Craft brewery growth overestimated

By BeertownNZ Wed, 09 Aug 2017 National

New data show the current growth in craft brewing is coming from new entrants, and breweries themselves are not growing so fast.

Beertown.NZ commissioned StatisticsNZ to isolate data on small breweries from the annual Alcohol Available for Consumption data. Going back to 2001, we are now able to track the growth in small brewery production, and for the first time, we have some fascinating data on brewery numbers.

Here’s what we found

  • New Zealand’s small brewery sector has been in an unprecedented growth phase since 2012, with more breweries and output each year. From 2001 to 2011 the sector showed variable output on a tiny base. 
  • Since 2012 small breweries’ combined production has increased at about 20%pa; small brewery numbers have increased at about 17%pa; a small brewery’s average production has increased at about 2%pa.
  • In 2016 small breweries produced 17 million litres of beer (excluding exports), 22% more than in 2015.
  • Small breweries made 6% of the beer consumed in New Zealand in 2016. Large breweries made 80%, while imports made up 14% of our consumption.
  • New Zealand had 130 small breweries operating in 2016, 15% more than in 2015. This is a count of production breweries paying excise and so does not include most contract breweries/brands.
  • The average output from a small brewery is 130,769 L/yr. While combined production and numbers are showing double-digit growth, the average brewery’s production grew just 4% last year.
  • Today the small brewery sector has many small, new businesses showing moderate growth, in a sector that is itself showing strong growth.

What we did

There’s been a lot of talk about the growth of craft beer in New Zealand. ANZ has released an annual Insights report since 2013, attracting media coverage, and blogger scorn for looking at craft beer but not defining it.

Brewers in New Zealand are not required to declare their sales, but they do have to declare their production and pay excise on it. StatisticsNZ (the government’s official statistics agency) collates this information, adds wine and spirit production, and publishes it each year.

The result is a database covering many years, gathered by a reliable third party, and with very robust data. The downside is that it’s gathered for a different purpose, so it doesn’t necessarily record everything we’d like to know, and it excludes exports (because they don’t attract New Zealand excise). Within its limitations, it is extremely reliable data.

Then it’s a matter of separating craft brewers from the overall database. StatisticsNZ is very conscientious when it comes to keeping the breweries anonymous. You can’t give it a list of major breweries and ask nicely for their data, for example.

The solution was to contract StatisticsNZ to isolate all breweries (i.e., excise accounts) that produced less than 1% of the annual beer production in any calendar year, and add them all together to give us production data on the small breweries sector.

This 1% threshold was chosen because it exceeds the output of our biggest craft brewers. Moa is the only brewery to publish its production data (it’s the only one on the Stock Exchange). In 2015 its production for New Zealand consumption was 2.1 ML, within our 1% threshold of 2.5ML. 

Small breweries include Tuatara – it fits under the threshold and was independent as at the end of last year. I understand both Emerson’s and Panhead continue to pay excise as separate entities, so they will be included too. Larger Commercial Craft brands (Monteith's, Mac's, Boundary Road, Independent) are effectively excluded by their volumes and ownership.

Some independent craft breweries, e.g. Stoke, have capacity to brew more than 2.5 ML/yr but keep their output secret, so Moa is our benchmark for now.  The threshold can be recalibrated in future as small breweries grow and more detailed information on production comes to light.

This is also the first time we know the number of breweries operating in New Zealand, and this gets very interesting. The new data allow us to track the growth in brewery numbers over time, and tell us their average production.

What it uncovers

The small brewing sector was in decline before 2011. Production was up and down, and small brewers were losing market share, even as total beer consumption was falling.

2012 was a watershed year for New Zealand beer. Since 2012, the sector’s production has grown at about 20% every year. This growth was mostly fuelled by new entrants, rather than from existing breweries increasing their output. Small brewery numbers have increased at about 17% every year since 2012, but average (mean) output per small brewery grew at only 2%.

Headlines like Party time - NZ craft beer's $100m boom are supported by the rise in total production, and they make opening a small brewery appear financially attractive. But the headline writers didn’t know that individual businesses in the sector are not showing exceptional growth, let alone profitability. 

The average small brewery produced slightly more than 130,000L in 2016 – enough to generate annual sales of $1 million. The sector is polarised between a few (typically larger) breweries investing in new equipment (e.g., ParrotDog, Good George, Harrington’s, Panhead, Fat Monk, Emerson's, Tuatara) and many small, start-up producers who may still be relying on income from their day jobs.

The number of production breweries operating in New Zealand doubled between 2012 and 2016. This proliferation has resulted in a sector with strong growth, made up of many individual start-up businesses that are optimistic, small, inexperienced, and have moderate growth. This is typical of an industry in a start-up phase.

Acknowledgements

Special thanks go to ANZ's Sam Bree, Rob Simcic and Max Newtown for purchasing my StatisticsNZ data, commissioning 2016 data, and peer reviewing my research. ANZ’s Craft Beer Insights 2017 will be released this afternoon.

This article is a summary of Beertown.NZ Report 1: Independent brewing in New Zealand 2001-2016. The full report includes more analysis, details on methodology, and the raw data as received from StatisticsNZ. To purchase a copy contact me at This email address is being protected from spambots. You need JavaScript enabled to view it..

Cheers

Martin Craig

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By BeertownNZ Wed, 09 Aug 2017 National