Since Panhead announced its sale to Lion two weeks ago, I’ve been reluctant to be drawn into any debate on the deal.
Largely because facts is facts and opinions don’t change anything. But also because takeovers are a predictable part of our expanding craft beer scene and further evidence of the swing away from cottage industry. This won't be the last.
I can easily see Panhead’s appeal. Lion (and DB) invests heavily in tied venues. The brewer subsidises the fitout and controls the venue’s drinks range. Over the past few years, major brewers have been under increasing pressure to relax controls to allow bars to serve a wider range of beers.
No surprise there – overall consumption of alcoholic beverages has been falling for years. Beer consumption has been falling even faster, with an average decrease of 2%/yr since 1978. Craft beer, though, has double-digit growth. Any bar owner has to want in.
Lion’s purchase of Emerson’s in 2012 and Panhead this year filled an obvious gap in its range. Now it can face down publicans wanting relaxed contracts, by offering all the standard Lion range, plus one of our oldest and most-respected craft brewers, and the fastest growing craft brewer. Lion has played an excellent hand.
This strategy of buying breweries rather than relaxing ties suggests Lion wants to retain exclusive contracts. And that’s good news for free houses.
Imagine if Lion had gone the other way: “Yes, we will subsidise your fitout, and we will let you have five independent taps, so long as Steinlager, Speights and Mac’s make up 80% of your volume.”
That would leave free houses competing against a whole lot of larger venues with bigger budgets, while at the same time taking away their advantage of having a distinct range of beers. If craft beer’s the thing to drink, and you can get it anywhere, you don’t have to make the effort to seek out a free house.
That’s how the LionHead deal exposes a fundamental tension between craft brewers and craft bars. Brewer’s must broaden their distribution, while bars must try to have a unique range.
Craft brewers don’t spend all day shovelling malt, tasting beer and conjuring new recipes for you. They have to sell the stuff – at a profit – so distribution is as important as malt, hops and stainless steel. The neat little craft brewer you discovered in 2011 can’t keep relying on you, your mates, and the funky local free house you hang out in. As the volume of craft beer continues to explode at around 33% each year, brewers are constantly striving to get their beer into new venues.
Venues, though, need to be different to other bars in the area. There’s lots of factors – beer range, location, prices, atmosphere, staff, etc etc etc. But free houses rely to a very large degree on serving beers you cannot get at boring old mainstream tied venues.
The LionHead deal won’t help craft brewers getting into Lion bars, but it might stop Lion bars competing with free houses.
And DB, sitting quietly in the corner? It either starts buying craft breweries to catch up with Lion, or it relaxes its ties, lets venues serve beer from independent craft brewers, and watches as craft beer drinkers start to rediscover DB pubs.
One last point on LionHead – craft brewers now have to ask themselves three important questions:
- Are my beers in the same styles as Panhead’s?
- Are mine obviously better than Panhead’s?
- Are mine cheaper than Panhead’s?