Since January 2023, a worrying trend of breweries being forced into voluntary administration has started to emerge. A recent interview conducted with Kylie Lethbridge, CEO at the Independent Brewers Association, brought to light certain inconsistencies in the ways that the ATO has managed the debts of different breweries. Following in its wake, Drinks Trade felt it would be useful to hear a brewery’s perspective on the growing economic pressures being faced by the sector.
The below interview is with Wayward’s Peter Philip, who personally helped fund its DOCA by taking measures such as remortgaging his house. Wayward has since successfully emerged from voluntary administration and will continue to operate as before under Peter Philip’s control.
Drinks Trade: When did you start Wayward Brewing?
Peter Philip: I started with Wayward in 2011 – I was a passionate home brewer that just saw a good opportunity to build a brand in Sydney. Our vision was always that we would be a local brewery but with a national presence. So, right from the beginning, we packaged our products and tried our best to expand into other states, for better or worse.
DT: Wayward seems to be the success story out of this situation, emerging from voluntary administration under existing management… would you agree?
PP: I wouldn’t say we’re the only one, there’s been a few others that think everybody’s that’s gone through it has sort of come out the other side in a stronger position to keep on going.
The voluntary administration process is there for a reason. It’s to help businesses that are otherwise viable restructure so that they can continue to operate.
[But] obviously [it’s] something we’re keen to put behind but at the moment… The capital markets are just effectively locked up, banks aren’t lending, there’s not a massive amount of investment happening out there
We’ve always had a pretty good relationship with the ATO and we certainly take our obligations seriously but there comes a point where the options are that you either completely shut up shop and 50 people lose their jobs or you utilise a mechanism like voluntary administration to try to restructure the company so that it’s viable.
The option was, do I want to shut our doors forever and 50 people lose their jobs. Or do I go to my bank?
I didn’t necessarily want to do that, but there’s really no other choice.
DT: Can you talk about what caused the recent slide into voluntary administration?
PP: [There are] literally two business models [in craft beer]: either you’re a brewpub model or you’re a packaging brewery that has aspirations to be in bottle shops.
The brewpub model is a very reliable model and they can stay small forever. But if you have aspirations to be a bigger brewery, then you really need scale. So beer is a low margin game and you’re competing against two absolute demons in the global beer industry in Australia.
I think a lot of people don’t realise that 85% of the beer sold in Australia is owned by two Japanese multinationals, and of course those multinationals are multi billion dollar companies that have nearly unlimited access to resources and capital and make it pretty difficult for small players to compete.
[When using the brewpub model,] it’s not easy to make money, but it’s easier to be able to scale down your business and when things are tough to save costs, whereas a brewery like Wayward: we have distributors, we’ve got salespeople, we’ve got logistics people, we have delivery vans, we have packaging facilities, we have a bigger brewery – so our rent’s higher, our staff costs are higher, everything is higher.
What we’ve seen over the last three years is kind of a perfect storm. First of all, we have the pandemic, which, you know, obviously changed consumption patterns, but coming out of the pandemic, we had massive supply chain issues that increased costs by 30% plus. And and then we had inflation and high interest rates which which decreased consumption by 25 to 30%. So you had this perfect storm for both sides where a packaging brewery like ours – cost of our cans went up 30%. A brew pub can just say ‘I’m not going to can any more product,’ right? So it’s easier.
85% of our revenue comes from trade. We have to put that product into cans. We have to then transport it to distributors. You know, petrol costs have gone through the roof, transport costs have gone through the roof… This perfect storm meant that we’re getting squeezed from both sides.
DT: What has Wayward had to change since?
PP: We have reduced our head count significantly – we’ve got a third less people than we did a year ago, and that’s a combination of natural attrition and some redundancies.
Laying people off is something that you don’t want to do as a business obviously. And when you do lay people off, you have massive costs for redundancies and so on. So if you’re anticipating a bounce back out of a pandemic, the last thing you want to do is, you know, lay 20 people off and then, uh, the market goes up and you need to rehire people six months later.
You just have to tighten your belt as a business and you have to hustle. So we continue to develop new products that are where we think the market is at the moment.
DT: Speaking in regards to the industry as a whole at the moment – in your eyes, what has to change?
PP: This is fundamentally caused by a consumer led downturn, and that’s being driven by inflation so controlling inflation is really important.
Again, the pressure from the big breweries who are aggressively going to the market campaigning to encourage consumers to buy their products rather than ours and, you know, they don’t have the same pressures on profit and their costs as we do, they’ve got massively lower production costs, and it’s very difficult to compete.
So we’re a little bit between a rock and a hard place because we need to make higher profits but if we increase our price then our sales will be down.
I mean, I think that economies are cyclical and we’re in the down cycle at the moment – beer will come back. Australian recessions (technically we’re not in a recession but I believe we are) Australian recessions tend to be short and sharp So I believe that within the next 12 months, we’ll see demand bounce back, so it’s a matter of ensuring we can survive until that happens.
DT: Any final message to the trade?
PP: We need to just really make consumers aware of the value of supporting small breweries because if they don’t and small breweries go away, then that’s a massive decrease in the amount of choice that there is in the marketplace and variety that people can get.
