What's the true cost of a keg of beer? July 2018

While accountants love a spreadsheet, they have discovered that spreadsheets alone cannot determine the true cost of a keg of beer.

The Independent Brewing Association commissioned accountancy firm HLB Mann Judd to decipher the true cost of beer and present their findings to the industry at last month’s BrewCon.

HLB Mann Judd Partner Andrew Buchan said that the industry wanted to understand the true cost of beer to a brewery.

“We thought it was a great question, I mean we’re accountants, it must just be a number.”

His colleague, Business Development Analyst Alistair Newman, said that the further they got into it, the harder they realised the question would be to answer.

“When we started to speak to a few of the local breweries in Brisbane, it was pretty obvious that there’s a lot of different pricing models because there’s a lot of different business models,” Newman said.

“Some of these people are brewers brewing out of a shed, and others are fully-established hospitality venues and brewpubs.”

“It became apparent that it wasn’t a simple question, it was a difficult question, because it really depends upon your business model.”

“If I can use the pun of when it all boils down, it comes down to what the breweries are going to brew, where they’re going to brew it and who’s going to buy and consume it,” Newman explained.

Buchan said that after realising there was going to be more to the question, he didn’t want to get to BrewCon and suggest that brewers should be producing beer for x amount.

“So, after we hit the footpath, we started approaching it from the angle that the price really depends on a number of factors,” Buchan said.

“It’s important to point out to people that it is a premium product.”

“They’re never going to be able to beat the big boys in price because this is a bespoke, premium product, and they’re using what they believe to be the best ingredients for a product that has to be stored properly.”

Buchan said that craft brewers are currently in a “sweet spot”.

“We did want to point out to brewers that it is a premium product and there are a lot of independent and craft brewers popping up, and so they should be.”

“We wanted to point out to them that while we’re not in a recession, they must get their businesses up and running because this product can be hit around the ears come a recession.”

“At the moment there’s a lot of growth out there, and that growth is based on quantity.”

“We predict that in time, the industry will move towards quality, so the growth will slow but the product will become a little bit better.”

Buchan continued, saying that brewers have got to have a good understanding of what they’re trying to achieve from day one.

Newman said that it comes back to a fundamental that they’ve got for any person or group thinking of starting a business, to start with the end in mind.

“It’s no use getting in without knowing how you’re going to get out,” Newman said.

“As we’ve seen at the end of last year with the trade sales Feral, 4 Pines and Pirate Life, that’s one exit strategy.”

“Others like Stone & Wood I think have mandated that they’re going to maintain control and never sell out and pass the mantle on to the next generation.”

Buchan said that these are just two of the business models that will impact price.

Having conducted their research and despite there being so many variables, Buchan and Newman did work out that $202.91, was the true cost of a keg.

Buchan explained that across their limited survey of breweries, they used green, amber and red, to determine how much things like ingredients, labour, excise, distribution, keg hire and overheads, varied from brewery to brewery.

Green indicated a less than five per cent variation, amber indicated an up to 10 per cent variation and red indicated a greater than 10 per cent variation.

Buchan said that labour costs varied the most.

“I don’t know what’s the right or wrong answer but that’s something I wanted to point out to people, that by the way, there is a bit of variation,” Buchan explained.

While Buchan and Newman were weary of determining this number, they admitted that it was a great way for brewers to benchmark themselves against the industry.

“We didn’t want to get up on stage and say that straight away because then we’d just be debating that number,” Buchan said.

“We wanted to reiterate that there’s a whole lot of things driving this number, but also, that here’s a number.”

“I think that was part of the aim of the IBA, to start the conversation around price – it’s a good conversation starter,” Newman said.

“But again, it comes back to what we led in with, it really depends on so many different factors.”

Buchan highlighted that those variables are what’s “so fascinating” about the sector.

The duo are set to continue their research to find out the true cost of a can.

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