A storm is brewing in the Australian craft beer industry, with another titan calling in administrators. Billsons joins Mighty Craft in a continuation of the decline of the Australian alcohol sector. Liam Healey and Quentin Olde from Ankura and Rob Smith and Matthew Hutton from McGrathNicol have been appointed as administrators of Mighty Craft and Billsons respectively.
This decline continues to highlight the structural problems that are pushing numerous breweries to the brink of insolvency. What are they?
You could say rising costs of raw materials, transportation or energy. You might also say that higher interest rates and less disposable income is causing a crunch for consumers. However, the reality is when a government slaps the world’s third highest excise tax on every drop that leaves your production floor, it’s a surefire way to devastate an industry.
The current state of craft breweries and distilleries
The first half of 2023 saw 35 Australian craft breweries close their doors, matching the total closures from the whole of 2022. Desperation continues as Australia’s brewers plead with the Federal Government for a lifeline ahead of the impending bi-annual excise duty hike.
The Brewers Association of Australia is making a last-ditch effort, urging the government to ease the tax burden on beers poured in pubs, with yet another crushing beer tax increase looming on Monday, August 5.
With tax rates increasing twice a year, these exorbitant taxes significantly reduce profitability for breweries, adding unbearable financial strain to their operations.
After a decade of rapid growth, many breweries are now struggling to stay afloat. Notable examples include Red Lion Brewery in regional Victoria, which has completely shut down, and Wayward Brewing Company in Sydney, which has had to lay off up to a third of its workforce in a bid to break even.
Mighty Craft, a listed brewer, recently entered voluntary administration after a proposed merger with Better Beer fell through. This came after months of divestment and restructuring efforts aimed at reducing debt. Mighty Craft also faced a looming debt repayment deadline, having agreed with the ATO to pay an outstanding liability of over $8.8 million by 31 July and a $2.5 million extension of a bridging loan from its lenders due on 17 August.
In a budget submission to Federal Treasurer Jim Chalmers, IBA CEO Kylie Lethbridge highlighted the dire state of the industry, noting that independent breweries were closing at an “alarming rate.” A survey of 425 IBA members revealed that 66 percent believed their businesses might not survive the current economic downturn.
We interviewed an insider who works with over 30 independent breweries who told us the following:
“If the federal government continues to create a business environment that punishes growth and success, good companies, jobs and stability will leave and investment will disappear. The more you grow, the more excise and payroll tax you pay. Whether you are profitable or not. Capital is not ideological; it goes where it is treated best.
But wait, there’s more!
In addition to the burdensome taxes imposed by the government, several other factors are contributing to the industry’s struggles.
Market Saturation:
The craft beer market has expanded rapidly, with the number of independent breweries in Australia increasing from 355 in 2016 to 582 in 2020. This sharp growth has led to intense competition, making it difficult for many breweries to thrive as the market becomes saturated.
Consumer interest in niche beers tends to wane quickly, and new trends are often quickly adopted by numerous breweries, further diluting the market.
Cash Flow Problems:
Cash flow issues are compounded by late payments from customers, particularly hospitality venues and small to medium-sized retailers. These late payments accumulate as bad debt, severely affecting the financial stability of breweries.
Given the current market conditions, rising costs, and inflation, breweries are often at the bottom of the “to pay” list for these businesses.
How PencilPay Can Help Craft Breweries
In these challenging times, it’s essential to focus on what can be controlled. As bad debt accumulates for many breweries, PencilPay provides several solutions to help craft breweries and distilleries streamline their operations and enhance their financial stability.
Here are our top three features that specifically assist breweries and distilleries in getting paid and reducing bad debt.
- Onboard Customers with Online Credit Applications
PencilPay provides digital credit application forms that verify customers using company data. These forms also allow breweries and distilleries to store a payment method on file, offering security over the stock provided, reducing the risk of bad debts.
- Automated Accounts Receivable Management
PencilPay automates the accounts receivable process, including sending payment reminders and auto-billing invoices that have a saved payment method on file.
This ensures invoices are paid on time, reducing the burden on administrative staff and improving efficiency.
- Custom Payment Plans for Struggling Customers
During tough times, some customers may struggle to make timely payments. PencilPay allows breweries and distilleries to set up custom payment plans, bundling overdue invoices or creating payment schedules that match the customer’s cash flow. This helps maintain customer relationships while ensuring payments are collected.
Case Study: Transforming Financial Stability with PencilPay
In the face of market saturation, high taxes, and cash flow issues, PencilPay has proven to be a game-changer for breweries. We recently analysed a cross section of independent breweries across Australia, looking for the 3 non-sales metrics that drive cashflow to find the following: (within 6 months of launching)
- On-time payments increased from 26% to 43%
- Average debtor days reduced from 24 to 13.
- Overall debtors reduced from 55% of monthly turnover to 32% of monthly turnover.
This case study highlights how adopting PencilPay can lead to substantial improvements in transaction volume, revenue, and the timely collection of payments, which are critical for breweries navigating the current economic challenges.
Conclusion
The Australian craft beer industry is undergoing a significant realignment due to high taxes, market saturation, and persistent cash flow issues.
Although waiting on the government to make changes is an option, it’s not something you can control.
The next best option is to make sure you aren’t building up bad debts and to financially secure yourself during these times.
With PencilPay, breweries can automate their accounts receivable processes, improve cash flow, and stabilise their financial health. By leveraging technology to streamline operations and ensure timely payments, craft breweries can better navigate the current challenges and position themselves for future success.
Discover how PencilPay can transform your brewery’s financial health. Book in time for a demo here.