Tap Contracts Here To Stay

July 13, 2017, by Kerry McBride

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Tap Contracts Here To Stay

In a blow for small craft brewers looking to broaden their market share, the Australian Competition & Consumer Commission (ACCC) has ruled that Lion and CUB have not cut others out of the market through tied taps and exclusivity.

Bringing to a close an investigation that has been ongoing since 2014, the ACCC announced today that they had not found the actions of Lion or CUB to “substantially lessen competition” in either Victoria or New South Wales.

They examined contracts and practices at 36 venues in the two states, assessing the nature of tap contracts, consumer behaviour, and access to market for breweries not under Lion and CUB.

The investigation followed complaints from craft brewers in recent years that in some venues, more than 80 per cent of taps were locked up by Australia’s two biggest breweries in exchange for investment in infrastructure such as tap systems, rebates, and loans for refurbishing venues.

ACCC deputy chair Dr Michael Schaper said the picture that came through from the investigation was a muddy one, as there was more than one major player in the beer industry, rather than one wielding significant power.

"We've looked through a whole variety of contracts and venues, and what we found was a mixed picture," Dr Schaper said.

"Some firms did encounter problems [with market access], others, including craft brewers, were simply forging ahead.

"Some venues said if they want to put other brewers on they can easily do so, while others said it's not about pressure from Lion or CUB, it's actually just about consumer demand and that's how they make their choices."

 

 

Competition law says tap contracts and similar arrangements can only be classed as illegal if they lead to a "substantial lessening of competition", Dr Schaper says.

They must consider whether evidence found would be compelling enough to bring before a judge, and tactics such as tap contracts and purchase of infrastructure are not illegal in and of themselves as they do not reduce competition over the whole market.

"The test that has to be applied is what impact does it have on consumers, not on businesses."

Of the 36 venues investigated - which stretched from metropolitan Sydney and Melbourne into regional areas such as Ballarat and Bungendore - many did not consider themselves to be cut off from the rest of the market.

“Although some venues had exclusivity arrangements, most pubs and clubs said they did not feel constrained from allocating taps to smaller brewers and could make taps available for craft beer if necessary.”

Rather, the reliance on Lion and CUB was driven primarily by customer demand.

“In fact, over half of the venues contacted by the ACCC indicated that customer preference was the key factor in determining the brands, types of beer and number of craft beers offered by the venue, Dr Schaper said.

In their findings, the ACCC noted that some small brewers had instead accessed contracted venues through their packaged offerings, or building customer demand through external marketing efforts.

 

Mazen Hajjar of Hawkers.

 

Reacting to the news, Mazen Hajjar, founder and CEO of Melbourne-based Hawkers Beer, who has long been outspoken on the issue of market access, told The Crafty Pint: "I'm disappointed although not surprised at the decision announced today by the underfunded ACCC regularly referred to as the 'toothless tiger'. 

"Market access is the greatest issue faced by small Australian brewers and this is in large part down to the practices of the larger brewers in shutting us out of venues. Such practices are illegal in the States where recent months have seen a series of seven figure fines handed to brewing companies and distributors.

"We have already been exploring other avenues of challenging the current situation to create a more level playing field for all brewers, big and small, and will continue to do so."

For small brewers such as Little Bang in South Australia, the outcome of the investigation proves there’s still a long way to go for fledgling brewers looking to gain a foothold in the industry.

Founder Ryan Davidson said the outcome was not surprising, but did reinforce his decision to concentrate more on Little Bang's cellar door rather than pushing hard at wholesale.

"It just means more business as usual. We're familiar with the landscape as it is, but I wish I had kept records of how many times I've heard a bar manager say 'I'd love to have you guys on tap, but...' because they're contracted," Ryan says.

While a lot of small brewers have the big two to thank for venues installing taps and providing infrastructure, it has, over time, devalued the way that venues see beer, he says.

"It feeds into this unhealthy culture we see in places where they haven't paid for their taps. We get contacted probably twice a day by a whole range of people asking for free beer, because it's been so devalued thanks to the big guys handing out cash and various loyalty agreements.

"They buy loyalty all over town and lower their prices and we get dragged into that. They're having a gallery opening, and suddenly it's 'give me free beer'."

 

Ryan Davidson, left, of Little Bang, with his fellow founder Filip Kemp.

 

The result, Ryan says, is that it will increase the divide between macro-styled venues and craft beer supporters even more.

"It'll become that either you're a tied venue or you're not. It's going to increase the gap in the middle, and because there are quite a few craft brewers getting substantially larger they will become pressured to play the same kind of games as the big boys."

Today's announcement was described by the Independent Brewers Association (IBA) as "a body blow for the Australian independent brewing industry".

“This investigation has been dragging on for more than three years and to now find out that the status quo will be maintained is a bit hard to take,” said IBA Chair Ben Kooyman.

“For any small business to survive it needs protection from the market practices of dominant players. We had hoped that Australian consumer law, as interpreted by the ACCC, would be able to provide that protection. It seems we were wrong.

“The ACCC’s finding that tap contracts do not substantially lessen competition certainly does not match the realities faced by our members in the marketplace. We find it puzzling that the investigation seems to have focused on the venue’s experience rather than that of small brewers.”

He pointed out that the IBA's recently released National Economic Evaluation showed that market access was considered the second greatest constraint to growth for independent brewers behind excise.

“Of course this decision will also affect the ability of Australia’s beer lovers to access the beers they want to drink,” said Ben.

“The big winners from this decision are a select group of multi-national companies.”

Despite the investigation reaching its end, Dr Schaper says, the ACCC is not considering this to be the last of it. They intend to return to the issue in three years and look at the industry again.

"We have said we'll go back in a couple of years. In the meantime, we've been clear to the industry groups that if you get evidence that shows we should reopen the case then we will do that," he says.

"It is a dynamic market, it's changing very quickly. Even though overall beer demand is dropping slightly, craft is growing significantly. In three years' time we may well have a different market and we may be in a position to see if there are substantial inhibitions to brewers getting a real presence in the market, and we'll assess this again."


Read the ACCC's media release in full here.

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