Asahi's last hurdle cleared as details of tap contracts emerge
The last hurdle has been cleared for Asahi’s purchase of Australia’s largest brewer, with the Foreign Investment Review Board approving the deal.
This approval represents the conclusion of the regulatory review process with the ACCC last month approving the deal subject to some divestment considerations for three cider and two beer brands.
The $16 billion deal will now be completed on 1st June. CUB will become a business division of the Asahi Beverages Regional Hub within Oceania, along with Asahi Lifestyle Beverages, Asahi Premium Beverages and Asahi Beverages New Zealand.
Asahi’s beer brands include Asahi Super Dry, Peroni, Mountain Goat, Green Beacon, Cricketers Arms and Two Suns. It also owns the Schweppes soft drinks business in Australia.
“The move by Asahi to acquire CUB is an admission that this space is already too concentrated and that the only way to break into the draught beer market is to acquire businesses with existing tap contracts,” IBA chair Peter Philip said at the time.
“The large brewers know this and use their scale and resources to implement a number of restrictive business practices which have severely constrained the growth of small independent brewers when it comes to on-premise supply of draught beer.
Divestment and impact on competition
With a market share of 3.5 per cent, Asahi supplied a relatively small share of beer sales in Australia as a standalone entity , however the ACCC’s expressed concern that the acquisition would have removed a rival capable of competing strongly against the two largest beer brewers, CUB and Lion.
While formally approving the deal in April, the ACCC is yet to publish its Public Competition Assessment on the deal. These assessments aim to “provide the market with a better understanding of the ACCC’s analysis of various markets and associated merger and competition issues”.
The divestiture undertakings are designed to result in the “creation or strengthening of a viable, effective, stand-alone, independent and long term competitor(s)…Beer Market”, though viable purchasers have yet to be clearly identified.
Coopers currently brews Sapporo under licence, as well as brewing or distributing the Carlsberg-owned brands Carlsberg, Kronenbourg 1664, Mythos and Fix Hellas. Aside from the competing brands already in its stable, industry insiders don’t regard Coopers as a dynamic partner for brands such as Stella and Becks.
Another mooted purchaser, Heineken, has been brewed in Australia by Lion since 2004. The two companies signed another ‘long-term’ agreement in 2017. Lion previously distributed Stella Artois in Australia until AB InBev purchased SAB Miller in 2015.
Competition in tap contracts
In 2017 the ACCC concluded that the prevailing use of tap contracts was “unlikely to substantially lessen competition“.
“Although some venues had exclusivity arrangements, most pubs and clubs said they did not feel constrained from allocating taps to smaller brewers and could make taps available for craft beer if necessary,” ACCC deputy chair Dr Michael Schaper said when announcing the review.
This decision was based on competition law that has subsequently substantially changed.
A recent South Australian court case has shed light on the nature of tap contracts and how competition between CUB and Asahi operated prior to the merger.
In his judgement in the case, Crouch vs The Bloody Mary Group, Justice Doyle discussed the nature of contracts between CUB, Asahi and Coopers and the hotel group. The agreements with each company saw ‘prepaid or forward rebates’ paid to the hotel group for sales through the Windmill Hotel totalling $211,375.
The agreement between the hotel and CUB, covering the period August 2016 to July 2022, provided for a prepaid rebate payment of $160,000 as an advance of the volume rebate provided for in the agreement. The hotel was required to purchase a minimum 186,000 litres of draught beer and cider during the term of the agreement, with the rebate accruing at 154 cents per litre, or $77 per 50 litre keg.
The hotel group was obliged to repay any portion of the prepayment not accrued during that term.
The agreement also mandated that CUB draught beer and cider would be the “First Pour Beer” and “First Pour Cider” at the venue and that CUB would receive a specified minimum (83 per cent) tap representation at the venue. These taps were required to be in ‘positions of prominence’.
The agreement also obliged the venue not to sell draught beer or cider from CUB’s competitor Lion and that CUB would have exclusivity for its products at all functions and special events at the venue.
Evidence given during the trial revealed that as a hotel group with multiple venues and a pre-existing relationship, CUB viewed the Bloody Mary Group as a Tier 1 account, entitling it to the 154 cents per litre rebate and also prepayment of the rebate. A standalone venue without a relationship may have negotiated a rebate of between 55 and 70 cents per litre the court was told.
Asahi received two taps under its agreement that was due to run from July 2016 to July 2020 and also required a minimum of 31,252 litres of draught beer and cider, as well as quantities of post mix syrup and non-alcoholic drinks.
The agreement provided for a “signing fee” of $30,000. The Asahi agreement also imposed obligations in terms of tap numbers and positions, and the ranging and exclusivity of Asahi products at the Windmill Hotel.
Coopers also signed an agreement with the Bloody Mary Group for an “upfront payment” of $85,500 plus GST in return for Coopers having certain specified “beer dispensing rights” at the group’s hotels. Of this total, $21,375 was for the Windmill Hotel. The agreement was based on literage of 95,000 litres over three years and imposed obligations in terms of taps and product ranging across the venues.
The merger leaves Coopers, with 5 per cent of the beer market, as the last significant businesses competing against Lion and CUB for tap contracts.
Landscape post merger
With Asahi only having 3.5 per cent of the Australian beer market prior to the sale, the biggest change following the merger of the two businesses will be in the craft beer market. Asahi currently owns the Mountain Goat, Green Beacon and Cricketers Arms brands, CUB has a range including Yak Ales, Balter, Pirate Life and 4 Pines.
Brews News understands that recent market analysis conducted by Asahi segments craft beer in terms of ‘gateway’, ‘distinctive’, ‘explorer’ and ‘specialty’, which it identifies and 49, 41, 10 and 0.1 per cent of the market respectively.
The entry level gateway segment, amongst which it includes James Squire, Yak Brewing, Yenda and Cricketers arms are defined as being ‘slightly more complex than classic beers and/or are widely available’. Asahi believes the craft beer market is rapidly maturing with gateway beers in decline, noting that the category showed double digit declines over the last year.
The company believe that the ‘distinctive’ segment, which it says makes up 41 per cent of the craft market and includes brands such as Stone & Wood, Balter, Little Creatures and Mountain Goat, is evolving to become the new ‘volume’ craft.
‘Distinctive’ beers are regarded as more complex ‘liquids’ that are well known and with wide distribution outside of their home states.
Brews News understands that the company believes beers such as Stone & Wood Pacific Ale are filling the ‘go to’ role created by the decline of the gateway segment. However Asahi also believes that consumer purchases are more likely to be on the basis of specific beers rather than entire brands, which places pressure on its craft arms in the face of drastic expansion of range.
Asahi has itself identified one of the challenges that craft beer faces is, in the face of the number of brewers currently in the market, consumers can find it too hard to choose. It’s an issue for the new combined business as well.
The new merged entity is well indexed in craft brands, though CUB has in the past shown a level of attention deficit across multiple craft brands that has seen them at times suffer. Even prior to the merger, its craft business was facing increased competition amongst its own brands.