There has been a bit of noise around lately of Little Creatures take over by Kirin, however you might have missed another story kicking about around another ‘little’ brewery looking for some investors.
The Little Brewing Company (TLBC) which is based in Port Macquarie is looking for investors and they have a prospectus which is available for download here. They are best known for the Wicked Elf and Mad Abbott range of beers.
For anyone interested in the business of brewing it’s a good read. Now I’m not going to analyse it from an investment point of view, because, well if you take advice from random strangers on the internet about how to invest money you need your head read, and secondly I’m not a financial advisor, my accounting skills don’t stretch too far past Mr Jones’ year 12 accounting class. But there are a number of interesting statements in the document which are worth mentioning here.
Firstly the overwhelming theme of the document is that the biggest thing holding back the brewery is not a lack of marketing focus, or lack of taps in pubs (and certainly not big breweries locking them out), or lack of distribution, or in fact lack of interest from the punters. Nope it’s capacity.
This is the thing I’m starting to hear over and over again from/about breweries; they simply cannot meet the demand. You might sit there and think that’s a great problem to have, to fix it you just need to brew more beer.
Brewing is a notoriously capital intensive industry and it’s difficult to scale up production. What the Little Brewing Company needs money for is not advertising or more marketing and sales staff it’s for stainless steel and brewers.
In fact they lay out the business plan for growth (and not small growth by the way, they are talking about doubling sales) and marketing doesn’t get a mention until Phase 3, well after mundane, and from an outsider’s perspective, basic things like buying more kegs.
So all of us that whinge about the lack of support from bars and bottleshops for craft beer perhaps need to consider that we might have it backwards, this document (and some other things I hear) tell me there are plenty of bars out there who want product, but it’s the breweries who can’t produce it fast enough and can’t provide consistent supply.
The excise debate, which is another of those topics we all seem to talk about ad nauseum is barely mentioned in the document except to explain the effect it has on cashflow. If you are not aware government excise is generally paid before you receive the payment from the bottle shops or bars for the beer you have sold them. The issue this creates is nicely summarised by this quote ‘This results in a situation where every time sales are increased cash flow deteriorates.’ This is the reason why government excise limits growth for small breweries and why it favours bigger breweries like CUB.
The Little Brewing Company is unusual for a craft brewer in that they have great distribution with the mainstream bottleshops, namely Dan Murphy’s (Woolworth) and 1st choice (Coles). I note with interest that these two outlets combined account for 55% of all TLBC’s capacity. This only proves the (potentially very dangerous) power of Woolworths and Coles in Australian retailing.
The other statement in here that I find interesting is that they state that Victoria and WA are by far the biggest craft beer markets in Australia. In fact it suggests that the potential in Victoria could be five times that of the NSW market (it’s unclear whether this is all due to the size of the markets, or whether TLBC’s increased presence in NSW vs Victoria is already factored in). It also confirms what I’ve always suspected that Queensland is lagging behind.
This suggests to me that the potential for craft beer is huge, even if we have hit the demand ceiling in WA and Victoria (which I’m not convinced we have) then the simple fact of the other states catching up will be enough to double or triple craft beer’s volume in the next four to five years.
The final point I’ll pick out for you is the brief mention of a craft beer venue that TLBC is looking at in Sydney which is described as five microbreweries having their own branded bar in one venue – which sounds like a food court for beer. I can’t work out whether this is a good idea or not. I have the feeling it might be if you are the best of the five, and not good if you are the worst but it certainly is an unusual idea.
If you are interested in the business side of beer as well as the taste side, or if you have a spare $50,000 down the back of the couch I advise downloading the prospectus, it’s an interesting read. Oh and maybe pop into Uncle Dan’s, pick up a Wicked Elf Pale Ale and drink it whilst reading it.