Dankstraction

Yesterday afternoon (May 3) I was asked by Rory, who writes Hashigo Zake’s weekly email, whether I had any news to include. This prompted a routine check of the IPONZ website for recent trademark applications under Class 32. And for the first time in a long time I hit pay dirt. On April 27 Lion made three new trademark applications – “AT LARGE”, “DANK” AND “COMMON LAGER”.

The last time I stumbled across an application from Lion that I thought was dodgy was a whole five years ago. That was for “BLIND PIG”, which is the name of a famous beer that has never been available in New Zealand, but that many would love to see here. And I thought they had a cheek trying to grab it. In a conciliatory moment I wrote to the law firm whose name was on the application and was told that the application was no longer needed and would be dropped. So… no harm no foul?

Yesterday I tried emailing the partner at Lion’s law firm that I corresponded with back in October 2012, but got an automatic reply saying that he’d left. (Much later in the day I got a response from a different partner, noting my concerns and promising to raise them with Lion.)

Ok then, time to throw a little outrage grenade. I wrote a piece that was incorporated in Hashigo Zake’s weekly email and stood back. And nothing happened. Does no-one read our email to the end any more? Sigh.

This morning BWB’s Ryan made a joke on facebook that he might be forced to change the name that he uses on facebook, which happens to be Krispin Dank – itself a comment on the use of Dank as a beer flavour descriptor. A couple of follow up questions later the cat was out of the bag.

If you follow certain people on facebook or twitter then all hell as broken loose. Admittedly it’s a pretty small circle but the level of outrage is high. It’s mostly – or probably all – about the application for “DANK”. People really love that word right now and it’s in plenty of beer names. Which is exactly why, if IPONZ do their job, Lion’s application is doomed.

If the application is doomed, and someone at Lion or their law firm should know this, why did they bother? I think the answer might be in that level of outrage being shown over DANK. No-one is talking about “Common Lager”. I find this application equally problematic, since it’s for what is, arguably, a recognised style name. Or maybe I should say that it’s for an expression that is used occasionally in the place of a certain well known style name (California Common), and clearly evokes that style name.

To put it another way, I wonder if we’re all being played and the whole Dank application is a distraction, and Lion won’t mind if they lose it as long as “Common Lager” gets through.

Saigon and Pasteur Street

Pasteur Street

Could there be a better name for a brewery than Pasteur Street? It is both a reference to an iconic street in its city of origin and a nod to a scientist whose achievements included learning the secret of fermentation and saving millions of lives from his work on vaccination and pasteurisation.


The Pasteur Street Brewery’s “home” is a tiny tap room at 144 Pasteur St, in the heart of Saigon’s District 1. Or more accurately, the brewery’s home is two tiny tap rooms at 144 Pasteur St. Because the brewery runs two such venues on either side of a narrow alley meaning that both they have the same address. For a tourist struggling with google maps it’s quite confusing.

Both have the kind of tasteful and low-key fit-out that assures a first-timer that no-one wants to distract you from the beer. There’s plenty of information available about the beer, a simple but effective food menu and beer is available by the pint or in tasting trays. Again, all very promising.

But the telling thing is that when the beer does eventually arrive, there is no disappointment. A tasting tray made up of the items on page one of the beer list brought six beers of quality ranging from excellent to exceptionally good. There was a Passionfruit Wheat, a spiced saison called Spice Island, Jasmine IPA, Coffee Porter, Double IPA and the show-stopping Cyclo Stout. This last beer may be the still young brewery’s greatest achievement. As well as being rich, boozy, complex and utterly delicious, it’s a World Beer Cup Gold Medal winner.

The quality is sustained through a follow-up tasting tray of the beers on page 2 of the menu. There’s a Pomelo IPA that is packed with citrus rind flavours and two fruited Berliner Weisses – one pineapple and one watermelon – as well as a kolsch, witbier and a surprisingly complex Belgian pale ale.

The brewery aims to incorporate local ingredients into every beer that they make. That policy has been relaxed a little, particularly with some of the intense Imperial IPAs, but it’s still very evident. And in an era when hops and malt, along with brewing expertise, are traded in a global market, the attitude makes a lot of sense. Plus those fruited pale beers are perfect for Vietnam’s tropical regions.

The next day I took an uber to Pasteur Street’s main production facility which is in a kind of industrial estate 19km south and outside the city. Apparently it’s illegal to brew in the middle of Saigon. My uber receipt tells me that the trip took 58 minutes, implying an average speed of 20kmph, which is probably about par on Saigon’s congested streets.

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I get a guided tour from brewer Ryan, which consists mainly of trying beer straight from conditioning tanks, including a Dragonfruit Gose, which might be the reddest beer since a certain former Hashigo Zake manager’s beetroot IPA.

Until now, everything about Pasteur Street’s operations have seemed slick and well funded. So it was a surprise to find that the brewery have made do with a slightly cobbled set of brewing equipment, most or all of it sourced within Vietnam. It also turns out that with this brewery busy maintaining the brand’s diverse range, some of their most in-demand beers are produced at a separate contract facility.

There are more and larger tanks on the way, but with demand for Pasteur Street beer growing rapidly in Vietnam and in export markets, it’s clear that managing growth is going to be a challenge.

Back in Saigon’s District 1, there’s time for a quick pilgrimage to Maison Marou. Like Pasteur Street, Maison Marou is a young company. They’re “bean to bar” chocolatiers, with a combined café and factory that sells single origin chocolate bars while serving extravagant sweets and hot chocolates to tourists and affluent locals. Also on sale are bottles of Pasteur Street’s Cyclo Stout, which uses Maison Marou’s own chocolate, along with cinnamon and vanilla.

Maison Marou chocolate is imported into New Zealand. Find out more at www.marou.co.nz. 

Ballast Point at Hashigo Zake

Hashigo Zake has always had a distinct policy regarding beer selection. We don’t only want to stock beer that is very good; we want to offer products that are uncommon, innovative, made by small and independent brewers or that are in some other way under-appreciated or hard to find.  We’re consumers ourselves and we care about choice and oppose practices that eliminate choice. If a brewery uses anticompetitive practices then we don’t want anything to do with them. But also if a supplier is so dominant that their products are ubiquitous then they don’t need us and we’d rather give someone else a break (provided the alternatives are of high enough quality).

In late 2015 the news came through that one of our favourite breweries, San Diego’s Ballast Point, was being sold. And their new buyers – multinational liquor company Constellation Brands - were shelling out a remarkable $US1 billion. It came as a real bombshell for us at Hashigo Zake and Beer Without Borders, as we saw Ballast Point as a great example of a brewery that could grow and grow without needing to sell out.

For the sake of consistency with its expressed principles of avoiding the products of massive producers (or ones using anticompetitive practices, which wasn’t the case here), Hashigo Zake declined to keep stocking Ballast Point beer.

But as Ballast Point’s New Zealand distributor, Beer Without Borders had a duty to Ballast Point and their New Zealand customers to not suddenly halt any trade in their beer. Plus Ballast Point was BWB’s biggest brand, so it would have been reckless to BWB - and its staff, customers and other suppliers - to terminate the trade.

So for the last year and a half Beer Without Borders has continued to sell Ballast Point beer while Hashigo Zake hasn’t. It’s been somewhat confusing since the two companies have the same ownership.

We’ve found that with Hashigo Zake a Ballast-free zone, rather than take advantage of that vacuum, other Wellington bars have slowed down their own purchasing of Ballast Point beer. It is now rare to see BP beer on tap in Wellington. Causing very good beer to be lost to local consumers and reducing choice is definitely not what Hashigo Zake selection guidelines are for.

So in the interests of ensuring that Ballast Point’s very good products remain available in Wellington, Hashigo Zake is stepping back from its policy of the last year and a half, and will resume offering Ballast Point beer.

Treason

It was really encouraging to get this news today from the Australian site Brews News. The TLDR is that a Melbourne law firm is enlisting breweries that want to be part of a class action against Australia’s corporate brewers for breaching competition law by using tap contracts.

I’m in no position to tell whether the law firm, Adley Burstyner, have the ability to succeed, but even if they don’t it’s keeping the issue alive, while Australia’s ACCC take a long time with their investigation into the same practice.

Now, speaking as a legal lay person, the Australian Competition and Consumer Act 2010 and the New Zealand Commerce Act 1986 are probably intended to do the same thing. But it looks like the Australian law might have more to say about anti-competitive behaviour. I say that because Part 2, Section 27 of the NZ Act says only “No person shall enter into a contract or arrangement, or arrive at an understanding, containing a provision that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.” Now the Australian Act says something similar about entering into a contract that is “likely to have the effect of substantially lessening competition”, but it also outlaws “exclusionary provisions”.

My lay opinion has always been that New Zealand tap contracts breach the spirit of the Commerce Act, but might stay within the letter of it, because it takes thousands of them to collectively “substantially lessen competition”, while it could be argued that one on its own can’t substantially lessen competition. But that clause about “exclusionary provisions” might give the Australian Act more teeth.

So it’s conceivable that the corporate brewers in Australia are destined to be forced to stop this practice and maybe pony up a lot in fines or compensation for having done it all this time. But at the same time the Commerce Commission in NZ have already seen fit to deem the practice legal. They have their version of competition law and we have ours, and that’s the prerogative of nation states. Or is it?

The Trans Pacific Partnership, and potentially other future free trade agreements, has a little bit to say about competition law. What I saw when I looked into it seemed pretty vague. It basically says that members should have some competition law to eliminate anti-competitive behaviour.

But what if producers and manufacturers in one country, hoping to export to another that they’re in FTA negotiations with, raise the stakes? It would be highly fanciful to think that Australia’s smaller brewers, fresh from a legal triumph over that country’s mega breweries, might get involved in FTA negotiations with New Zealand or other TPP nations over the competitiveness of their beer markets. But what about free trade negotiations with Europe?

Is it treason to hope that a foreign power will bully us into getting our anticompetitive house in order?

Be There. Be Herd.

To put the following rant in context, I'm looking forward to the Lions tour and at Hashigo Zake we're putting out the welcome mat for Lions supporters. And local supporters too of course. This is because we have faith that those following the tour are people we will enjoy having as patrons. This is in contrast to how we dealt with the Wellington Sevens when we felt compelled to close our doors for a couple of years because of the behaviour of patrons on the weekend of that event.

I got an email yesterday from a supplier of flags and similar promotional material. It was offering Lions tour bunting. I took a closer look assuming that the product would consist of team colours or logos. But no, the “Lions tour” bunting that they were offering consisted of pictures of people with their faces painted.

In fact what they’re offering is consistent with other messages and imagery I’ve seen surrounding the Lions tour. Here’s the image that takes up half of the screen when you go to http://www.nzlionsseries17.com/.

The upcoming Lions tour is part of one of Rugby’s most significant traditions. As a sporting contest and a spectator event it has certain qualities that even the world cup can’t match. And the games have been followed by operators of still and moving cameras for a century.

Meanwhile the era of professional rugby, synthetic rugby balls and fields with drainage have helped make the on-field action more spectacular and athletic than ever before.

So for a designer tasked with creating visual imagery to promote the tour, there are rich vaults of historic and contemporary imagery available to draw on. 

And yet for the Lions tour, someone’s genius idea is to paint a few faces and say “open wide”? It’s as if they’re going out of their way to exclude images of actual play in any promotion of the game. Contrast that with just about any big sporting event, such as the NBA Playoffs, where they're happy to make a collage of their most famous players in action shots to promote their playoffs.

I realise that there is a point to the choice of images made by the rugby union or their design agency, and it’s to make local supporters feel involved. And when prices for games are inflated as much as these have been, the vendors of tickets know that they need to provoke an emotional reaction from local supporters to persuade them to come.

But it isn’t just the Lions tour that does this. In the entire, pathetic history of the Wellington Sevens, I can’t recall ever seeing a poster, advertisement or banner that used an image of on-field action to promote the tournament. Instead the promoters concentrated on shots of spectators in costumes, more painted faces, and a shot of an Austin Powers impersonator.

In the case of the sevens, this insistence on telling spectators that they, and not events on the field, were the real story, was the seed of the event’s demise. When the Wellington Sevens began, the Hong Kong Sevens was (and still is) the ultimate such event. Without Hong Kong the whole Sevens circuit would never have happened. The event had legendary status then, for many reasons – the on-field spectacle, the exotic location and the party element. And in spite of the reputation, the party-goers somehow seemed to remain under control. (I base this on the one time I went, which was in 1997!)

From the start the Wellington event was promoted as a party. We New Zealanders are notorious for being - shall we say - slow to get excited. So while it’s unlikely that any advertisement ever mentioned alcohol, images of spectators dressed up, dancing, and yelling carried a code that didn’t need a lot of decrypting.

Year after year there would be a little hand-wringing about things getting out of hand, but every year the advertisements would go up depicting costumes, painted faces and revelry in the stands. The message was pretty clear. If you want to sit in your seat and take in the sporting action, this isn’t the event for you. But if you want to turn into an exhibitionist for a day, rock on up.

When the tide turned and there was consensus from the organisers, the city council and the police that the partying had to be curbed, the organisers were painted into a corner. The crowds who’d come to Wellington for some consequence-free partying got the message and stayed away. But spectators who might have wanted to go purely for the sport had been well and truly alienated, so there was no-one left to fill the yellow seats.

To cut a long story short, the sevens organisers got the patrons, and the consequences, that they asked for. So what kind of spectator is being encouraged to turn up to the Lions games? 

Negotiations

For a while now, some of us have been observing how alcohol licences are issued in Wellington, with a bit of concern for one particular aspect. And that is the practice of the Police telling applicants that they will oppose their applications unless they agree to certain conditions being written into the licences.

If and when Police object, the application goes to a hearing and everyone takes their chances with the District Licensing Committee. From what I've seen, the DLC overrules the objections of the Police (and the Medical Officer of Health) with surprising frequency. Nevertheless, for a lot of applicants the hearing and the time taken for it to happen are unpalatable, especially if they're applying for a new licence and any delay in the licence might delay their opening. (It's different if you're applying for a renewal.) So applicants tend to pay very close attention to any suggestions the Police have for avoiding a hearing.

Fortunately there’s an extremely useful website with the very exciting name of NZLII. It’s an archive of decisions by all kind of courts, tribunals and what have you. And it includes decisions by the Wellington District Licensing Committee and the outfit that has oversight over them, which is the New Zealand Alcohol Regulatory and Licensing Authority.

Now if you know the names of a few bars or bottle stores whose licence applications might have been contentious it’s pretty easy to study the outcomes of those decisions. For instance, here’s the news-worthy Siglo case, where Police tried to make Siglo accept a one-way door policy only to have the Licensing Committee rule against them.

Today I came across this one. It's from a hearing on Feb 7, 2017, with the decision dated March 2. The Police and the Medical Officer of Health appealed the renewal of an off-licence by the Wellington committee so it went to the national body to adjudicate. They not only rejected the appeal, they said something that strikes me as kind of extraordinary.

[79] Reporting agencies should be careful to avoid ‘negotiating’ conditions with an applicant in exchange for those agencies not opposing the application. Doing so risks creating the impression that they have used their statutory reporting function under s103 to achieve their own ends. While the interests of reporting agencies are undoubtedly of significant importance, and it is for that reason that they have been given a function under s103, the Authority would take a dim view if opposition turned on whether an applicant agreed with reporting agencies’ recommendations on conditions. The role of the Police and the Medical Officer of Health under s103 is clear. They are to inquire into the application and if they have any matters in opposition, to file with the DLC a report on those matters. The evaluative exercise under s131, and the imposition of conditions, is for the DLC alone and not for the Medical Officer of Health or the Police. It would be an improper use of their reporting role in s103 if that was used in a way that effectively usurped the DLC’s licensing function.

From what I know of these things, the behaviour that the New Zealand Alcohol Regulatory and Licensing Authority is saying should be avoided sounds an awful lot like the way Wellington licensing has been operating for the last two or three years. For example the 2015 decision regarding an off-licence application here incorporates extracts from a succession of emails that must pretty much fit the dictionary definition of a "negotiation". (Paragraphs 12-17, on pages 5 and 6.)

So if the New Zealand Alcohol Regulatory and Licensing Authority is saying that this kind of practice is against the intent of the 2012 Sale and Supply of Alcohol Act, but this practice has been routine for several years, what does it say about the licences that have been granted in this time? Do they need to all be reconsidered by the Wellington District Licensing Committee?

Getting more extreme, if a bar or liquor store felt coerced into accepting shorter trading hours, can they sue the Police for loss of income?

Incidentally - and for full disclosure - Hashigo Zake's two liquor licences (on- and off-premise) were renewed on March 2, with no conditions added. So if the Authority's comments have affected how these things are done in Wellington, we may have been an early beneficiary.

So Excised

A whole four years ago I tried to contribute to a discussion on the price of beer in New Zealand with this piece. As an aside in that I wondered whether it would be more fair for everyone if excise tax were charged at the point of sale rather than when alcoholic beverages enter the supply chain.

Four years later I’ve been thinking about that idea a bit more and it still seems really valid. Here’s why.

Excise tax on alcohol has an awful lot wrong with the way it’s applied. I’ll list a few here, but it’s the third one in particular that I’m gunning for:

• it discriminates blatantly. That is, excise is charged at different rates for different drinks. To the best of my knowledge there is no evidence that a millilitre of alcohol in a whisky is more dangerous than a millilitre of alcohol in a beer. Nor that a millilitre of alcohol in a beer is more dangerous than a millilitre of alcohol in a wine. But our excise rates are calculated as if that is the case. It seems obvious then that what our excise rules are doing is profiling the consumers of these different kinds of beverage and intentionally penalising one category of consumers more than another. If only someone’s choice of drink correlated with religion or sexuality – then the way we apply excise would breach the Human Rights Act. (In fact, if I could suggest that the preferential treatment given to wine drinkers has to do with wine’s biblical/Judaeo-Christian history, then maybe this is a form of religious discrimination. Any lawyers out there want to do some pro bono, human rights work?)
• It assumes that all alcohol entering the supply chain gets consumed. Brewers and other producers have to pay excise whether the beverages they make are consumed or not. If drinks sit on a shelf without being sold for so long that they have to be dumped, no-one gets an excise refund. If drinks are spilled, lost, broken or boiled off in a casserole the naughty tax is still paid. This is even though excise tax is supposed to be a brake on alcohol abuse. As far as I can tell the only way you get your excise refunded is if you export the goods or show that they were somehow tainted at the time of production. (Going off and becoming undrinkable doesn’t count.)
• Finally, as dscussed below, the financial burden of excise tax is multiplied in the supply chain. 

Now it’s easy for anyone to look up the rates that excise is charged at, look at the ABV and size of the drink in front of them, and work out, for example, that a 330ml bottle of 5% beer has had 47 cents of excise applied to it. But that would only tell half the story.

Let’s assume that that 330ml bottle of 5% ABV beer was sold by a brewery to a distributor for $3 (excluding GST) and by the distributor to a bar for $3.60 (excluding GST) and by the bar to a consumer for $10 (including GST). And yes, for the distributor and bar to stay in business, those are the kinds of margin they need to charge.

It’s common to assume that the amount of excise that the consumer has effectively paid is still 47 cents. But imagine if that excise hadn’t been applied back at the brewery. The brewery might have sold the beer to the distributor for $2.53. Assuming the distributor applies that same margin as before, they’d be selling it for $3.03. And assuming that the bar applies the same margin then they’d be selling it for $8.42. A whole $1.58 less. So has excise cost the consumer $0.47 or $1.58? I think the answer is $1.58. What has been passed onto the consumer is not only the cost of the excise, but the cost of everyone in the supply chain adding their percentage to it.

The supposed purpose of excise tax is to levy consumers of this dangerous product (some more than others) and collect the income and put it to good use. But if the effect of excise is to put a drink up by $1.58, yet only $0.47 is being collected in tax, something is going wrong.

What’s going wrong is that excise is supposed to be a levy on alcohol consumption, but it’s collected at the point of production (or for imported goods at the time of entry into New Zealand). And where is the extra money being charged to the consumer going? It’s going to whoever funds the purchases made by the companies in that supply chain. You might think that it’s the operators of those businesses. But it’s just as likely to be banks. I.e. excise tax inflates the cost of buying stock for distributors and retailers and they fund that purchasing from their working capital, which may be their investors’ money, or may be a bank’s money.

This makes it sound like this is a windfall for those parties funding this money-go-round. But in reality I think that they would prefer it if these goods were cheaper and the whole business didn’t have the added risk of paying all this tax in advance.

Now in the 2015/16 year, New Zealand collected $947M in alcohol excise tax. Most of this would have been purchased at off-licences rather an on-licences. I’m going to make a wild guess that 80% of alcohol is sold at off-licences.

Markups at bottle stores and super markets are much lower than in bars. By the time a bottle of some kind of alcohol is sold at an off-licence, it’s probably going for about 50% more than the producer sold it for. But bars and restaurants probably sell goods for 250% more than the producer sold it at.

Turning these percentages into dollars, I estimate that every year, excise tax gets inflated by $380M for alcohol sold through bottle stores and by $470M for alcohol sold through bars and restaurants. That’s $850M sucked out of the pockets of New Zealand consumers because that $947M of excise tax is levied at the point of production, not at the point of consumption.

The alternative then, is to levy excise tax at the point of retail sale. Even saying it sounds intrusive, but I think a little scrutiny shows it’s actually quite workable. It is the 21^st century after all and we have this thing called electronic point of sale software. We use one at Hashigo Zake called Vend. It knows everything we buy and everything we sell. I’m sure that its developers would be happy to add functionality – for a fee – that records the serving sizes and ABVs of all the products we bring in then tells us and Inland Revenue or Customs the excise payable on any and every sale. It’s only a fraction more demanding than calculating GST. It would mean that retailers would never pay excise, only collect it and forward it. And because they aren’t paying excise when buying stock there’s no need to add a margin to it.

There’s $850M to gain every year by doing it this way. That gain can be split. I.e. excise tax could be increased, perhaps by bringing the rates for wine into line with beer and cider, so the tax take goes up. But prices to consumers would fall at the same time. Outlets could pocket a share of the savings to fund the extra functionality needed in point of sale systems. I believe “win win” is the appropriate cliché.

Whole industries (brewing, distribution, hospitality) would be less risky. Consumers would save money.

But of course it won’t happen. I’ll try to second guess some of the reasons.

• Firstly the idea of making excise tax collection more efficient and passing on savings will appal the neo-prohibitionists. They want to punish us for liking a drink. It probably pleases them that an inefficient system needlessly adds cost.
• Secondly "it’s just not done this way". Customs collect excise, not Inland Revenue. How would it be policed? But these are insignificant issues. Every business is already a tax collector (GST, PAYE). For decades we've even been using the tax system to collect, of all things, student loan payments. Every vendor of alcohol already needs a licence and is monitored by city councils and police. The bottom line is that we can organise the collection of taxation any way that we, as a nation, see fit, and a change like this is no more challenging than raising the GST rate.

Now my $850M figure is a bit of a guess. And maybe for bars and bottle stores to pass on everything they save from buying excise-free stock is a little hopeful. Nevertheless I think my point about this and other absurdities in our excise taxation stands. And if we weren’t so ridiculously Victorian in our attitudes to alcohol we’d be fixing it.