Broo signs up to 2 million-litre Qld distribution deal

Embattled ASX-listed brewer Broo is pinning its domestic sales hopes on a Queensland distribution agreement announced today.

Broo, which has been in a trading halt pending the announcement, has signed up to a deal with a wholesale network spearheaded by Bundaberg-based East End Hotel Group. The deal comes with a 2 million litre minimum annual sales target, with executive director Kent Grogan saying that it will “accelerate Broo’s sales growth”.

Grogan told Brews News the business currently sells 500,000 litres of beer per annum in Queensland, and that the 2 million contracted volume “exceeds the Company’s existing production capabilities at Mildura Brewery and necessitates the requirement for external contract manufacturing.”

“Broo is currently working with Australian contract brewers to facilitate the Company’s additional requirements,” he said.

He said that the East End consortium is comprised of established Queensland wholesale and retail operations, and that they “comfortably rank as one of the state’s largest independent wholesalers”.

Despite their size, little information is publicly available about the wholesaler.

“You probably won’t find much as they are private and proudly independent,” Grogan advised Brews News in an email.

The company will have distribution rights over Broo Premium Lager 4.2% abv, in 330ml bottles – a new product that Broo has developed with East End.

East End has agreed to the 12-month deal, starting from August 2019.

Broo currently uses the distribution arm of Metcash to supply independent liquor stores across Australia, and 12 months ago was bullish about new distribution agreements with Liquid Mix in Western Australia and ALM in Victoria.

Grogan said in a statement released to the ASX that the agreement is a “resounding endorsement for the strength of our brand and the quality of our product range.”

It said that East End has become “one of Broo’s most valued trading partners” over the last six months.

Broo explained the decision to launch the distribution model in Queensland in notice to the ASX, which was posted following a trading halt yesterday which hinted at the agreement.

Queensland accounts for $2.3 billion sales of domestically-produced beer, it said, and the state is dominated by 4.2% and 3.5% abv beers, according to figures from ACIL Allen Consulting.

“We have a presence in all states however QLD has preformed strongly presenting a great opportunity to expand into the new 4.2 ABV category,” Grogan explained.

“There is opportunity to expand the offering into other states however our initial focus is expansion of the 4.2 ABV On Premise in QLD to compliment the packaged beer presence.”

The beleaguered brewer has been facing balance sheet issues in recent years which have so far been remedied by share issues keeping it afloat. The latest was launched in early July, and saw Broo pocket $400,000 through the issuance of 20 million ordinary shares. The year before it raised $2 million in a placement of 10 million ordinary shares.

This comes amid concerns that Broo’s much lauded $100 million ‘green’ brewery in Ballarat was under threat due to ailing share price, which has been flailing around the $0.02 mark for months.

The brewery was announced in 2017 but progress has been slow and the brewer is yet to submit a development application to the site according to reports.

At the time it said that the brewery would supply 480 million bottles of beer a year, approximately 180 million litres. It also did not disclose how the project would be financed, later telling Brews News that it would be facilitated by a combination of debt finance and government grants.

It has posted quarterly losses for nearly the last two years, but has insisted that negative operating cash flows will be rectified in the coming months.

In its half yearly report released in February this year, the board of directors stated that there was “a significant or material uncertainty” about whether the business could continue to trade as a going concern.

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