Saturday, 14 July 2012

Beer and Corporations

For years some of us have been expecting New Zealand’s two big brewers – Kirin-Castlemaine-Emu-Lion-Nathan-National-Foods and Heineken-Tiger-DB-Radler - to react to the growing interest in craft beer by reverting to type and going on a shopping spree of New Zealand’s small breweries. The rumours aren’t going away and Lion Nathan’s recent buyout of Australia's Little Creatures just reinforces the impression that the breweries have itchy cheque-signing fingers.

Most, if not all, of New Zealand’s small breweries are a huge financial burden on their investors. While they might make a modest trading profit in a good year that’s nowhere near enough to compensate investors for the capital they’ve poured in. Capital that could have been earning LIBOR at a respectable bank.

If a small brewery owner wants a fair financial return for all their cash and early mornings and sleepless nights the best hope is that a big rich corporation will come along, recognise their brand’s inherent value, give them an overdue payday, put in the extra cash the business is probably desperately in need of and, best of all, open up previously denied access to market.

So for the exhausted, under-remunerated brewery owner it is in their interests and rational to take the corporate mega-bucks. I’ve heard this sentiment expressed by plenty of people in or close to small breweries lately. It’s often heard alongside statements such as “the new owners would be mad to change the product” and “this way more people will get to try this great beer”.

I couldn’t fault their logic but something still felt wrong. After much contemplation I’ve come up with two reasons why I still hate to see these transactions take place.

  1. From my, admittedly, partisan point of view, the industrial breweries make these purchases in our part of the world for one reason: to put a band aid on their own product list. To elaborate: the big two oblige most of the outlets to serve only their products but the public are asking for different (better) products, so rather than loosen the contractual obligations of outlets they would rather add (i.e. buy the maker of) a better range of products to their offering, creating the appearance of a more varied and better product range. Consumers who don’t read the business pages won’t realise that the independent-looking beer brand they’re buying in a tied outlet is actually a Lion-or-DB product.

    Pulling off this trick of owning someone good and independent-looking may be all the two need to keep enough of their customers satisfied to put back the day that they’re forced to loosen their exclusive supply agreements with outlets. But for the 59 or so small breweries who don’t get bought that’s another nail in the barricaded goods entrance to the New Zealand Hospitality Industry.

  2. Having worked for corporations (in unrelated industries) and watched New Zealand’s big two brewing conglomerates for decades I can promise that they will mess with the beers. They won’t be able to help themselves.

    I’m a firm believer in the theory put forward by the book and film The Corporation that when you analyse a corporation as a psychiatrist might analyse a human, you’ll come up with a personality type of “psychopath”. Corporations are capricious and shallow and routinely captured internally by forceful individuals who make them forget previous intentions and follow radical agendas.

    That’s how I would explain the Lion-Macs-Shed 22 fiasco, which I have no inside information on, but watched as a consumer. Almost by fluke Lion appointed a fine brewer in Colin Paige to brew at Wellington’s Shed 22 and at first didn’t rein him in when he started getting adventurous. At about the same time they appointed Tracy Banner to brew at their subsidiary Mac’s and the beer improved out of sight. They had two subsidiaries making good beer on a small scale. Maybe Head Office hired someone with an MBA, or maybe someone senior with a few clues retired, but for whatever reason it was decided that two breweries was one too many and the operations had to merge and Mac’s Nelson brewery was closed. The quality of the merged operation probably wasn’t as good but sold well, so they closed the Wellington operation too and moved production to Christchurch, which promptly suffered a catastrophic earthquake destroying the brewery. The point is that as a corporation they couldn’t recognise a good thing when they had it – whether it was something they built or bought - couldn’t help tinkering and Wellington consumers suffered.

    Lion and DB got where they are by buying up small breweries – literally dozens of them - capturing the customers and brands of those small breweries and consolidating everything in sight. Where are those traditional brands and breweries now? Exactly. Does anyone really think that this time will be different? The new owners might have good intentions today, and it might take one year or twenty, but sooner or later they won’t be able to help themselves. It’s their personality type.
Interestingly, just as I was writing this, I was alerted to a piece by none other than Charlie Papazian, nuclear engineer and founder of the American Brewers Association, in which he has a similarly bleak interpretation of the purchase by Kirin-Lion-Nathan-XXXX-James-Squire-Macs-Speights of Little Creatures.


  1. Rumours abound in Marlborough that another one of our guys is set to sell out.

  2. The Twitters tell me that the Cock & Bull chain has sold also. No verification on that, and given the brewery is a separate concern, I can't see it mattering much other than maybe making there a few less good places to drink in Auckland and Hamilton.

    Dom: I like that you admitted your partisan nature!
    That said, I'm neither pro nor anti corporations. It's become very trendy to hate on them though, and like you, I hate trends. I DO hate that a corporation should ever be able to buy influence. I have no problem with treating one as a person, but that should mean it has no option to inflict force on any other person. On its own, or via the medium of govt regulation.

    Man, we so need to have this chat over beer. We were too smashed to do it properly in SF! ;)

    P.S. I swear I'll spend enough with HZ in August so that you forgive me for Dry July.

  3. As you say, there's a seductive logic to the idea that big brewers would see the benefits of keeping things as they are, and not mess with the product.

    Except...the empirical evidence shows this is virtually never the case.

    You'll always hear lofty, reassuring statements on Day 1 after a buyout, but whether it's 6 months, 3 years or whatever down the track, you can be sure that some genius will find a reason to change things. And another.