New battle over tap contracts looms

Evidence given to a Federal Parliamentary Committee looking into competition in Australia has reignited the battle against tap contracts in the Australian beer market.

The first shots were fired on Tuesday of this week when Coopers Brewery managing director, Dr Tim Cooper, described the Australian marketplace as “pay-to-play”.

Speaking before the House of Representatives Standing Committee on Economics’ Inquiry into economic dynamism, Dr Cooper said that competitive market power was one of the barriers Coopers faced in gaining market share.

“The beer sector is highly concentrated,” he told the Inquiry.

“The two biggest beer suppliers in Australia are Lion, which has been wholly owned by Kirin Holdings Company Limited since 2009, and CUB, which has been owned by Asahi Group Holdings since 2020.

“We estimate that they represent approximately 33 and 50 per cent of the beer market respectively.”

“The beer market has become what is colloquially known as pay-to-play, with publicans accustomed to rebates for keg sales, and retailers accustomed to promotional discounting, cooperative marketing and trading terms for packaged beer.

“Craft brewers are often unable to compete with 80 per cent having their own tap rooms instead.”

He said even brewers of Coopers’ size “lack the market power or resources to compete aggressively in this market”.

“Our keg share volume of the market is significantly lower than our retail volume,” he explained.

“Similar to a craft brewer in the eastern states, we may be able to get one or two of our products on tap, or access to what is termed ‘rotational taps’.

“Over my 35-year career, keg rebates have transitioned from simple discounts off keg prices to now include significant upfront payments made by the large breweries in exchange for signing long-term exclusivity arrangements that often lock out other brewers by brand name or beer style.”

“Outside South Australia, CUB and Lion have a tendency to specifically exclude Cooper’s or its products in their contracts with publicans.”

IBA joins the battle

The second salvo was fired on Wednesday by the Independent Brewers Association, which also described the beer market as “restrictive and anti-competitive”.

In his opening statement, former Independent Brewers Association chair Richard Adamson said that the on-premise marketplace was a challenging access point for the association’s members due to tap contracts and rebate schemes offered by the “two large, foreign-owned” breweries.

“A two-year investigation held by the ACCC failed to find tap contracts substantially lessen competition,” Adamson said.

“This was met with bewilderment with most of our members.”

In response to a question from Committee Chair, Dr Daniel Mulino MP, Adamson outlined the challenges presented even if an IBA member could get access to a tap in a contracted venue.

“What we are seeing often is that these rebate schemes that have been put in place as an incentive to increase volume restricts access to sales,” he explained.

“So the pub will actually short order the kegs from an independent brewery just to restrict how much is sold through as a percentage of the overall volume of beer that they sell, in order to meet their contracted tap rebate.

“So having that sort of mechanism in place is artificially restricting how much independent product could sell through that outlet, and it’s also depriving the consumer of access to those products as well.”

Cooper’s interests aligned with small brewers

Dr Cooper’s comment before the Inquiry are significant as, even though he was speaking on behalf of his family-owned company, he is the current chair of the Brewers Association of which Lion and CUB are also members.

Speaking with Brews News after giving his evidence, Dr Cooper said his brewery and the IBA have a “natural alignment”.

“They’re not the only ones to find it a bit difficult,” he told Brews News.

“Not only in the retail space, but also in the on-premise.

“The on-premise is an area which I hear the craft brewers talk about most, they’re more frustrated about the fact that it’s very hard to get tap points and we can absolutely sympathise with them on that.”

He said that his company found it frustrating that not just individual pubs but large groups also signed contracts that might notionally be for five years but are often conditional on time or volume, with whichever comes last determining the contract length.

“Sometimes these contracts go on for more than 10 years, even though notionally they were a five-year contracts,” he explained.

“The publicans can do what they want to do, obviously, but I don’t think it’s going to make a meaningful difference to the profitability of their businesses to tie themselves up and, most likely, in my mind, harm their profitability because their product offering is skewed so heavily towards one supplier.”

The Brewers Association has made no comment on the hearings.

Brews News has reached out to Lion and CUB for comment.

Despite the evidence given to the House of Representatives Standing Committee on Economics this week, the Australian Competition and Consumer Commission previously found in 2017 that tap contracts in the brewing industry are not anti-competitive.

The watchdog’s findings followed a three-year investigation that examined contracts and practices at 36 venues across NSW and Victoria.

However, later that year the Competition and Consumer Act was amended in a way that legal scholars feel might change the ACCC’s approach.

Back to News