Tap contracts continue to be one of the most vexing issues in the brewing industry with those on the both sides of the merits of their decision. For many publicans, it’s just a case of giving their customers what they want.
Jono Smith runs Blue Gum Hotel in Waitara, NSW, and he has lived both sides of the debate, running pubs with majority big brewer taps as well as venues like Blue Gum which lean heavily towards independent beer.
“Historically we’ve had tap contracts until a few years ago. But with the emergence of independent Australian craft, we made a decision to move away from tap contracts and it’s worked really well for us,” Smith explained.
He said that of the 22 taps at Blue Gum, 18 are independent craft with the remaining four split between Lion-owned Tooheys and CUB brands.
“Obviously there is always going to be that market for mainstream, generic ‘Aussie’ beers, but we’re fortunate in that the three pubs up the road are heavily contracted,” Smith said.
“We’re the only venue with this number of independent taps for at least half an hour which means we can play around with them, and we get a lot of people coming in to try something new. This comes back to tap contracts and the flexibility we have in not having one,” Smith said.
Chris Glenn, operations manager for the Calligeros Group, owners of the Rag and Famish and several other Sydney venues, said that throughout the group’s hotels, they maintain good relationships with all suppliers, independent and major alike.
“We haven’t had to change anyone’s mind or opinion. We respond to what the people want. 15 years ago, one pale ale might have been enough but that’s not the case now,” he explained.
“We will put on what suits our business. Being in hospitality you have to be aware of what’s going on outside your own business, and relationships with big or small guys, indies or the big two, are forged over a long, long period of time, and we don’t want to put ourselves into a corner.
“Our relations with all our suppliers means that they’re prepared to work with us to get a result that’s better for both.”
So can indie beer be profitable for publicans?
One of the main concerns for publicans is that independent beer needs to make a financial case for venue owners and managers, to justify bringing them on board in the face of lucrative tap contracts.
White Bay Beer’s Tim Fishwick, who has worked at Lion and Little Creatures as well as The Rocks and Balter before launching White Bay with an experienced team earlier this year, agreed with the idea, but said it was very much dependent on the demands of customers, the type and ethos of a venue, and the brewer’s marketing and beers.
“There needs to be a compelling reason why a venue would expand taps to independents,” he acknowledged.
“The relationship [with venues] is the first bit, and then secondly the brand – do they get excited because it looks good on the tap, does it have a good story and following behind it?
“That’s what you need to make tap real estate work for you and the hotelier, and is the best chance of getting a long term relationship going with them.”
According to Blue Gum manager Jonathan Smith, the allure of a tap contract can be hard to fight.
“That’s the argument when deciding on a tap contract or no contract. You won’t get the discount off kegs or those rebates unless you have a contract with those big boys,” he said.
“When those big guys offer like six figures, they want up to 90 per cent of your taps over three to four years, you might get a $1.50 rebate per every litre sold.
“Blue Gum has been here for years but if you were a new venue or a new publican coming in – and I’ve seen it from both sides – the money upfront that they offer is hard to turn down. It’s big dollars they’re throwing around.”
While moving to independent beer might have been a leap of faith initially, staying with independent beer was not, Smith said.
“As it stands now, we’re not getting huge rebates but we are making more dollars per sale and making better gross profit on those beers.
“And we’re in a fortunate position where we can have that choice now.”
Chris Glenn from Calligeros Group said that no matter how big or small the brewer, they would need to put a good business case forward as to why publicans should choose their beers.
“Any poor performing beer is going to come off whether or not you have a deal in place,” he said.
“It’s business at the end of the day and we have stayed strong to the percentage of taps we have with [the big brewers].
“Being Carlton-aligned, their acquisitions of 4 Pines and most recently Balter, they obviously saw a spot in the market they weren’t quite hitting with their range and it allows them to play in that space.”
This flexibility in responding to fast-moving customer demand is key for venue owners, said the two publicans.
While big brewers have added to their craft rosters, a tap contract can be prohibitive if publicans want to try new products out and change them if they’re not doing so well.
“Some beers that we put on if I’m not 100 per cent convinced of them I might order one or two kegs at a time, lowering the chance of sitting on beer which should obviously be cold stored and served fresh. That’s the flexibility of craft and not having a tap contract,” Smith explained.
This may be what is driving the trends of sessionable, easy drinking beers in the independent sector – publicans are not afraid of a higher price points, but volume is key.
The importance of local
Part of this attraction of independent beer is the unique stories and brands that have sprung up, and Tim Fishwick thinks this will be the deciding factor in future.
“Provenance should be a genuine story – it’s about everything from how they look after staff to how they set the business up,” he said.
“It’s about educating the consumer about those stories. I want the beer to work, to know that the place is local, and the PR around that is most important.
“We launched White Bay three weeks into lockdown and we were blown away from Balmain Peninsula people following us, they knew we were genuinely down the road and they were fascinated.”
Fishwick has been on both sides of the street, having worked at Lion as well as Balter, Rock Brewing and pre-Lion Little Creatures, and said that if experience has taught him anything it’s that breweries should start local first.
“What people want and the lessons we’ve learnt from Stone & Wood and Young Henrys is that if you look after your local area then that’s the bit you need to get right first. You get your brand right there and then you expand from that,” he said.
Jono Smith of Blue Gum said that consumer demands were changing to the point where consumers care more about the provenance of the beer they drink than ever before.
“We’ve got our loyal supporters who have been drinking here for years and you’re never going to get them off the VB or Tooheys, but lots of customers see the growth of craft beer and they’re willing to try different stuff, they love the option of trying new things.
“People are leaning more and more into knowing where their beer comes from and where their money goes.
“The most important thing is that you educate them and talk to them about the process, about the beer, and about supporting Australian independents.”
Tap contracts evolve
Tim Fishwick of White Bay said publicans themselves have widened their scope, and it has also reached the point where strong local independent beers are becoming a must-have on local venues’ tap lineups.
“The industry has changed from when I was leaving Little Creatures in 2013. Each year you have another 100 competitors. Your best choice is to become a locally-relevant brewpub, looking after your locals first.
“For us, our business model is based on knowing that the local market on the Balmain Peninsula is still our most important market.
“If you can get your brand right in that golden triangle, people start asking for your beer.”
The flip side of course, is that as independent beer professionalises, brewers themselves are making deals that look very much like tap contracts.
“There are lots of small independent breweries who maybe don’t have a 30-page document to sign, but with a shake of the hand with the publican, agree that they will always have their beers in their five nearest venues,” explained Glenn.
“That’s an example of businesses working together.”
The three agreed that tap contracts did not necessarily need to be banned, but there are ways for independent beer and publicans to use them advantageously. They also said banning them puts too much onus on the big brewers for their implementation.
“You can’t let a brewery come in and dictate your business,” explained Glenn.
“You know it better than they do, but it’s all part of having an honest discussion. There needs to be a business case for both parties and a focus on communication and what is working for both.”
If the push to local and barriers to entry such as dealing with multiple sales representatives are broken down by innovative solutions like Kaddy, independent beer could make headway without tap contracts being eradicated entirely. But Smith was under no illusion that tap contracts would evaporate overnight.
“I certainly think tap contracts will always be there, but venues will be more hesitant. The way that the indie craft beer scene is going, they will be hesitant to lock in for longer periods.
“Where once a 90 per cent contract for five years was commonplace, those long timeframe contracts, people will be going one or two year, with 30-40 per cent of contract space.
“For me personally, I like to support Aussie independents and keep profits in Australia.
“But every business is different and every person running a business is different, but for us, we can see huge benefits in not having tap contracts.”