Wednesday, November 18, 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, December 31, 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.

Random End of Year Rant

From our point of view as retailers and distributors of local and imported beer, there have been significant changes this year in what the people that we sell to have been buying.

A lot of this has to do with the rise of Liberty and Panhead. It’s convenient to bracket them because the ties and similarities between the two are strong. Mike Neilson and Joe Wood are long-standing friends and there’s no doubt that they've talked a lot as they've simultaneously developed brewing companies that are quickly becoming giants. And while they took very different approaches to getting into business, they've made a lot of similar moves in the last year or so. Specifically that means producing a lot of beer in styles that are popular right now and putting them out in six packs at very competitive prices. It has worked for them for a few reasons – obviously their packaging and pricing have made them popular – but first and foremost their quality has been consistently very good.

Of course it would be ridiculous to suggest that no-one has achieved this before, and a lot of these comments also apply to ParrotDog and others, but the rate that they've grown (Panhead in particular) and won over customers may well be unprecedented in New Zealand. (Plus we sell their beer and have watched it close up.)

So we have literally had wholesale customers say to us that they now sell less of everything except Liberty and Panhead. Without getting too empirical, there seem to be a lot more people taking home six packs of Oh Brother Pale Ale or Quickchange XPA where they might have taken a mixed bag of different beers a year ago. It’s as if the early adopters of the last five years are settling down with a few staples and experimenting less.

Another trend – not unrelated to this rise of Panhead and Liberty – is that when it comes to certain styles, particularly US style hop bombs, local brewers have all but eliminated the gap between local and imported product. There are still reasons for buying some of the imports. For instance there is still no local answer to Sculpin. Plus there are plenty of styles where the gap is still fairly wide between the local and imported product. There are still styles that are barely made or consumed here. And even though there have been some very good local sours available for several years, they’re only just catching on here and there is lots of ground to make up.

The greatest challenge confronting up and coming local brewers remains access to market and it’s as bad as ever. The number of untied taps in bars that are available for small and independent brewers to sell into is barely growing. Although there have been a few new bars open up or become free of their big brewery contracts, there simply aren't enough of them and many of the benefits are undone with their taps being individually contracted to the “if you can’t beat them join” breweries. (I.e. breweries that make a payment - or bribe - to bars in exchange for them never putting anyone else’s beer on one or two particular taps.)

This lack of progress is alarming. It seems that the lure of becoming a destination bar and winning the admiration (and cash) of a city’s beer geeks aren’t enough to convince operators that they should walk away from the embrace of DB/Tiger/Heineken, Lion/Kirin or Woodstock/Asahi. There are a few possible explanations, starting with the unavoidable fact that, in general, the hospitality industry is terminally petty, conservative and visionless. Another is that Lion Nathan’s strategy of buying up the competition (i.e. Emersons) to patch the gaping holes in its portfolio is working.

What it means is that, in New Zealand, the ratio of free taps to independent breweries is probably lower than ever.

With so few taps available (and with many of those being dominated by certain fast-growing juggernauts) new brewers quickly resort to bottling. Now it has long been the case that when a New Zealand consumer tries a new beer or brewery, they’re probably drinking at home, from a bottle. This in itself is absurd and tragic and a staggering indictment of our hospitality industry. But the fact is that certain supermarkets and specialist bottle stores have been the saviour of many new local breweries. But as mentioned above, a number of consumers have recently been settling for six packs of some well priced, reliable, hoppy pale ale over experimentation. So if you’re a new brewer and you've made a lot of good beer, but it isn't in a six pack with “Liberty” or “Panhead” on it and it isn’t selling for around $22 a six pack, then you’re probably finding it surprisingly difficult to sell.

In other words, 2014 has seen more breweries competing in a market that is a lot less open than we believed. A correction is coming. Making some good beer isn't enough any more. A new brewery either needs a killer beer or exceptional branding. (Or both. Or very deep pockets.)

Returning to that issue of tied taps… (and at the risk of boring people who've heard it all before) it looked as though New Zealand’s small and independent brewers were given an early Christmas present a few weeks ago with news that the Commerce Commission are investigating the practice of tap contracts. This was unexpected news. It follows a similar announcement from Australia’s equivalent body a few months ago.

Now speaking as a legal lay person, it strikes me that the merits of this investigation pivot on one point. New Zealand’s competition law says that companies can’t engage in practices that limit competition. A single tap contract doesn't quite do that. But hundreds or thousands of them do exactly that. So I wonder how far the Commerce Commission wants to get into a debate over the net effect of multiple commercial actions.

Also, the practice of tap contracts has dozens of equivalents throughout our economy. I'm thinking, for instance, of mobile phone contracts. A finding against tap contracts could call into question the legality of practices employed all over our economy. The consequences could be mind-boggling. I also suspect that, once companies got over their shock and adapted, there could be a magnificent boost to competitiveness, efficiency and transparency.

(I guess there’s also the issue of whether the need for competition is satisfied by a duopoly. I think the experience of beer consumers tells us that the answer is emphatically no.)

But back to tap contracts. Will the Commerce Commission be bothered really getting into this can of worms? Let’s imagine how their investigation might work. They’ll take into account statements such as the one in the DominionPost article from Tuatara, who, apparently, deplore the practice. Then they might talk to outlets who have tap contracts. They might ask who the tap contracts are with. Often the answer will be “Tuatara”. At this point I wouldn't be surprised if they decide there are better uses for their time.

So yes, I'm touching on the vexed issue of the distinction between what might be called “single tap” contracts and “whole bar” contracts. When big breweries sign “whole bar” contracts, they would say that all they’re doing is entering into an arrangement with a single bar and that there are other bars and consumers aren't affected. Likewise I’m sure that the smaller breweries who sign single tap contracts would say that it’s just one tap (or two or three) and there are other taps and consumers still have choice. The fact is that stitching up any kind of exclusivity has an effect. And those effects quickly compound. I see it when I go into a bar that has auctioned off most or all of its taps one at a time. I get less choice as a consumer and I see other brewers seething with frustration because they’re struggling to sell their beer.

So there is only one outcome that I want with respect to tap contracts, but I’m not holding my breath for it. And that is that pretty much that any donation of product or cash from a supplier to an outlet that leads to the outlet preferring that supplier’s product should be considered anti-competitive and illegal.

As for other trends this year (forgive me if trotting these out feels a bit tedious)…

Cans…. Yes they have lots of benefits, some of which are vastly overstated. And don’t mention the bauxite mines. We’ve only had a few canned beers on our books and they haven’t set the world alight. Having said that we’re about to launch Modern Times which we expect to do well, although that has more to do with the beer than the packaging.

“Session” beer… consumers and brewers have all been saying these are a great idea for years, and the long awaited pale hoppy ones finally seem to have gained momentum in the last twelve months. This probably has a lot less to do with the new blood alcohol level for drivers than is claimed and more to do with a long-standing wish for hop-lovers to be able to indulge themselves without getting smashed. Personally I think that hops taste nicer in a boozy beer and that saisons, sours and stouts are better bets for sessionability.

Rant over. Have a great 2015.

Wednesday, August 27, 2014

Cans and Bottles

Small and independent brewers in New Zealand, the US and other markets are suddenly embracing the aluminium can in a manner not completely unlike the way winemakers adopted screw caps a decade or so ago.

With wine it was pretty much all about quality. Corks were and are flawed. There may have been circumstances at play, such as improving consumer education about cork taint and maybe corks (or at least the ones being exported to the Pacific rim) were becoming less reliable. Or maybe winemakers were getting sloppy. But consumers received a clear benefit by the move to screw caps.

There were dissenters, and no doubt there still are a few. Most of that dissent was pretty flimsy and a lot of it came from the less fussy end of the market who cared more about the pop of the cork than the quality of the wine. On the other hand there were one or two reservations expressed about screw caps that had at least some scientific basis and those might still not be conclusively proven either way.

So now it's cans vs bottles. The arguments this time are a little different. There is a quality component to it, but that argument isn't nearly as one-sided as it was with screw caps. The main quality complaint with glass (light strike) simply doesn't matter if the product is handled correctly.

Broadly here they are:

  • Cans are lighter so use less energy to freight.
  • Cans are more easily recycled.
  • It's impossible for cans to let in light.

Laid out like that, it seems like a slam dunk. So what are the dissenting arguments?

  1. Bauxite mining (first stage of creating aluminium) is environmentally disastrous.
  2. Cans are lined with a plastic that includes probably carcenogenic BPA.
  3. Most aluminium cans that are collected for recycling in New Zealand are sent to Australia for recycling.

Oh, and there's the completely spurious “aesthetic” argument, which goes away as soon as a beer is poured into a glass, if not sooner.

What's needed is a thorough audit of environmental and financial costs for each option. Of course this is incredibly difficult. Some people in other geographies have had a crack (this article in Slate magazine seems a reasonable attempt) and have generally come to the conclusion that: (1) draft beer is best, (2) bottles are next best for sales to customers who are geographically close and (3) cans are better than bottles if long haul freight is involved.

What might be different in New Zealand? Well as a country with a lot of coastline you'd think that the raw ingredients for glass bottles must be pretty abundant. It looks as if most or all of our glass is created from sands collected from Parengarenga Harbour in Northland. From the lay person's point of view, it would appear that the raw material is just lying there waiting to be collected and is not in any danger of running out.

Meanwhile aluminium relies on bauxite from Australia. Here's what Lagunitas brewery have to say about bauxite mining. We bring bauxite to Tiwai Point and throw cheap electricity at it. Apparently the smelter pays one quarter what the rest of us do for their power. The Manapouri power station that generates electricity for Tiwai Point was one of the most controversial construction projects in New Zealand history on account of its impact on the environment. It seems the taxpayer also subsidises 90% of the smelter's carbon credits. When the smelter's operators threatened to close the whole operation down a few years ago, there was speculation that this would free up so much electricity generation that New Zealand would effectively be flooded with cheap electricity (although I'm told that there isn't enough capacity in our transmission network to bring that electricity to the North Island in the short term). In the end we used extra taxpayer money to persuade them to stay open until well after this year's election.

In other words, we seem to create aluminium in New Zealand as one giant, taxpayer funded work scheme with possibly huge environmental costs.

Then there's reuse and recycling. This is where aluminium should be the big winner. Except that we aren't quite as good at recycling aluminium as we are glass, but only by 48% compared to 50%. But it's the recycling process where aluminium is much better, using a fraction of the energy that went into production to be recycled. There seems to be one anomaly in the whole thing though – most of our used aluminium gets sent to Australia and recycling only contributes a tiny portion to the production at Tiwai Point.

What I don't understand here is why we went from reusing glass to recycling it. You would think that cleaning a bottle would use a fraction of the energy needed to crush or melt it then reconstitute one. Does the glass weaken over time? Did drinks producers insist on having unique bottles? Reuse lives on in the old fashioned flagon (a.k.a. growler), although that has been superceded partly by the more modest rigger, which has the same benefit of reuse.

But I really would like to know what stops us having a bottle collection network that drink makers source their bottles from. I suspect it comes down to quality, but maybe a bit of determination would solve that. It's good enough for home brewers after all. It would be interesting to see one of our local breweries experiment with crediting customers for returning bottles.

Finally there's the BPA thing. Getting into really tricky science here, so I'm not going to pretend to know what's best. Do New Zealand made cans even have the same lining as foreign ones? I know I'm not going to risk eating beer-can chicken any time soon.

There's a case for saying that the current fashion for the can needs a big injection of scepticism. Or maybe these reservations will go up in smoke in the light of some really good facts and figures. Comments welcome.

Saturday, May 31, 2014

Single Bottle Nonsense

Four years after Geoff Palmer and the Law Commission set about dismantling the 1989 Sale of Liquor Act, the full horror of their agenda is finally dawning on those affected. I'm thinking in particular about the current storm on social networking over proposed bans on single bottle sales in certain cities.

Now it should be pointed out that the complaints might be a tiny bit misguided. What I believe these councils are proposing are that bans on single bottle sales be put in their set of discretionary conditions that they might then impose at will on individual licensees. So these aren't necessarily blanket bans. But I don't think that that nuance detracts from the stupidity of the measure.

Some beer drinkers are also taking the proposed bans personally since they don't seem to apply to wine. They would do well to note that in the Auckland case the council are actually talking about an exemption for "hand crafted beer", which is full of problems in its own right, but might be taken as a concession to beer lovers.

Now we in Wellington went through our own ordeal with the drafting of a Local Alcohol Policy last year. The first draft proposed much earlier closing times for bars and off-licences. The council's hearings into the matter were inundated with written and oral submissions and they watered the measures down a lot. In particular there was a plan to create a designated nightlife ghetto that would be entitled to later closing times. Some of us in the craft beer bar business were pretty riled about this and I made written and oral submissions, along with one or two others, pointing out the folly of this plan, with respect to the evolution of Wellington's nightlife and little things like messing with property values and rent. When the revised policy was released the council's press release said "The proposal to introduce entertainment precincts was not supported. We don’t want to stifle some of the niche character venues that might fall outside an arbitrary boundary, such as some of Wellington’s burgeoning craft beer bars." In other words, we influenced the outcome.

So for fuck's sake, stop whingeing on facebook and start talking to your local council!

Secondly... I forced myself to sit through submissions to the Wellington Council from local representatives of the respective associations of hospitality and supermarkets. It was ugly. A common theme from both of them was "alcohol abuse is their fault, not ours". It's a wonder that the council chose to overlook the pettiness of their finger pointing and accept the underlying message that arbitrarily shortening licensing hours is a daft way to try and change people's behaviour. So I was a little disappointed that the Brewers Guild indulged in a little finger pointing of their own by saying "regulators... should spend the energy enforcing retailer responsibility...".

In my experience the best way to talk councils out of these silly and arbitrary provisions is to draw attention to their flaws as regulations and the lack of understanding of the issue that's behind them. Maybe they were toying with me, but when I raised the subject of Paul Christoffel's thesis with the Wellington Council they seemed genuinely surprised and interested. (The thesis roundly debunks the availability theory that is behind the new Sale and Supply of Alcohol Act.) On the other hand, I expect that they sit through "it's not fair" complaints every day.

If I were an Aucklander, I would suggest to the Auckland council that this proposed discretionary condition is discriminatory:
licensee must not sell single units of mainstream beer, cider or RTDs in less than 445ml packaging. Boutique and handcrafted beer and cider are exempt from this provision.
To me, it's the rich tut-tutting the poor about their drinking.

And this one is basically a subsidy for the wine industry:
shots, shooters, high strength mixed drinks with more than 45mls is spirits/liqueur in one serve, beer with more than 6% ABV, and RTDs with more than 6%ABV must not be sold or supplied at the following times: within the last hour of closing for premises open till 1am or 2am; and within the last 2 hours before closing for premises open after 2am.
What are discriminatory social engineering and protection for wineries doing in a local alcohol policy?

So the gist of this rant is a plea. Please everyone stop wringing your hands about the single bottle sales thing. Instead, get your facts about the law and local alcohol policies straight along with all the other provisions of the disastrous Sale and Supply of Alcohol Act of 2012, not to mention Paul Christoffel's thesis, and make rational submissions to councils that debunk the nonsense that is going on here.

Friday, March 7, 2014

Twitterstorm Postscript

Very quickly... we're told that the somewhat controversial post that I put out earlier in the week has had unintended consequences in the form of (and I quote because I'm going by hints in tweets) "hassling", "harassing", "threats of violence", "putting them on a hit list". Oh and, incredibly, some kind of phone harassment.

Reactions like this are unequivocally rejected as legitimate support for the point I was trying to make. In fact they're the antithesis of the point I was trying to make and it beggars belief that this statement is even necessary. The whole post was a request (in vain) for an explanation. Not retribution.

Monday, March 3, 2014

Calling Out: Giovanni Tiso

Dear Giovanni Tiso,

I don’t believe we’ve met and if we did I remember nothing about it (sorry). But you’ve seen fit on at least two occasions to insult me, my staff, my fellow investors and our customers at Hashigo Zake on twitter. On both occasions it was a day or so before I realised which is just as well because I have been known to react impulsively to slurs like these. Instead a couple of people bothered to defend me and my business and I’m grateful to them.

But it’s becoming a pattern and I’m not blessed with the kind of tolerance and patience that it takes to ignore insults like these, so I thought it’s time I said something.

Now I know next to nothing about you, except what you’ve chosen to say about me and my staff and customers. So that’s all that this piece is about – your words about us.

So here we go. Back in December 2012 there was a conversation on twitter that went like this:

The conversation continued…

So… the gist of your complaint seems to be that my co-owners, staff and customers are pretentious gits who promote some kind of conformity while pretentiously pretending to be something else and harbouring people known as “hipsters”.

Now I generally need help with the hipster thing. I was out of New Zealand for a few years between 2005 and 2008, and it seemed that in my absence a new insult was invented. In the years since I haven’t been given or been able to deduce a definition. So Giovanni, why don’t you humour me and propose a robust definition of hipster? Because for now all I can tell is that it’s a word that says more about the lack of imagination and intellectual rigour of its user than its target.

And the conforming (or “confirming”?) thing. Hmm… maybe it’s time I told you a story about the origins of Hashigo Zake. 

You see I’m a big fan of beer - particularly (but not exclusively) interesting and imaginative interpretations of the beverage. Over a long period I became incredibly frustrated and disillusioned with bars in New Zealand that denied their consumers the chance to drink those versions of the beverage because the big breweries had a stranglehold on market access. To put it simply – they have, for decades, been paying incentives to the outlets NOT to serve the products of alternative suppliers. As well as being frustrated as a consumer I consider that a disgraceful and unethical business practice.

So the original and driving motivation for setting up Hashigo Zake was to create an outlet where alternatives to the products of those big bullying breweries could be served. And with some like-minded people we got started. Now my investors and I came from outside the hospitality industry. So we also felt motivated to question a lot of the practices of the hospitality industry that annoyed us. Practices such as spending large amounts on a gimmicky fit-out; drowning out the conversation of customers with thumping music; not being forthcoming with information such as drinks prices and glass sizes; recruiting staff with little product knowledge and paying them the minimum wage. We turned these frustrations into components of the total offering that was Hashigo Zake. We set up in a location that many critics thought was a graveyard. And I gave up a lucrative career to start a business that even our supporters thought was doomed.

So now… please explain… in what way are we guilty of conformity?

Your next accusation was snobbery:

So here we go… you don’t like our certificate. The “Certificate of Heineken-Free Status” that I whipped up in an hour or so one afternoon and put in a $2 frame by our door. Maybe I’m guilty of pride here but I am delighted with what our satirical certificate says. To us Heineken embodies everything that’s wrong with industrial brewing. It’s an unremarkable product whose manufacturer uses expensive marketing and sheer market power to coax apathetic consumers into buying. We want to send a signal to potential customers (and that product’s maker) that we have contempt for, in particular, their methods, and to some extent, their product.

If you don’t find it funny, good for you. I’m not a professional comedian. If you think it makes me/us snobs, that’s a big call, but for now let’s just put that down as name-calling and move on.

So what else did you have to say…

Now we’re getting a little firmer. You wanted to accuse us of charging $22 a drink. So can you clarify one thing here… did you really think we charge $22 a drink or was this hyperbole? Because, you know… one or two of the drinks on our long, long list will cost that much. Several percent of them. So maybe you meant this literally, in which case you’re just being selective to the point of being wilfully misleading. Or were you being hyperbolic? Because if you were, kindly put a zero on the end. There are impressionable people out there who could think this inane comment was somehow vaguely near reality.

But let’s talk about prices, value and what have you because it seems to be a recurring theme. Just yesterday you came up with this:

So here we go then – you think we’re expensive. You think our business model is to cash in on idiots who just want to buy the most expensive beer. Based on what exactly? Now of course I am going to deny this. 

Because it’s bullshit.

But there’s more going on here. We serve products that we like and that we think deserve to be offered to willing customers. And who’d have thought – those products cost more. And yes, having paid more for our raw goods we are failing to re-sell them at prices equal to those of more cheaply sourced goods. Step forward, Giovanni, and accept your Ig Nobel prize for Economics.

But here’s what really upsets me as a business person trying to make a living selling goods that are inherently more expensive than other similar (but arguably inferior) goods in the market. In order to remain competitive with the purveyors of those (arguably) inferior goods, we have to accept lower margins than other businesses do. I guess you don’t bother to look into the wholesale prices of the goods we sell before making your sweeping assertions. If we priced the beer we serve in accordance with the way a typical CBD bar does, then maybe your $22 quip might actually count for something.

So let me spell it out for you – a 200% markup on drinks is standard for an inner city bar in New Zealand. We mark ours up less. Often much less. Oh and we serve them in glasses that are larger than just about every other bar, but I guess you didn’t get that far with your research.

So Giovanni, how about you come clean? What is your problem? Do you just like calling people names? Do you have a problem with beer? Or the category of beer sometimes known as craft? Or do you just have a colossal inverted snobbery complex? Or is it something trivial like the name of our business or our décor (assuming you’ve ever set foot at Hashigo Zake)?

In the meantime, how about you stay away from the baseless, snide, cheap, derogatory chipping away at something that you just don’t happen to be into?

Dominic Kelly
Hashigo Zake