Tap contracts reform is no silver bullet

contract thorny

This article by Matt Kirkegaard was first posted on February 12, 2015.We thought it was worthy of a repost, amid continued debate overtap contracts followinglast week’s news of a possible class action against the major brewers. [JA]

Choice, the magazine of the Australian Consumer’s Association, has created quite a splash this week with their “international exclusive” that their “latest investigation has found that foreign-owned Foster’s Group, now known as Carlton & United Breweries, is locking out genuine Aussie craft beers from the taps at your favourite local pub.”

Their revelation has certainly worked for them in the web traffic stakes, but really the story is nothing new and, unusually for a Choice article, only portrayed one side of a rather complex issue.

Having railed against tap contracts myself on a number of occasions, it has usually led to some very enlightening discussions. Large brewers, small brewers, publicans and beer sales reps have come forward to discuss the topic and many have cast some interesting light on contracts and – if not actually support them – provide some context around the discussion. However, not being popular, these comments are rarely shared in the same wildfire of viral popularity as the easy-to-digest ‘contracts are evil’ line. Some are presented below. Feel free to discuss them in the comments below…

  • Contracts or no contracts, many publicans want to deal with just one or maybe two suppliers for their taps. Not every publican wants to spend his days keeping abreast of the latest seasonal releases, speaking with dozens of reps, training their staff across an ever-changing array of beers and making dozens of phone calls and paying multiple different suppliers for their taps. They want to deal with one or two suppliers and they want to carry a range of beers from no-carb through to craft-styled beers. Outlawing contracts totally will not necessarily open up these taps to craft brewers.
  • Added to the above is that while Choice couched their article in terms that CUB was ‘demanding’ contracts, it is commonly publicans who are demanding something in return for pouring a particular brewery’s beer. They want to be served by their supplier, not chase them. The mindset between the sort of publican who accepts a high percentage contract and one who operates a free house tends to be very different. The lack of a contract won’t necessarily change their way of doing business or make them any more amenable to the rustic delights of craft beer or the cottage industry approach to business relations.
  • Every small brewer and beer rep can – and do – recount the dozens of times they have approached a venue and been rebuffed with “I’d love to have your beer on, but sorry – we’re contracted.” So most feel personally affected by tap contracts. At the same time, many publicans – tired of being approached by dozens of sales reps each week – tell me that trotting out this line is the easiest way to get rid of the persistent sales people. More than one publican has advised it’s a particularly good way to avoid dealing with brewers and reps who don’t respond well to being told that their beer is no good, not selling, or not appropriate to the venue. “We’d love to, but we can’t” is an easier and gentler rebuff than a sometimes unpleasant hour-long discussion about the merits of the particular beer with the person who made it.
  • As they grow, many small brewers – including ones who once objected to contracts and even some who are vocal on the contracts issue now – have come to seek their own formal arrangements with venues. While the number of free venues pouring craft beer has drastically expanded over the last few years, many have opted to offer an ever-changing line up of beers from a wide selection of brewers rather than a constant line up. As a brewer with staff to pay, loans to repay and business planning to do, knowing what the demand will be next week and next moth are important. Contracting taps is a valuable tool inbusiness planning. While no craft brewer has reached the stage that they have the scale to contract “100%” (and how common such contracts areis very debateable) it’s been interesting to hear the reports that as small brewers grow and their ability to offer increasingly lucrative terms and arrangements grows commensurately, they have been willing to use that leverage – often at the expense of their craft beer ‘colleagues’ rather than larger breweries. Complaints against big brewer contracts in these cases really amount to sour grapes that someone is able to do it better than them, rather than the principle of the issue.
  • Cash strapped publicans and aspiring bar owners regularly seek support from breweries to install or update their tap lines and equipment. This is often done for the benefit of beer quality and it is understandable that when big dollars are spent by the brewery they want to see that expenditure amortised over a period of the contract. While the focus on contracts is often on the dollars and the exclusions inherent in them, brewery reps also maintain the lines and train staff as part of the process, something that ensures the quality of beer being poured and the customer experience.
  • Many craft focussed venues have opened in the last few years that would have struggled with the costs of fit-out but for partial contracts with one of the larger breweries. These have provided the upfront cash to open the venue, which in turn has created lots of taps that small brewers have benefited from with no financial contribution.

None of this is said to necessarily support contracts, but the debate is far more nuanced than Choice – or a craft-beer-centric social media – has presented. Yes, the beer market is highly distorted by the monumental size disparities between the large and the small, and the larger companieshappily capitalise on this in a wide variety of ways (while also increasingly coveting the advantages that come with being small or boutique). Yes, contracts targeting selected lines, beer styles or specific breweries would, on the face of it, seem to be anti-competitive. Still,banning contracts will not counter the advantages of the large in any way and thesebreweries will just assert their size in different ways. In short, the market won’t change because of a banning of contracts. It mayadd another layer of regulation to the business that willprovide little real change to benefit small brewers.

Contracts exist because publicans are businesspeople. If it’s good business, they will signthem. But because they are businesspeople, if a contract doesn’t make make sense they won’t sign them. Consumer demand for a choice is what will create real change.

Perhaps the most insightful comments in the Choice article is 4 Pines’ Jaron Mitchell who is quoted saying “the ‘contract’ mindset of publicans is gradually changing, especially among publicans for whom food and beverage are more important to their business than gaming machines.”

While contracts did serve to slow the initial growth of craft beer, and some publicans may still show inertia, it is consumer demand for a genuine selection of good beer that will break down the contract mindset. You have to wonder about the business acumen of a publican who accepts a 100 per cent contract in the face of his customer’s contrary preferences. It is unlikely that the sort of venue that can successfully get away with a 100 per cent agreement would ever be a craft beer palace.

Of course, this is where it’s not a contract issue but a labelling and education issue. This is an issue that is much harder to tackle. It is far easier to simply call out, “Big brewers contracts are bad, the ACCC should do something”.

Large brewers have created Potemkin Villages of brands to make it easier for publicans to hide that they are offering little real choice. Contracted or not, drinkers are often presented with ten taps boastingeight separate brands in a selection designed to convince them that they are being offered real choice. Inmany cases they are being offered beers that could conceivably come from only one or twoplantsowned by the one business.

In creating demand for their beer, small brewers need to present a genuine and recognisable alternative for their product and create demand for it. Of course, that too is becoming difficult as waters get muddied by issues of ownership or provenance, often by smallbrewers themselves. Unfortunately,labelling and transparency is a much tougher issue for the industry to confront. Butthat’s a whole other story…

Listen to our earlier podcast on tap contracts


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