in their brand portfolios or pick up a bargain where brewers were not able to bear the impact of COVID-19. However, we anticipate most in the industry will need time to consolidate their positions, restore operating cash flow and recover from the COVID-19 hangover. Alternative thinking for growth capital or exit is needed – such as the rumoured plan for Fermentum Group (Stone & Wood brand owner), which recently acquired Two Birds Brewing and is reported to be seeking further growth capital through a potential IPO.