Thursday, 1 June 2017

Treason

It was really encouraging to get this news today from the Australian site Brews News. The TLDR is that a Melbourne law firm is enlisting breweries that want to be part of a class action against Australia’s corporate brewers for breaching competition law by using tap contracts.

I’m in no position to tell whether the law firm, Adley Burstyner, have the ability to succeed, but even if they don’t it’s keeping the issue alive, while Australia’s ACCC take a long time with their investigation into the same practice.

Now, speaking as a legal lay person, the Australian Competition and Consumer Act 2010 and the New Zealand Commerce Act 1986 are probably intended to do the same thing. But it looks like the Australian law might have more to say about anti-competitive behaviour. I say that because Part 2, Section 27 of the NZ Act says only “No person shall enter into a contract or arrangement, or arrive at an understanding, containing a provision that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.” Now the Australian Act says something similar about entering into a contract that is “likely to have the effect of substantially lessening competition”, but it also outlaws “exclusionary provisions”.

My lay opinion has always been that New Zealand tap contracts breach the spirit of the Commerce Act, but might stay within the letter of it, because it takes thousands of them to collectively “substantially lessen competition”, while it could be argued that one on its own can’t substantially lessen competition. But that clause about “exclusionary provisions” might give the Australian Act more teeth.

So it’s conceivable that the corporate brewers in Australia are destined to be forced to stop this practice and maybe pony up a lot in fines or compensation for having done it all this time. But at the same time the Commerce Commission in NZ have already seen fit to deem the practice legal. They have their version of competition law and we have ours, and that’s the prerogative of nation states. Or is it?

The Trans Pacific Partnership, and potentially other future free trade agreements, has a little bit to say about competition law. What I saw when I looked into it seemed pretty vague. It basically says that members should have some competition law to eliminate anti-competitive behaviour.

But what if producers and manufacturers in one country, hoping to export to another that they’re in FTA negotiations with, raise the stakes? It would be highly fanciful to think that Australia’s smaller brewers, fresh from a legal triumph over that country’s mega breweries, might get involved in FTA negotiations with New Zealand or other TPP nations over the competitiveness of their beer markets. But what about free trade negotiations with Europe?

Is it treason to hope that a foreign power will bully us into getting our anticompetitive house in order?

Thursday, 25 May 2017

Be There. Be Herd.

To put the following rant in context, I'm looking forward to the Lions tour and at Hashigo Zake we're putting out the welcome mat for Lions supporters. And local supporters too of course. This is because we have faith that those following the tour are people we will enjoy having as patrons. This is in contrast to how we dealt with the Wellington Sevens when we felt compelled to close our doors for a couple of years because of the behaviour of patrons on the weekend of that event.

I got an email yesterday from a supplier of flags and similar promotional material. It was offering Lions tour bunting. I took a closer look assuming that the product would consist of team colours or logos. But no, the “Lions tour” bunting that they were offering consisted of pictures of people with their faces painted.


In fact what they’re offering is consistent with other messages and imagery I’ve seen surrounding the Lions tour. Here’s the image that takes up half of the screen when you go to http://www.nzlionsseries17.com/.


The upcoming Lions tour is part of one of Rugby’s most significant traditions. As a sporting contest and a spectator event it has certain qualities that even the world cup can’t match. And the games have been followed by operators of still and moving cameras for a century.

Meanwhile the era of professional rugby, synthetic rugby balls and fields with drainage have helped make the on-field action more spectacular and athletic than ever before.

So for a designer tasked with creating visual imagery to promote the tour, there are rich vaults of historic and contemporary imagery available to draw on. 

And yet for the Lions tour, someone’s genius idea is to paint a few faces and say “open wide”? It’s as if they’re going out of their way to exclude images of actual play in any promotion of the game. Contrast that with just about any big sporting event, such as the NBA Playoffs, where they're happy to make a collage of their most famous players in action shots to promote their playoffs.


I realise that there is a point to the choice of images made by the rugby union or their design agency, and it’s to make local supporters feel involved. And when prices for games are inflated as much as these have been, the vendors of tickets know that they need to provoke an emotional reaction from local supporters to persuade them to come.

But it isn’t just the Lions tour that does this. In the entire, pathetic history of the Wellington Sevens, I can’t recall ever seeing a poster, advertisement or banner that used an image of on-field action to promote the tournament. Instead the promoters concentrated on shots of spectators in costumes, more painted faces, and a shot of an Austin Powers impersonator.

In the case of the sevens, this insistence on telling spectators that they, and not events on the field, were the real story, was the seed of the event’s demise. When the Wellington Sevens began, the Hong Kong Sevens was (and still is) the ultimate such event. Without Hong Kong the whole Sevens circuit would never have happened. The event had legendary status then, for many reasons – the on-field spectacle, the exotic location and the party element. And in spite of the reputation, the party-goers somehow seemed to remain under control. (I base this on the one time I went, which was in 1997!)



From the start the Wellington event was promoted as a party. We New Zealanders are notorious for being - shall we say - slow to get excited. So while it’s unlikely that any advertisement ever mentioned alcohol, images of spectators dressed up, dancing, and yelling carried a code that didn’t need a lot of decrypting.


Year after year there would be a little hand-wringing about things getting out of hand, but every year the advertisements would go up depicting costumes, painted faces and revelry in the stands. The message was pretty clear. If you want to sit in your seat and take in the sporting action, this isn’t the event for you. But if you want to turn into an exhibitionist for a day, rock on up.

When the tide turned and there was consensus from the organisers, the city council and the police that the partying had to be curbed, the organisers were painted into a corner. The crowds who’d come to Wellington for some consequence-free partying got the message and stayed away. But spectators who might have wanted to go purely for the sport had been well and truly alienated, so there was no-one left to fill the yellow seats.

To cut a long story short, the sevens organisers got the patrons, and the consequences, that they asked for. So what kind of spectator is being encouraged to turn up to the Lions games? 


Friday, 28 April 2017

Negotiations

For a while now, some of us have been observing how alcohol licences are issued in Wellington, with a bit of concern for one particular aspect. And that is the practice of the Police telling applicants that they will oppose their applications unless they agree to certain conditions being written into the licences.

If and when Police object, the application goes to a hearing and everyone takes their chances with the District Licensing Committee. From what I've seen, the DLC overrules the objections of the Police (and the Medical Officer of Health) with surprising frequency. Nevertheless, for a lot of applicants the hearing and the time taken for it to happen are unpalatable, especially if they're applying for a new licence and any delay in the licence might delay their opening. (It's different if you're applying for a renewal.) So applicants tend to pay very close attention to any suggestions the Police have for avoiding a hearing.

Fortunately there’s an extremely useful website with the very exciting name of NZLII. It’s an archive of decisions by all kind of courts, tribunals and what have you. And it includes decisions by the Wellington District Licensing Committee and the outfit that has oversight over them, which is the New Zealand Alcohol Regulatory and Licensing Authority.

Now if you know the names of a few bars or bottle stores whose licence applications might have been contentious it’s pretty easy to study the outcomes of those decisions. For instance, here’s the news-worthy Siglo case, where Police tried to make Siglo accept a one-way door policy only to have the Licensing Committee rule against them.

Today I came across this one. It's from a hearing on Feb 7, 2017, with the decision dated March 2. The Police and the Medical Officer of Health appealed the renewal of an off-licence by the Wellington committee so it went to the national body to adjudicate. They not only rejected the appeal, they said something that strikes me as kind of extraordinary.
[79] Reporting agencies should be careful to avoid ‘negotiating’ conditions with an applicant in exchange for those agencies not opposing the application. Doing so risks creating the impression that they have used their statutory reporting function under s103 to achieve their own ends. While the interests of reporting agencies are undoubtedly of significant importance, and it is for that reason that they have been given a function under s103, the Authority would take a dim view if opposition turned on whether an applicant agreed with reporting agencies’ recommendations on conditions. The role of the Police and the Medical Officer of Health under s103 is clear. They are to inquire into the application and if they have any matters in opposition, to file with the DLC a report on those matters. The evaluative exercise under s131, and the imposition of conditions, is for the DLC alone and not for the Medical Officer of Health or the Police. It would be an improper use of their reporting role in s103 if that was used in a way that effectively usurped the DLC’s licensing function.

From what I know of these things, the behaviour that the New Zealand Alcohol Regulatory and Licensing Authority is saying should be avoided sounds an awful lot like the way Wellington licensing has been operating for the last two or three years. For example the 2015 decision regarding an off-licence application here incorporates extracts from a succession of emails that must pretty much fit the dictionary definition of a "negotiation". (Paragraphs 12-17, on pages 5 and 6.)

So if the New Zealand Alcohol Regulatory and Licensing Authority is saying that this kind of practice is against the intent of the 2012 Sale and Supply of Alcohol Act, but this practice has been routine for several years, what does it say about the licences that have been granted in this time? Do they need to all be reconsidered by the Wellington District Licensing Committee?

Getting more extreme, if a bar or liquor store felt coerced into accepting shorter trading hours, can they sue the Police for loss of income?

Incidentally - and for full disclosure - Hashigo Zake's two liquor licences (on- and off-premise) were renewed on March 2, with no conditions added. So if the Authority's comments have affected how these things are done in Wellington, we may have been an early beneficiary.

Saturday, 10 December 2016

So Excised

A whole four years ago I tried to contribute to a discussion on the price of beer in New Zealand with this piece. As an aside in that I wondered whether it would be more fair for everyone if excise tax were charged at the point of sale rather than when alcoholic beverages enter the supply chain.
Four years later I’ve been thinking about that idea a bit more and it still seems really valid. Here’s why.

Excise tax on alcohol has an awful lot wrong with the way it’s applied. I’ll list a few here, but it’s the third one in particular that I’m gunning for:
  • it discriminates blatantly. That is, excise is charged at different rates for different drinks. To the best of my knowledge there is no evidence that a millilitre of alcohol in a whisky is more dangerous than a millilitre of alcohol in a beer. Nor that a millilitre of alcohol in a beer is more dangerous than a millilitre of alcohol in a wine. But our excise rates are calculated as if that is the case. It seems obvious then that what our excise rules are doing is profiling the consumers of these different kinds of beverage and intentionally penalising one category of consumers more than another. If only someone’s choice of drink correlated with religion or sexuality – then the way we apply excise would breach the Human Rights Act. (In fact, if I could suggest that the preferential treatment given to wine drinkers has to do with wine’s biblical/Judaeo-Christian history, then maybe this is a form of religious discrimination. Any lawyers out there want to do some pro bono, human rights work?)
  • It assumes that all alcohol entering the supply chain gets consumed. Brewers and other producers have to pay excise whether the beverages they make are consumed or not. If drinks sit on a shelf without being sold for so long that they have to be dumped, no-one gets an excise refund. If drinks are spilled, lost, broken or boiled off in a casserole the naughty tax is still paid. This is even though excise tax is supposed to be a brake on alcohol abuse. As far as I can tell the only way you get your excise refunded is if you export the goods or show that they were somehow tainted at the time of production. (Going off and becoming undrinkable doesn’t count.)
  • Finally, as dscussed below, the financial burden of excise tax is multiplied in the supply chain. 
Now it’s easy for anyone to look up the rates that excise is charged at, look at the ABV and size of the drink in front of them, and work out, for example, that a 330ml bottle of 5% beer has had 47 cents of excise applied to it. But that would only tell half the story.

Let’s assume that that 330ml bottle of 5% ABV beer was sold by a brewery to a distributor for $3 (excluding GST) and by the distributor to a bar for $3.60 (excluding GST) and by the bar to a consumer for $10 (including GST). And yes, for the distributor and bar to stay in business, those are the kinds of margin they need to charge.

It’s common to assume that the amount of excise that the consumer has effectively paid is still 47 cents. But imagine if that excise hadn’t been applied back at the brewery. The brewery might have sold the beer to the distributor for $2.53. Assuming the distributor applies that same margin as before, they’d be selling it for $3.03. And assuming that the bar applies the same margin then they’d be selling it for $8.42. A whole $1.58 less. So has excise cost the consumer $0.47 or $1.58? I think the answer is $1.58. What has been passed onto the consumer is not only the cost of the excise, but the cost of everyone in the supply chain adding their percentage to it.

The supposed purpose of excise tax is to levy consumers of this dangerous product (some more than others) and collect the income and put it to good use. But if the effect of excise is to put a drink up by $1.58, yet only $0.47 is being collected in tax, something is going wrong.

What’s going wrong is that excise is supposed to be a levy on alcohol consumption, but it’s collected at the point of production (or for imported goods at the time of entry into New Zealand). And where is the extra money being charged to the consumer going? It’s going to whoever funds the purchases made by the companies in that supply chain. You might think that it’s the operators of those businesses. But it’s just as likely to be banks. I.e. excise tax inflates the cost of buying stock for distributors and retailers and they fund that purchasing from their working capital, which may be their investors’ money, or may be a bank’s money.

This makes it sound like this is a windfall for those parties funding this money-go-round. But in reality I think that they would prefer it if these goods were cheaper and the whole business didn’t have the added risk of paying all this tax in advance.

Now in the 2015/16 year, New Zealand collected $947M in alcohol excise tax. Most of this would have been purchased at off-licences rather an on-licences. I’m going to make a wild guess that 80% of alcohol is sold at off-licences.

Markups at bottle stores and super markets are much lower than in bars. By the time a bottle of some kind of alcohol is sold at an off-licence, it’s probably going for about 50% more than the producer sold it for. But bars and restaurants probably sell goods for 250% more than the producer sold it at.

Turning these percentages into dollars, I estimate that every year, excise tax gets inflated by $380M for alcohol sold through bottle stores and by $470M for alcohol sold through bars and restaurants. That’s $850M sucked out of the pockets of New Zealand consumers because that $947M of excise tax is levied at the point of production, not at the point of consumption.

The alternative then, is to levy excise tax at the point of retail sale. Even saying it sounds intrusive, but I think a little scrutiny shows it’s actually quite workable. It is the 21st century after all and we have this thing called electronic point of sale software. We use one at Hashigo Zake called Vend. It knows everything we buy and everything we sell. I’m sure that its developers would be happy to add functionality – for a fee – that records the serving sizes and ABVs of all the products we bring in then tells us and Inland Revenue or Customs the excise payable on any and every sale. It’s only a fraction more demanding than calculating GST. It would mean that retailers would never pay excise, only collect it and forward it. And because they aren’t paying excise when buying stock there’s no need to add a margin to it.

There’s $850M to gain every year by doing it this way. That gain can be split. I.e. excise tax could be increased, perhaps by bringing the rates for wine into line with beer and cider, so the tax take goes up. But prices to consumers would fall at the same time. Outlets could pocket a share of the savings to fund the extra functionality needed in point of sale systems. I believe “win win” is the appropriate cliché.

Whole industries (brewing, distribution, hospitality) would be less risky. Consumers would save money.

But of course it won’t happen. I’ll try to second guess some of the reasons.
  • Firstly the idea of making excise tax collection more efficient and passing on savings will appal the neo-prohibitionists. They want to punish us for liking a drink. It probably pleases them that an inefficient system needlessly adds cost.
  • Secondly "it’s just not done this way". Customs collect excise, not Inland Revenue. How would it be policed? But these are insignificant issues. Every business is already a tax collector (GST, PAYE). For decades we've even been using the tax system to collect, of all things, student loan payments. Every vendor of alcohol already needs a licence and is monitored by city councils and police. The bottom line is that we can organise the collection of taxation any way that we, as a nation, see fit, and a change like this is no more challenging than raising the GST rate.
Now my $850M figure is a bit of a guess. And maybe for bars and bottle stores to pass on everything they save from buying excise-free stock is a little hopeful. Nevertheless I think my point about this and other absurdities in our excise taxation stands. And if we weren’t so ridiculously Victorian in our attitudes to alcohol we’d be fixing it.

Wednesday, 17 August 2016

Craft Beer, Industry and Insights

It's been a while since I wrote anything. So here is probably ten posts' worth of ranty text.

For the last couple of years, at this time of year, the ANZ bank has put out a report on the New Zealand craft brewing industry. I had a go at critiquing last year’s here. Last week in the lead-up to Beervana the bank released the third edition of this report. I haven’t been able to find any criticism of the report online, so it looks like I’m going to have to give it a crack again.

For context (and disclosure) the ANZ have loaned my business a lot of money and they could put us out of business at the stroke of a pen, so voicing dissent on their work may not be the smartest thing for me to do.

The gist of the report is that in New Zealand, the brewing of a category of beer called Craft continues to thrive, it has a big and rapidly growing chunk of the beer market and is rich with opportunities – including exporting - for plucky local startups.

All the optimism is pretty much based on two foundations:
- lots of hearsay from brewers about the export markets they’re selling into and
- the announcement that sales of craft beer have grown 35% and account for 15% of the market.

There’s a footnote attributing that growth figure to “Statistics NZ, industry sources, NZ Customs data, ANZ analysis”. (In last year’s paper a corresponding claim of growth was footnoted: “Sample represents approximately 15% of New Zealand’s off premise liquor sales. Sources: Statistics NZ, ANZ analysis Sources: Statistics NZ, news reports, ANZ analysis”.)

So this year the bank seems to have done away with sampling bottle store sales, which is probably a good thing because it would be disastrous to try and extrapolate results from one chain of stores or from one region of the country.

What about the other sources? Statistics NZ publish figures on what they call “Alcohol Available for Consumption” which pretty much reports on payments of excise by anyone putting alcohol into the New Zealand market. In other words, Customs collect data as they collect excise tax and Stats publish it. Then we’re left guessing about what “industry sources” and “ANZ analysis” might be. My guess is that Lion Nathan’s and DB’s annual reports reveal a little about their sales. But to the best of my knowledge no-one is gathering production reports from all the smaller breweries.

Now the NZ Customs/Statistics data reports only volumes of beer, stratified into bands of alcohol strength, for which excise has been applied. There are five bands - up to 1.150%, 1.151%–2.500%, 2.501%–4.350%, 4.351%–5.000% and more than 5.000%. This year’s release, which is of numbers from the 2015 calendar year, show that overall consumption has dropped but there has been a shift away from the middle bands (2.5% – 5%) towards those above and below (1.5% – 2% and 5% and over).

Customs and Statistics NZ don’t tell us anything about the breweries filling out the customs declarations on which these statistics are based. But it has become accepted practice to assume that breweries known as “craft” typically brew stronger beer and to then interpret the shift in volume to “more than 5%” as a sign that “craft” breweries are growing their market share.

Now this might not be as arbitrary and risky as it sounds. It’s pretty hard to find any mass-market bland lager that’s over 5%. Of course it would include a lot of beer made by those big breweries’ “crafty” subsidiaries. I’ll come back to that later.

But about these records of beer over 5% ABV that’s available in the market... Here’s a plot of that statistic over a few years:
source: Statistic NZ.

That's not the steadily rising trend we're supposed to see. I see two possible explanations here. Either
- the market for beer of this strength is only just recovering from a massive slump that seems to have gone unreported.
- OR these statistics are ropey as anything.
Any other interpretation?

Moving on then… the ANZ report asserted a couple of things:
- Something called “Craft” is 15% of the market and
- This thing called “Craft” has grown at 35% in the last year.

Now, according to Statistics and Customs, between 2014 and 2015 there was a 38% increase in beer stronger than 5% ABV available in the market. So I think this might account for a lot of that 35% growth figure. But there needs to be a little more to it, because the total beer market in New Zealand is, according to the same Statistics publication, 281 million litres, but this greater-than-5% stuff is only 18.7 million litres, which is 6.6% of the market. But if “Craft” is 15% of the market then it must be producing 42 million litres of beer. So 23.6 million litres of “Craft”’s output must come from less strong beer (as you’d expect) and it must have grown from 17.8 million litres the year before.

Now none of these numbers are outlandish, but to be credible you really have to accept a few givens. 15% growth for “Craft” is 11 million litres. To have produced an extra 11 million litres, the industry probably needs to have installed around 11 million litres of additional capacity. If you assume that on average (and this varies a lot) a batch of beer stays in a stainless steel fermenter or bright tank for two weeks, then that tank space can be used 26 times a year, so the industry must have added 423,000 litres of fermentation/conditioning space between 2014 and 2015. If tanks are, on average, 2000 litres (and again this varies a lot) that’s more than 200 such tanks added to our “Craft” breweries in that time. Again it’s a not outlandish figure and we know plenty of ParrotDogs and Liberties who were busy adding tanks in that time.

But 200 such tanks? And 42 millions litres of total annual production at a time when only a handful of our “Craft” breweries have passed the 1 million litres mark? And remember that plenty of our breweries and brewing companies are doing about 50,000 litres a year.

The explanation that ANZ literally couldn’t bring themselves to say is that they’re including the brands Mac’s, Monteith’s and Boundary Road, which are subsidiaries of corporate breweries, as well as recent acquisitions by those big breweries, such as Emerson’s and Founders. (The statistics pre-date the Panhead sale.)

Which is fine if you come out and say it. But for some reason the report’s author told the audience at the launch that they didn’t want to get into a definition of “Craft” and that they’d leave that to drinkers. Anyone else as dumb-struck by that as me?

Apart from the sheer academic negligence of refusing to offer a definition of the category that is the subject of the report, there’s a big problem. A lot of the report talks fairly vaguely about the challenges and opportunities that exist for “Craft” breweries. They talk about access to market, logistics, capital raising options and exit strategies. At one point the report uses the term “artisan producers”. Every word of text suggests that they’re talking about small and independent brewers. But every production statistic clearly includes the subsidiaries of the big breweries.

What else does the report talk about? There’s a lot about export. A lot of breweries boast that they’re exporting and apparently it adds up to 50 countries. From what I know of the importing operations in those destination countries, a lot of them are small businesses bringing over a pallet at a time. And it could be that if enough breweries each have small-time importers in a few dozen countries then those small orders will add up to a lot of value.

But I’m sceptical for a simple reason. New Zealand is just about the worst country in the world to export beer from. I say this because it costs more to produce beer here than in other places (for reasons such as lack of scale and high ingredient costs) and then because the cost of shipping beer to markets is high. (Remembering that unpasteurised beer generally needs to be shipped cold which puts a New Zealand brewer in competition with other agricultural industries for the use of refrigerated shipping.)

Shipping small orders to the curious in a few markets is one thing, but when the people like Tony Magee make it their mission to bring American beer to the world, and beer leaves American breweries at about half the price of ours, the ANZ needs to get specific about how we’re going to compete.

I can imagine a couple of possible answers to that. One is to brew in the market that is being “exported” to. Yeastie Boys and ParrotDog already do some of this. I know others have looked at it. Exactly what it does for New Zealand Craft Brewing, other than hopefully bring some profits home, isn’t clear.

Another answer is to assert that we will produce beer at the higher end of the market. There is a small but growing international market for beers that command wholesale prices of $20 a litre or more. And breweries like 8 Wired are indeed already exporting such beer. At these prices beer becomes economically a little more like wine, which, as we know, is such a lucrative business that it has never run into any crises that have resulted in bankruptcies or producers being sold to off-shore conglomerates whatsoever.

In fact, as an aside, can I suggest a really good way to develop an export market for beer? By distilling it. The resulting beverage trades at high prices, doesn’t go off and can be shipped without refrigeration.

But my biggest issue with the ANZ report is this. It has nothing to say about the two really big issues that small New Zealand brewers face.
1. their access to the on-premise market is still, for the most part, blocked and
2. very very few are making any money.

Maybe this is a good time to bring in the Oregon example. After all, the Oregon delegation that were here for Beervana were also at the ANZ report’s launch. Oregon is an economy with a similar population to New Zealand, a similar climate and with beer’s ingredients also produced locally. And their craft brewing industry began at about the same time as ours. And they’re producing 200 million litres of what might be categorised as “Craft”, with a third consumed in the state and the other two thirds exported. (I will concede that their export markets are far closer, which is a massive advantage.)

As people are probably tired of hearing from me, it’s all about access to market. In Oregon there are no obstacles stopping breweries from selling to bars and their craft breweries have 63% of the on-premise draught market. In New Zealand there are massive obstacles stopping breweries selling to bars and our craft breweries (if you exclude the big breweries’ subsidiaries) have about 2% of the on-premise draught market. It’s as if the ANZ are padding out the numbers with sales by the industrial breweries’ subsidiaries to compensate.

Here are some other issues that the industry, and people commenting on the industry, might want to consider:
- The (small and independent) brewing industry needs to decide whether it wants to pay for distribution. That means breweries finding some margin to share when there isn’t really enough to go around but also not going behind the backs of distributors the moment they develop a large customer.
- The current moral panic over alcohol hurts everyone. It interferes with good, responsible brewers and bars going about their business and adds costs at several stages in the supply chain.
- Brewers are still disadvantaged by excise rules compared to winemakers. The Brewers Guild correctly identified inequality over rules about storing wine. But then they forgot to mention the more egregious problem that wine is simply charged excise at a lower rate.

While plenty of industries grow with the help of government assistance, brewing is generally self-reliant. This should be a good thing, but when an industry is materially handicapped by regulation, tax and an anti-competitive business environment then it's expecting too much for it to thrive.

Almost forgot. Have a read of this. It's talking about a different market that's in a different phase of its development, but it rings pretty true.

Wednesday, 18 November 2015

one. billion. dollars.

We woke yesterday, November 17th, to the news that the owners of Ballast Point Brewing were accepting a $US1b offer for their business. The buyer is to be Constellation Brands.

We’ve been importing the beer of Ballast Point since 2010, at first as Hashigo Zake and more recently under the banner of our own importing and distribution company, Beer Without Borders. Ballast Point has become BWB's best selling supplier. We attribute this to them getting all three things we need in an overseas brewer pretty much right – beer quality, being stylistically adventurous and having good branding and packaging.

On occasions like this the sellers deserve only our congratulations. They’ve generally earned their payday and in Ballast Point’s case it was massive. (To put it in perspective, they make one third as much beer as Lagunitas, whose brewery was also valued at $1b in a recent sale.)

But while we congratulate the sellers, we’re always uneasy when these transactions happen. In particular we generally worry about the methods and ethics of their new owners. We actually know very little about Constellation, although we’re learning a bit.

Back in 2012 the Emersons Brewery was sold to Lion Nathan. I have an enormous grievance with Lion Nathan. They, DB, Independent and a growing number of small breweries make payments to liquor outlets (generally bars) in return for not stocking other suppliers’ products. The damage to New Zealand’s brewing industry from this practice has been enormous and in spite of all the recent fuss made the industry is ten years behind where it should be. More to the point everyday consumers have been denied choice in bars for decades. I personally think that the practice is against the spirit and maybe even the letter of New Zealand competition law, although the Commerce Ministry disagrees.

So I had no reservation in turning my distaste for Lion Nathan into a policy that Hashigo Zake wouldn’t stock their beer and those of their subsidiaries. After all, once Emersons were bought, Lion Nathan’s distribution meant they suddenly had hundreds of additional, tied customers, and those more than made up for losing Hashigo Zake as an outlet. Meanwhile we could dedicate ourselves to stocking product from breweries who didn’t pay for play.

We at Hashigo Zake took some criticism for that stand and there are signs that some of those critics are looking at us now for any sign of a double standard following Ballast Point’s sale. No doubt they’ll find what they’re looking for, rightly or otherwise.

So at Hashigo Zake, where we launched Ballast Point in New Zealand and which is still one of very few Wellington bars prepared to put their insanely good beer on tap, we’ve got a month or two to consider what to do next. (The sale hasn’t been finalised and it will take a little longer before post-sale product is on the market in NZ.) This transaction has left us with a huge dilemma that we’re going to need all that time to grapple with.

Beer Without Borders, however, remains Ballast Point’s New Zealand importer/distributor. As such we have obligations to our supplier and to our customers that we have no choice but to honour, regardless of what we might think of the sale. End of story.


p.s. a big hat tip to Brian Watts of 8 Wired who just last Friday told me that Ballast Point’s planned IPO was merely a manoeuvre to elicit the kind of offer that Constellation made.

Wednesday, 31 December 2014

Beer Word of the Year

Beer Without Borders announces that the Beer Word of the Year is Sessionable. It beat “Crowdfunding” and “Crisp!” into second and third place respectively. And it must be considered a worthy winner given that “session” was also a candidate and that there was a lot of late voting for “Crisp!”, which has only recently become the descriptor of choice for serious beer writers, thanks to the efforts of Dylan Jauslin.

A countback shows that the first person to nominate “sessionable” as Beer Word of the Year was none other than New Zealand’s foremost prophet of trends in the world of beer – Stu McKinlay. Stu wins a romantic lunch with the owner of Beer Without Borders.

We’d like to acknowledge the help of Hadyn Green in organising the voting and to Public Address’s Word of the Year for the inspiration.