Broo signs contract brewing agreement

Broo Australia Draught

Beleaguered brewer Broo announced to the ASX this morning that it has signed a contract brewing agreement with Carlton and United Breweries.

According to the announcement CUB will produce and package Broo Premium Lager and Australia Draught beers, including “technical brewing recipes and packaging artwork”.

Brews News has contacted Broo founder Ken Grogan by email and phone for comment but has not received a response, though he told the Australian Financial Review that the beer will be produced at CUB’s Yatala brewery.

A spokesperson for CUB confirmed the deal.

“This is a commercial arrangement that gives Broo access to a small amount of capacity at one of our breweries,” the spokesperson said.

“Deals like this are not unusual in brewing, and we’re in a fortunate position to be able to use our scale to help smaller brewers.”

In the statement to investors, Broo said that it “anticipated” it would place orders of 432,000 litres per quarter, with CUB producing 48,000 cases during the period (in cases of 24 375ml bottles). If accurate, this would total 1.7 million litres a year of Broo beer.

The volume projections are reminiscent of a deal Broo heralded when it signed a deal with a Bundaberg-based distribution group last year with a 2 million litre minimum annual sales target for Queensland alone.

Grogan told the AFR that “a lot of our best growth is coming from Queensland at the moment”. However Broo’s financial results over the last few years have failed to show any significant growth in sales.

Broo has previously announced distribution agreements with Metcash nationally, Liquid Mix in Western Australia and ALM in Victoria.

Its most recent results show that despite its Queensland deal, its volumes have decreased even as bottle shops report strong sales during COVID. Broo told the markets that it was scaling down production during the COVID period– halving production costs to $232,000 compared to the previous quarter.

While CUB didn’t confirm Yatala was the base for production under the contract arrangement, giving access to a brewer for such small volumes would raise questions for Australia’s largest brewer.

With a capacity in excess of 400 million litres per year, Yatala is the brewers largest facility and Broo’s projected – and never realised – volumes would be a rounding error. The merger of CUB with Asahi gives access to the latter’s Laverton facilty, which was the contract facility that incubated the Mountain Goat volumes. CUB also operates the Cascade Brewery in Tasmania, which it expanded in 2018.

Brews News understands that CUB’s facilities operate below capacity.

The deal

In the statement announcing the deal, Broo said it currently brews its beer products at Victoria’s Mildura Brewery which it acquired in 2017 and which has been at the centre of controversy over its potential sale.

The talk of a sale was prompted by a note in Broo’s annual financial accounts posted to the ASX last year which said that Broo was in negotiations to outsource its brewing requirements.

At the time it said a subsequent agreement would remove its requirement for the Mildura brewing plant, but Broo has not yet responded to questions regarding the future of the Mildura Brewery following today’s deal.

Broo suggested that the agreement with CUB would increase production and supply capacity, “and capitalise on market demand for those brands through its various retail distribution channels”.

The agreement commenced in August 2020 and will continue for a period of 24 months, Broo said, finishing at the end of August 2022.

Broo said it intends to place its first order with CUB for the production of Broo Premium Lager in October 2020.

Back to News