Christopher Adams

The Business Herald’s markets and banking reporter.

Boutique beer hard market to crack

President of the Brewers Guild Ralph Bungard says there's a lot of competition in the craft beer market. Photo / Martin Hunter
President of the Brewers Guild Ralph Bungard says there's a lot of competition in the craft beer market. Photo / Martin Hunter

With such a wide variety of craft beers available to Kiwi drinkers, retaining loyal customers is one of the biggest challenges facing brewers in the ultra-competitive New Zealand market, industry players say.

This week boutique brewery Moa downgraded its trading expectations for its current financial year, saying sales volumes were expected to be 30 per cent lower than the target of 195,000 cases published in its initial public offer prospectus.

The company, which listed on the NZX in November, said the shortfall was largely the result of lower than expected sales in New Zealand, its core market, accounting for around 70 per cent of total revenue.

There are close to 70 breweries in the New Zealand craft sector, up from just 48 in 2008, figures from craft industry group the Brewers Guild show.

And they're competing in a market that still only accounts for around 2 per cent of the total beer trade, if the craft ranges produced by the big brewers such as Lion's Macs and DB Breweries' Monteith's are excluded.

It's estimated Lion and DB dominate around 90 per cent of New Zealand's beer market. The two companies' combined revenues reached $1.07 billion in the year to September 30, 2012, although that includes their sales of spirits, wine and cider.

"Craft is a tiny slice of the pie and there's a lot of competition," said Ralph Bungard, president of the Brewers Guild and owner of Christchurch's Three Boys Brewery.

"You've got to be realistic about what you can sell in a country of 4.5 million people when probably 90 per cent of those people are not craft beer drinkers."

While mainstream beer consumers tended to stick to a brand, Bungard said craft beer aficionados shopped around widely, often trying a different product each time they visited a liquor retailer or bar.

"The reason people drink craft beer is because they're after the variation that comes from changing brands quite regularly," said Bungard. "You don't get that thing where people are, for example, drinking Lion Red or Speights from birth to death."

Bungard said that was one of the challenges companies like Moa faced.

"Although they want to create brand loyalty, it's very difficult to do in the craft end of the market," he said.

"It is challenging. Some breweries get around it by creating new beers all the time so their range is ever-evolving and ever-changing, which is quite a good approach."

Carl Vasta, founder of Kapiti Coast brewery Tuatara, also said it could be difficult dealing with craft drinkers' "grazing" habits. "You've got to be on your case with your beer selection," he said.

President of the Brewers Guild Ralph Bungard says there's a lot of competition in the craft beer market. PICTURE / MARTIN HUNTER

Crafty marketThe total number of New Zealand breweries increased from 48 in 2008 to 68 by the end of 2011.

The number of small craft breweries (those under 40,000 litres a year) grew the most, doubling from 15 to 30 over that period.

Production of craft beer increased by an average of 3 per cent a year in the three years to August 2012.

The craft beer market is estimated to account for only about 2 per cent of the total beer trade.

Source: Brewers Guild

But Vasta said it was possible to secure loyal, long-term customers.

"Beer is an emotive purchase and buyers want to associate with brands," he said. "It's just a matter of getting your brand story across to your customers."

Moa chief executive Geoff Ross didn't think competition in the craft space was to blame for the company's lower-than-expected New Zealand sales.

"There will continue to be a lot of [craft] brands, which isn't concerning for us - we think that's a good thing because it's driving growth in the overall category," Ross said.

Instead, Moa is blaming the distribution model operated in this country by its New Zealand distributor for the shortfall in sales volumes. The company was working towards securing a new local distributor, Ross said.

Brewers say the fiercest competition in the New Zealand craft market is in the on-premise trade, rather than retail stores.

"In the supermarket you can have 40 to 100 brands up on the shelves but bars are generally limited in the number of taps they can have," Bungard said. "Some bars might have only two or four taps available for craft beer."

He said starting a brewery was by no means a get-rich-quick scheme - costs were high and margins low.

"People like to do it because they're interested in it and other people are interested in what they're doing."

Retail analyst Tim Morris, of market research firm Coriolis, said taking on the big boys of the beer trade remained a tough task.

"The big breweries have everything going for them," Morris said.

"They've got the trucks on the road and the sales reps out there selling the stuff and the marketing budgets."

The big brewers are also encroaching on the craft space with their own brands aimed at the boutique end of the market.

Vasta said competing against the brewing giants and their super-sized marketing budgets could be difficult.

But at the same time, craft beer drinkers were intelligent and not easily fooled by sleek advertising campaigns, he said.

"If it's a big brewery pretending to be a little brewery they can see that."

Vasta said Tuatara was expecting sales growth of 50 per cent this year. While that's a top-line increase many companies can only dream about, it's a long way behind the lift in revenue Moa had been predicting for its current financial year.

In its initial public offer prospectus the company forecast its sales to lift by almost 100 per cent to $8.6 million. It hasn't revealed what it expects full-year revenue to come in at following the trading downgrade.

Moa shares closed down 1c at 84c last night.

- NZ Herald

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