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Some (unpopular) observations about tap contracts

February 12, 2015

contract thorny

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 in business planning. While no craft brewer has reached the stage that they have the scale to contract “100%”  (and how common such contracts are is 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 companies happily 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 these breweries will just assert their size in different ways. In short, the market won’t change because of a banning of contracts. It may add another layer of regulation to the business that will provide little real change to benefit small brewers.

Contracts exist because publicans are businesspeople. If it’s good business, they will sign them. 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 boasting eight separate brands in a selection designed to convince them that they are being offered real choice. In many cases they are being offered beers that could conceivably come from only one or two plants owned 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 small brewers themselves.  Unfortunately, labelling and transparency is a much tougher issue for the industry to confront. But that’s a whole other story…

Listen to our earlier podcast on tap contracts



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5 Responses to Some (unpopular) observations about tap contracts

  1. David Park on February 17, 2015 at 4:15 pm

    A thorough review Matt: not sure how unpopular-making it is. It’s not a new issue as you say. Not so many years ago when the two big national brewers owned hundreds of pubs there was NO competitive product at all in those outlets: not a stubby! How boring and limited it was for so long. Perhaps this earlier time still haunts the thinking of some hotelier families and groups. That said, it’s easy as a consumer to wag the finger and moan that “big is bad”. Many hoteliers will admit (sotto voce) it’s their one tap of Carlton Draught that cranks the most volume through the week and often subsidizes the other taps. Nonetheless here’s cheers to choice!

  2. Miron on February 13, 2015 at 9:31 am

    agree with some, but not the most.
    first and foremost, the overall arguments that “abolishing contracts won’t change anything” is a false argument. for starters every argument against change uses this tactic. the reality is that no one can predict the future and small changes can have far reaching consequences through knock on effects or if they coincide with a number of other changes in the market to create a turning point. markets are complex and you cannot simply dial something up or down and isolate the impact. moreover, just because something may not have a negative impact is far less important than whether it has a positive impact.
    secondly, most of the arguments you present seem to be focused on what publicans want or don’t want to do. as a customer, I could not care less. it is my dollars that are creating and sustaining the market but it would seem brewers and publicans alike have forgotten that without customers they have no market. it is called hubris. if you take care of customers, the rest will take care of itself. a publican should be motivated by what serves his customers best and if that means dealing with a million providers then so be it.
    Thirdly, exclusive contracts are – afaik – illegal. I am not sure about the “I will out-fit you but you have to sell only my beer” but would not be surprised if these were illegal too.

    having said all that the issue is not contracts. it is customer awareness. if people stopped going to pubs that only serve CUB and LN, these publicans will get the message very quickly. however, we live in a country where drinking is not about the pleasure and the experience but about an achievement. being a big drinker is a badge of honour and we seem to be the only country that thinks this way. same way that food in the US is about value for money.

    as to the issue of provenance … some of it is on us customers. if you choose to be an ignorant customer, don’t be surprised if you are duped. if you drink beer based on a label because it is cool or all your mates drink it, then being able to disprove “craftiness” through provenance is important to small brewers. but if you drink a beer because you like it, then why does it matter? you either like it or you don’t. I don’t drink any of Little Creature’s main line (unless there is nothing better) because of the taste. they are hardly any better than a Carlton. I like their single batches a lot because they are creative and well done. my taste has nothing to do with the fact that they are owned by CUB

    • Editor on February 13, 2015 at 9:49 am

      As I read it, you’re saying the same thing in a different way Miron. My point wasn’t that abolishing contracts won’t change anything it was that abolishing contracts ITSELF won’t change anything, calling for contracts to be banned is simplistic when far more complex forces are at work than simply contracts.

      Secondly, yes my arguments were focussed – in this case – on publicans because the Choice story focussed solely on the breweries suggesting they forced themselves onto the publicans. Yes it is hubris to assume that you can shove any beer down people’s thoats and that was precisely my point. As the market changes and people demand more, publicans won’t stay in business if they show that hubris and that is where consumer awareness will be important – so they know when they aren’t being given choice.

  3. Richard Adamson on February 13, 2015 at 9:05 am

    The shocking revelation for a lot of people reading about this for the first time in Choice seems to be that a lot of the brands they thought were “craft” are owned by the big guys, and in turn, the big guys are foreign owned.

  4. Steve on February 12, 2015 at 8:07 pm

    I agree with all of that Matt and have heard at least several examples of all of the points you’ve made.. I also agree re the last point. It’s probably a pipe dream but it would be nice if the big breweries couldn’t hide the provenance of their crafty range from the consumer. They set out to deceive us (on the most part) and in an ideal world I don’t they should be allowed do that.

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