Changes to excise tax to fast-track growth plans for Wollongong distillery
Headlands Distilling Co. secured its first export sale after responding to a stranger’s request to send product samples. After tasting the distillery’s gin and vodka, the stranger – a distributor with connections in Singapore’s bar and restaurant industry – placed an order for 100 bottles.
The distillery turned to Austrade to supply vital tax, excise, customs, labelling and logistics information, ensuring it could price its products appropriately and meet import regulations.
“The huge advantage of working with Austrade is they have people on the ground in all the key markets who can speak with us and provide advice,” Director Thomas Simnadis says, “Through one agency we have access to the world at our fingertips.”
Austrade is rapidly scaling up its services to support Australian agri-exporters expand and diversify their markets as part of the Agribusiness Expansion Initiative.
In another boost to Headlands’ fortunes, the federal government announced it was increasing the excise refund cap for distillers and breweries in its latest Budget.
“The changes in excise tax will free up resources that will pave the way for us to hire more people, further invest in R&D and bolster our presence in overseas markets,” Simnadis says.
Local roots, global ambition
Headlands was formed in 2015 by four friends. Dean Martelozzo, Jared Smith and Thomas Simnadis have known each other since high school. They met Lachlan Hingley at university.
Simnadis was completing a PhD focused on identifying opportunities for novel Australian grains when he noted the keen interest among grain growers to be connected with the final product. After he mentioned this to his friends, Smith, a chemical engineer, suggested they try making their own spirits. The group sourced grain from a farm in the Riverina region, set up a tiny still and started producing spirits on a small scale.
This ‘low-fidelity experiment’ became Wollongong’s first distillery. Headlands’ grain to glass philosophy means every step of the production process is done from scratch, from milling the grain, mashing, fermentation, distilling, filtering, bottling and labelling. Its gins, vodkas, spirits and whiskies, flavoured with native botanicals from local producers, have won global awards.
From day one, Headlands was determined to be a global company.
“We’re eager to grow and eager to show the world what we can produce,” Simnadis says.
Make the most of unexpected opportunities
Headlands’ export journey started unexpectedly when a distributor in Singapore contacted the distillery for samples after seeing its social media posts. The founders were hesitant, but after a few email exchanges, decided there was nothing to lose by sending a few bottles.
The distributor loved the products and placed an order for 100 bottles of gin and vodka. This was great news but very new territory for the distillery.
“We lacked knowledge about local business customs,” Simnadis says, “We didn’t know how to price our products for the market. We had no idea about taxes, excises, labelling and regulatory requirements, or even how to ship our products to Singapore.”
Turn to Austrade for time-saving, targeted advice
Austrade, through TradeStart, provided Headlands with a ‘mountain of information’ on local duties and taxes, which helped the company build a robust financial model. Simnadis says the pricing information was particularly valuable.
“Pricing is particularly important for a discretionary product like alcohol,” Simnadis says, “Knowing the taxes and duties really helped us calculate the pricing for our products – otherwise we would have missed unexpected costs and taken a financial hit.”
“It was also helpful to get targeted advice so we could focus our research,’ he adds. ‘Our TradeStart adviser showed us where to look for information on labelling, taxes, excises, customs fees, import duties and in-market pricing. It saved us hours hunting down information,” he said.
TradeStart also provided information on payments handling, regulatory and tariff issues, and export development grants, and assisted with qualifying business leads.
Excise refund to accelerate growth plans
Headlands’ growth plans received a boost when the Australian Government announced it was increasing the excise refund cap for distillers and brewers in its Budget 2021-22. Eligible companies can now claim 100 per cent of the excise they pay up to a cap of $350,000 each financial year.
“Excise duty is a killer expense for a small business like ours,” Simnadis says, “To get all or most of it back is a huge bonus – it will enable us to scale even faster.”
Headlands will invest all the excise savings back into the business, focusing on four items:
- Hire staff. Headlands is a four-man operation and Simnadis says an extra set of hands or two will enable the company to grow faster.
- Scale production. Headlands can increase production to meet the growth in demand. The company has ample capacity to scale after upgrading its equipment in 2020 and will look to extend its domestic presence as well as enter more overseas markets.
- Make more products using native ingredients. Headlands’ spirits use indigenous ingredients that are expensive due to their rarity. ‘We can now buy more of the ingredients, invest in planting our own, produce more spirits and take them to a global audience,’ Simnadis says.
- Undertake research and development. ‘As a small business we have two choices: do something now to harvest short-term profits or invest in a longer-term project that will reap rewards later. Now we have capacity to do the latter at a much lower risk,’ Simnadis says.
Looking to a sustainable future
Headlands intends to grow its Australian market and explore more exporting opportunities. The company has already received queries from distributors in other countries.
“The pandemic has made people realise that life is too short to keep doing the same thing,” Simnadis says, “As more people get vaccinated and life returns to some level of normalcy, I think people will be eager to try something new, unique and creative – and that’s something our products can offer.”
Headlands prides itself on using native ingredients sourced locally where possible. The grain comes from a single farmer in the Riverina region. The Illawarra plums used to flavour its gins are hand foraged from properties in the region. The native Australian juniper in the Boobialla gin is sourced from a grower in South Australia who harvests the fruit by hand.
“We’re very focused on working with local partners so we understand the origins of the product and their sustainability characteristics,” Simnadis says, “It’s about making sure we’re not damaging anything and leaving the environment in a better place than when we first found it.”