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Craft Brewers’ Financial Issues – From Costs, Taxes, Contracts, and More
(file image) Photo: RNZ/Samuel Rillstone
From Brothers Beer to Deep Creek, Epic Brewing to Boneface Brewing, there’s been no shortage of famous breweries facing financial troubles in recent years.
But what’s really ailing our brewers and what does the future hold for the craft beer sector?
Here are the main factors that cause headaches.
The cost of living crisis
Brewers are not immune to the downturn that has affected nearly every part of the economy. People who are paying more on their mortgages don’t have the money to buy as many luxuries, like beer, and they don’t tend to go out as often to the pubs and restaurants that can serve it.
Data from Stats NZ shows there were 281 million litres of beer available for consumption in the year to March, down from more than 294 million in each of the previous three years and almost 300 million in 2019.
As overall spending fell, so did the amount spent on going out – Stats NZ data for May showed a 2% drop in hospitality spending for the month.
Dylan Firth, chief executive of the Brewers Association, which represents Lion and DB Brewing, said the market was quiet as people tried to save money.
The fall in alcohol available for consumption in the year to March was the biggest in a “long time”, he said.
“The hospitality sector is a very important marketing channel for brewers. Compared to retail, it has a higher value proposition, there is more profit in it.
“And then people not going out to bars and restaurants as much because they’re obviously looking to save money or put it towards their mortgage or something, we’ve definitely seen that hurt a lot of people, especially the smaller guys who sell direct to the market at a higher percentage.”
He said everyone was expecting to get through the next six to 18 months until interest rates could come down and people had money to spend.
Luke Robertson of Shortjaw Brewing in Westport said it was noticeable that the last few months have been tougher.
“Even in quiet months you would expect a certain level, and it’s down 30% in the last two or three months.”
(file image) Photo: RNZ/ Nick Monro
Excise duty
Excise tax is applied based on the alcohol level of the beer and increases each year in line with inflation.
Since the start of this month, it has risen 4.1%, following a 6.92% increase in 2022 and 6.65% in 2023. In 2022/23, $443 million came from beer manufacturing.
Firth said the excise tax has increased 18 percent in the past three years. He said a mid-sized brewery might have to find an extra $200,000 for excise tax this year, and larger breweries would pay millions of dollars.
“This has to come from somewhere and cannot go directly to the price of the good… [Brewers] have to absorb it one way or another.”
Mr Robertson said excise duty had gone up by 6c or 7c a litre since he opened the brewery a few years ago. “That’s a jump in our overheads before we even get the beer into people’s hands. It’s just kept going up.”
Brian Watson, president of the Brewers Guild and co-founder of Good George Brewing, said the union wanted to cap excise tax increases at 2% a year to create certainty for businesses and their employees. “So we can make sure that we can be sustainable as an industry.”
He said some breweries would raise prices a bit if they could, but there would come a point where consumers would give up.
Production cost
Firth said the cost of production had increased substantially in recent years. There were problems with CO2 suppliesand the cost of transportation increased.
Supermarket margins
In March, the Commerce Commission received a complaint alleging that supermarkets’ push for higher margins risked driving craft brewers out of business. The commission chose not to investigate.
Firth said supermarkets would work hard to keep produce prices low for consumers.
“There is tension between retailers and producers about what the shelf price should be… there are definitely those pressures happening, margins are very tight at the checkout.”
Robertson said the profit margin he made on beer sold in supermarkets was very small.
“It needs to be competitive on the shelf – especially for smaller brands, if you’re not, no one is going to pick you up, essentially. We’re all looking at each other’s brands and seeing what everyone else is doing – we’d all like to charge more.”
(file image) Photo: Ziming Li
Woolworths said any supplier with any concerns should get in touch.
“We are always open to constructive discussion… When it comes to craft beer, we now have more brands and varieties of craft beer than ever before.
“As has been widely reported, price is a top concern for customers and we have seen some moving towards cheaper options and away from craft products. Beer is no exception to this trend.”
A Foodstuffs spokesperson said the company worked with more than 100 craft beer suppliers.
“Both cooperatives hold quarterly forums with suppliers and have monthly calls with them to share news and information.
“In the North Island, we hold quarterly connection meetings with craft beer suppliers, where our teams present data and trends on what customers are buying. These free events give suppliers the opportunity to understand where opportunities may exist.”
Scale economy
Robertson said smaller craft brewers faced challenges because they didn’t have the economies of scale that come with buying things like cans, labels and cases in bulk.
“All of these things escalate quickly. The price for us is much higher.”
Tap Contracts
Robertson said another challenge was the practice of tap contracts, in which large breweries provided support to local bars and restaurants in exchange for them primarily stocking their products.
“That’s a huge issue. Most pubs have a deal with the big brewery to have their beer on tap – they offer discounts on the amount of beer.
“What it means is we don’t have a look at our local pubs. I don’t blame the publicans, if someone offers you a cheaper product that customers will like, you’ll take it. But it restricts the quantity we can sell and keeps the duopoly in place.”
What is the outlook?
Marketing expert Bodo Lang from Massey University said it would be difficult to compete in this category until consumers began to spend more freely again.
“And that will only happen when consumers feel they have more disposable income. Until that happens, craft brewers will be under pressure, particularly small domestic brewers.”
Photo by Bodo Lang: University of Auckland
Firth said many people probably expected things to recover a little sooner than they did.
“I think everyone wants to be positive, things on the horizon look good, inflation is coming down, we’re heading in the right direction.”
Watson said that while several breweries have gone out of business, it is not as high a percentage of the industry as in other sectors, where a growing number of companies are also failing.
He said many small breweries were the heart of their local communities.
“As long as we continue to support our communities and the people who support us, that’s what matters.”
Beer was an affordable pleasure, he said.
“You’re not going to go out and buy a Maserati, even a bottle of wine might cost $60 or $70, but you can buy a really good six-pack of beer for $25. It’s an affordable treat and I don’t see that going away.”
The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above ₹260, one can buy this Reliance Group stock at the short term target of ₹295, keeping a stop loss of ₹240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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