Andrew Leigh

Trouble Brewing

The Daily Telegraph, 30 June 2017

Thirty years ago, Phil Sexton was a young brewer who found himself increasingly disheartened by Australia’s beer industry. To Phil, conventional beer brewing was blokey, sexist and parochial. He felt the industry treated brewing like a bland exercise in engineering rather than a craft to be mastered.

Fed up with the status quo, Phil and his friends pooled their resources and started their own brewery. The going was tough. The big players used their market muscle to shut them out of virtually every local pub. But Phil and his friends persisted. They started their own pub, sold their own beers and created what is now a household name for craft beer drinkers in Australia: Matilda Bay.

Matilda Bay did what every brewer (and economist) would hope: it took market share away from the major keg-rollers and introduced a middy of healthy competition. Sadly, however, the competitive threat of Matilda Bay and many other craft beers have since been neutralised. After spending years fighting the big players, Matilda Bay was eventually bought by multinational mega-brewer, SABMiller. Last year, SABMiller was itself bought by Anheuser-Busch InBev, a $100 billion deal that was one of the largest corporate takeovers in history. The little beer that Phil once brewed is now produced by the world’s biggest beer manufacturer.

Matilda Bay is not alone. White Rabbit, Little Creatures, Kosciusko, Knappstein, Furphy and a host of other well-known craft beers have all been bought-up by the big guys. This makes one of Australia’s most concentrated markets even more concentrated. The four big players – Anheuser-Busch, Lion, Coopers and Coca-Cola – control more than 90 per cent of the market. Australia might once have had a Prime Minister who held the world record for beer sculling, but these days our only gold medal is in how few firms make most of our beer.

With a few big brands dominating the bar, beer prices are doing what economists would predict in a heavily concentrated market. Over the twenty years, the cost of a beer has gone up 41 per cent faster than average prices across the economy. Basically, you’re getting two beers for the price of three.

One of the problems is that many craft beer-drinkers haven’t cottoned-on to the fact that these beers are no longer made and owned by your local bearded hipster. Jaron Mitchell, co-founder of the (genuine) craft brewery 4 Pines, says ‘95 per cent of the time, consumers accept the story the beer companies feed them’.

The major manufacturers haven’t been passive in creating this confusion, either. The mega-brewer Lion, for example, spent $60 million refurbishing an old carpet factory in Geelong to create Little Creatures’ first east coast brewery. Management said its objective was ‘respecting the craft brewing ethos’, preferring the industrial-chic of an ex-carpet factory rather than shifting production into one of its mega-plants.

This is a winning strategy for the big brewers. As is often the case in concentrated markets, the big companies have struggled to innovate. While consumption of wine and cider has increased substantially, beer consumption per person has fallen by more than a third since 1990. But this has not been the case for craft brewers. Sales of some innovative new brews have grown 15-20 per cent a year. But in many cases, the majors have just sat back and bought them up.

This strategy achieves multiple objectives, none of which are good for ale aficionados and lager lovers. Mega-brewers neutralise a competitive threat, they make up for years of failing to innovate and they obtain a product that they can charge premium prices for – provided, that is, that they can maintain the facade that these beers are genuinely craft.

In America, they’ve called last drinks on this strategy. The US Brewers Association, which represents independent breweries, has asked at least four brewers to leave after being taken over by a large manufacturer. The Association has strict requirements for a beer to be labelled ‘craft’: only 25 per cent of the brewery can be owned or controlled by a big company and it can’t produce more than 6 million barrels of beer.

In Scotland, craft brewers have publicly mocked faux craft beers for putting aesthetics over quality. ‘If you have to spend millions of pounds on ad campaigns to get people to drink your beer’ said Craft brewer BrewDog ‘the brewing is probably being neglected.’

Here in Australia, the competition watchdog, the Australian Competition and Consumer Commission, has raised alarm. In 2014, Carlton United Breweries was fined $20,400 for selling its faux-craft beer, Byron Bay Pale Lager, because the bottle included a map of the Byron Bay region showing the location of the Byron Bay Brewing Company. Alas, the beer was manufactured in Carlton’s mega-brewery in Warnervale, some 630km away from Byron Bay.

It gets worse. In 2014, craft beer manufacturers complained to the Australian Competition and Consumer Commission that the dominant brewers were allegedly giving pubs free equipment and rebates on condition that they kept craft beers off their taps – except, that is, for the ones they already owned. So far the competition watchdog has not acted, but it says it is working closely with the brewers on this issue.

There are many ways we can clamp down on misleading and deceptive conduct as well as the challenge of increasing market concentration. The Australian National University’s Adam Triggs and I outlined a range of them recently in The Monthly, including increasing penalties and a better resourced and more powerful competition watchdog. But more than anything else, what we need is for the federal government to take off its beer goggles and see that Australia has a growing problem when it comes to competition.

Andrew Leigh is the Shadow Assistant Treasurer and the Shadow Minister for Competition and Productivity Australia has a growing problem when it comes to competition