Is this the end of Australia’s craft beer explosion?

The simple art of buying beer got harder a decade ago when hazy, hopped and sour brews were introduced – but as inflation bites this could be the craft brewing recession Australia had to have.

Duxton Pubs co-founder Ed Peter and Little Bang co-founder Ryan Davidson, celebrate Duxton puubs acquiring Little Bang, on June 27th, 2022, in Stepney. Picture: Tom Huntley

Shopping for alcohol was once such a simple art.

You’d stop off at your local bottle-o, grab a slab of the one of a handful of beers actually made in your geographic region, a bottle of Gordon’s gin and a cheeky chardonnay – Bob’s your uncle.

Not any more. Sliding into the beer section of your local alcohol retailer feels a bit similar to being lost in a Chemist Warehouse – a full-frontal assault on the senses with a dizzying array of choices.

Do you want a triple hopped IPA, a hazy IPA, a hazy XPA, a face-inverting sour beer – what even is that?

Forget trying to remember what you had last time, just grab the one with the best graphic design and head over to the Australian spirits section where it starts all over again – just at multiples of the price of the aforementioned Gordon’s.

The Australian craft beer and spirits market has grown like topsy in the past 15 or so years, and to be honest, we’re mostly very much the better for it.

Dialling the time machine slightly further back to the 1980s and you’d almost certainly be drinking the beer made in your area – Tooheys in New South Wales, XXXX in Queensland, Swan in Western Australia or West End in South Australia – or maybe a Coopers if you were a bit fancy.

Over the past decade or so however, the choice has exploded, with hundreds of new breweries and distillers popping up producing a huge variety of new products.

But as with most capitalistic endeavours, everyone go a bit too excited, with former investment bankers, sports stars and the new-on-the-scene crowdfunders stampeding into a sector, which in the case of beer, was actually shrinking in terms of consumption.

Head of Brewing Operations at Pirate Life Brewing, Lewis Maschmedt checking beer in the cellar stainless steel tanks. Photo: Mike Burton

Now, with a cost of living crisis starting to bite hard – making pricey bespoke brews a less endearing choice – and more brands on the market than we ever needed, the slowdown, it seems, is upon us.

Just in the past week or so online spirits marketplace Gintonica – which raised almost $250,000 last June in a crowd-funding campaign – was placed in administration; the managing director of Mighty Craft – whose shares are now worth about half the $47m company paid for an acquisition in mid-2021 – quit the company in the midst of a “strategic review”, and; Tasmanian distiller Lark Whisky said sales in the second half were coming in weak, triggering a sell off in the stock.

In May, ASX-listed wholesale beverage marketplace Kaddy was placed in administration, with its shares falling from a 12-month high of 60c to just 2.7c when they were halted from trade in February.

That business was sold for a mere $550,000 soon after, with Singapore-based online alcohol delivery business Cellarbration to use it as a beachhead for the Australian market.

And industry website CraftBeer Reviewer, lists 59 breweries on its site which went bust pre-Covid.

In February this year one of the nation’s largest craft brewers, Tribe Breweries, fell into administration – later being saved through a deed of company arrangement – and many brands which were acquired by the majors Lion and Asahi have seen their production sites shut as manufacturing is brought in-house.

It’s far from all bad news however. Some craft aspirants in both spirits and beer have made a packet – Adelaide’s Little Bang Brewery was bought out by Duxton Pubs last year and the founders behind the Adelaide Hills Group – the subject of that $47m Mighty Craft acquisition back in 2021 – did very well indeed.

So is the party over for craft beer? Well perhaps not, but the industry profile is has changed significantly in the past decade or so, arguably straying far from what punters might consider a “craft” product.

Since 2013, the major players in the beer world have been on a major buying splurge in the craft sector.

Recent research from IBISWorld analyst Matthew Reeves shows that 75 per cent of craft beer in Australia is now produced by three companies, Asahi Holdings, Lion, and Good Drinks Australia, with the latter a very distant third.

Asahi, from a standing start a decade ago, now commands 35.3 per cent of the craft beer market, with brands such as Mountain Goat, Balter Brewing and 4 Pines in its stable.

Asahi bought Carlton and United Breweries in June 2020, which itself had previously bought Pirate Life and the aforementioned Balter which was founded by pro-surfers Joel Parkinson, Mick Fanning, Bede Durbidge and Josh Kerr.

Asahi’s revenue in the craft beer segment has grown from $2.4m in 2013 to $366.1m in 2023.

Competitor Lion has a 34.1 per cent market share, producing brands such as White Rabbit, Little Creatures and Furphy.

Good Drinks Australia, previously known as Gage Roads Brewing, is valued at just shy of $70m on the ASX. GDA is a distant third in terms of size, but has been profitably growing revenues over the past few years with brands including Gage Roads Single Fin and Matso’s Ginger Beer.

Outside of these big three, Mr Reeves says the industry remains highly fragmented, however there is still opportunity for small outfits.

“Many brewers service localised markets like specific states, regions or even local surrounding suburbs,’’ he says.

“The larger craft beer producers are multinational breweries that have the financial means to acquire and expand popular brands, while smaller operators compete in niche markets.

“Large multinational beer manufacturers have come under fire for pushing out smaller Australian craft breweries over the past five years.

“Despite this trend, strong demand for locally produced craft beer has allowed small breweries to succeed in the industry.’’

Duxton Pubs co-founder Ed Peter and Little Bang co-founder Ryan Davidson. Picture: Tom Huntley

IBISWorld is forecasting annual growth in the craft beer sector to moderate from 7.4 per cent per year over the past five years to 3.9 per cent per annum out to 2028.

This contrasts to a forecast of zero per cent growth for beer generally over the same period.

The spirits sector in Australia is also forecast to grow, at 2.9 per cent per year, however the growth in new business starts will drop from a robust 13.2 per cent year on year increase over the past five years to 3.3 per cent.

Mr Reeves says spirits manufacturing has been growing based on demand for premium products, but competition from overseas producers remains strong.

“The premiumisation of consumer tastes and stronger demand for ready-to-serve cocktail products have benefited the industry over the past five years,’’ he says.

“Industry revenue is expected to grow at an annualised 1 per cent over the five years through 2022-23, to an estimated $2.3bn. This trend includes an expected fall of 2 per cent in the current year, driven by a weaker economic environment.

“Increasing health consciousness has affected sales of spirits with non-alcoholic alternatives rising in popularity.

“Nevertheless, consumer preferences are shifting towards local products, making Australian whisky and gin more popular and aiding revenue growth.’’

The major players in spirits make up slightly more than 50 per cent of the market, with Diageo, which owns Gordon’s, Johnny Walker and Bundaberg Rum the largest with 24.3 per cent.

Coca Cola Europacific Partners, which owns Jim Beam and Canadian Club has a 15 per cent share while Asahi has 14 per cent with brands such as Vodka Cruiser and Woodstock Bourbon.

At the smaller end, but by no means small, Starward Whisky, founded by tech entrepreneur David Vitale in 2007, is among those leading the charge to take Australian whisky to the world stage, while gin producers such as McLaren Vale’s Never Never Distilling Co is winning accolades overseas for its gins including bespoke flavours such as oyster shell and beeswax and olive oil, alongside the more traditional triple juniper and navy strength gins.

Originally published as Is this the end of Australia’s craft beer explosion?