Where to from here for craft beer?

Sunday, 26 January 2025

Craft beer had a golden run in the years leading up to the pandemic, peaking during the throes of lockdown. But the years since have been a period of decline. Experts analyse the state of the market -- and pick what’s ahead for craft. Aimee Shaw reports.

Operating a craft brewery is hard work and has become increasingly so over the past few years, according to Luke Robertson, the owner of the largest brewer on the West Coast, Shortjaw Brewing.

It’s a story common to those operating breweries in a sector coming off the highs of the pre- and during Covid era.

Robertson says people's tastes, trends and costs have all changed since those times. New Zealand’s variable weather hasn’t helped.

Through winter and spring, Shortjaw noticed the same number of customers in its taproom, but people were spending less - about $5 less per customer. “People were still coming in, but they weren't having that second drink or third drink, which certainly adds up.

“Our takings over spring were down significantly in the taproom alone, and a big part was due to weather, as well as as cost. We had a really bad season in the West Coast where it rained all spring. We were down up to 10% for those two months in our taproom and that's our biggest revenue stream.”

Robertson, who took over the twice-liquidated brewery in Westport and turned it around, rebranding and re-opening again in 2022, says summer was a much better season for Shortjaw.

“We used that slow period to expand our sales reach, with the hope business bounced back, but we’re kind of at the whim of global politics and the economy. It’s hard to know where to from here, as brewers we can only make sure the beer is there and ready to go when people want it or can afford it.

“We've readjusted how we market now as well, with all these factors in mind, and we're marketing even heavier locally. [We’ve realised] it’s boots on the ground in the local region that’s going to sell more beer.”

Scott McCashin, managing director at Nelson-based McCashin’s Brewery which produces Stoke, Wakachangi Lager and Rochdale Cider, echoes the sentiment.

McCashin, who has long been involved in the industry, says the cool and wet weather through summer had dented what is otherwise strong sales at this time of the year.

'The last four years has been very challenging. Ever since Covid hit, it just changed everything. We've had to be very conscious of our costs and watch every dollar. We've had to go through different restructures and push hard in the market all the time and fight for every bit of space you can get,“ says McCashin.

He was not optimistic that this year would be any easier.

“I'm preparing for a tough year ahead again.”

Wind back to 2018 and the volumes of craft beer being produced each year was at a record high - almost trebling in the five years pre-pandemic. But today, more than five years on, craft beer consumption - and production - has taken a turn for the worse.

Last year saw a plethora of craft brewers succumb to unrelenting economic pressures and some pioneering names bit the dust.

For those remaining, financial challenges meant there has been less room for innovation and the experimentation of flavours that sets the alternative beer apart from other pints.

As Brewers Association executive director Dylan Firth puts it, the whole beer industry has been doing it tough amid economic uncertainty and the high cost of living impacting how much consumers have - and want - to spend.

“[Demand for] pale ales has really dropped back, whereas hazies are still quite strong. But there has been a shift. [The market is down] 0.2% to the year ending December - equivalent to about 1.5% overall over the year.

“But if those [numbers] are happening year-on-year, it's really noticeable. Overall, beer has dropped quite a bit in the last few years.”

Craft beer accounts for 13.5% of the total beer market on a volume basis, or nearly 20% on value.

According to Stats NZ, the volume of beer produced in New Zealand over the past five years since 2019 has dropped from 290 million litres per year to 281m.

In the past year, the volume slumped, going from 288m litres to 281m.

While volumes are down, the industry is worth more today than it ever has been but that’s largely the result of inflation.

In 2022, the brewing sector was estimated to be worth $3.3 billion. While the value of the industry has increased by a couple of hundred million dollars since then, the cost of doing business has also increased over time for the 200 or so brewers in this country.

Being a premium product and more expensive than regular beer is generally why the craft portion of the market has been doing it tough. “People are looking at their dollars and going ‘Do I want to be purchasing premium products, or do I want to shift or not consume at all?’,” Firth says.

The cost of input goods and overheads is ever increasing and excise tax, coupled with muted demand and sales, has left craft brewers in a hard place.

Nowadays a brewer can make more money selling through bars and restaurants than through grocery, says Firth, but hospitality sales have also been challenged in recent years and down in the last year, according to Worldline.

Firth says before the pandemic, the craft boom was already coming to an end, but sped up more recently in part due to financial constraints.

“There's definitely been a flattening off and we've seen a few people drop out of the industry and some of the bigger and medium-sized ones consolidating what they produce in terms of range,” he says.

Getting overheads down has been a pre-occupation.

“They might not be growing as fast as they were but they’re becoming more profitable or maintaining profitability through difficult times with the hope of seeing a bit of growth throughout this year and into next year.”

Firth says the craft sector was maturing and in a different phase - and unlikely to return to the highs seen before 2019.

“We've seen the growth phase. We've had a bit of a shake up through the pandemic and we're going to see it move more steadily from here.

“I don't think we're going to see any more massive growth - there’s just not the population growth to sustain it.”

In the last couple years there has been what Firth calls a boom in low carbohydrate beer, with more options and people creating their own. “Because that's been huge, the craft sector has jumped on board as well.”

He expects more brewers to jump on that trend, along with the no alcohol options.

“We're going to see the growth of zeros continue to slowly tick up. It's never going to match what the other products are doing, but there are some markets where it sits at 10-11%. I think New Zealand could get there.”

There were other opportunities for craft brewers to focus on destination tourism, offering unique experiences, to bring visitors in through the facilitation of tours and tastings - similarly to distilleries and the likes of chocolate factories, Firth says.

“Most brands have their own local taprooms and locations, and there's several brewers located around each other. For international tourists coming to New Zealand, these experiences should be one of the things that they look at. Craft guys are doing a really good job of getting together and developing that option - something that can actually bringing in international dollars.”

Challenges ahead

Industry expert Michael Donaldson, publisher of specialist craft beer magazine Pursuit of Hoppiness, says craft beer needs new innovation - but there were few untapped areas for brewers to get into these days.

“Non-alcoholic beer is still on a huge growth curve, and it's the one segment of that market that's growing. It probably only makes up about 3% of the entire market at the moment, but that's what craft beer was 30 years ago.

“There's room for growth there, and that's also a way brewers can reach a lot of new consumers, who may not have previously even wanted to buy beer but a non alcoholic version might have some appeal,” says Donaldson.

“Not everyone's embraced it yet. It will become a much bigger part of the segment, because as it grows, retailers will go ‘We need more of this stuff, and we need to display it better to make customers aware of it’.”

Donaldson believes excise tax is holding the industry back from any meaningful growth, particularly now at a time when people were feeling the pinch of tough economic times.

There was a lot of “treading water” going on in the industry to stay afloat at present, and a big reason for that was excise tax - which does not allow for an even playing field in the industry, he says.

“Excise is a huge killer for smaller breweries.”

Excise tax works out to be a fifth of the cost of making beer - a huge amount for small brewers, he says. “It has to be paid upfront before you do anything and the rate at which it increases is tied to inflation.

“If you're a huge brewery, like a Lion or DB, that kind of cash flow is not a problem. If you're a smaller brewery and you have to pay excise up front, it can be make or break.”

In Australia, breweries get their first $350,000 of excise tax refunded - which provides a huge boost for small operators.

Many in the industry are in favour of a similar model here.

Donaldson, like McCashin, Robertson and others, believe there should be some excise relief for small players. Which could come in the form of a rebate or being excluded from paying it on the first X amount litres of beer production per year.

“If you're a tiny brewery, that would be a massive relief, and they’d start to make more money as well.”

Small brewers employ more people per litre of beer than the large breweries so there are many reasons in favour of some excise relief, says Robertson.

“All that money, it would benefit the small growers, and that just means the money stays in our economy and floating around - I don't think there's any downsides to it.”