March 31, 2022Podcast
In this episode, we interview Dermott Dowling, the founder of BeerCo.
BeerCo is responsible for homebrew kits for early-stage brewers as well as the highest quality hops, malt, and barley for large commercial breweries.
We talk about everything from BeerCo’s origin story to supply chains and the effect that short-sighted government policy is now having on alcohol producers and licensed venues.
Dermott is incredibly insightful and smart. You are going to love this one.
When he, so he went to, I think he went to Japan and then he went, yeah. Um, what else do you got? He went to the America and yeah. And did all that pace. And he just said that the, the, um, the speed and the uptake of, of Australia, as opposed to Japan was just crazy. Like Japan was, they just liked to do everything slowly, but do it properly, you know?
So, which is basically very, that’s pretty understandable, I guess. Yeah. So in Japan they’re very risk averse, but that said, I used to work at lion dairy and drinks, and they were owned by. Karen and I’m dying to watch something crazy. Like the non-alcoholic beverages division would launch something like a hundred different non alcoholic beverages every summer.
Oh my God. Yeah. And then you’d ask them, you know, what’s working and how many of them stick? And it was like one and a hundred. And one of the most popular products was like a lemon water, sparkling lemon water, and had been around for 20 years. And I said, why are you launching that many products? I said, oh, cause Centurion launches 120 and Asahi launches, 80 or something.
Yeah, they do stuff on mass, but, but to the, um, the Japanese are very risk risk of this. It sounds like, um, it sounds like VCs with VCs. They’ll go and have, you know, they’ll have, you know, 10, 10 investments. And, um, the reason why they always go for ones that, you know, pitching a billion dollar idea is. They need, they actually need for that billion dollar idea to pay off or else they can’t get their money back.
So they’re kind of goal is to do 10 investments and potentially one might pay one more, one would pay off, but that’s why it has to be, has to be a hundred, a hundred X, which is just, which is just crazy. Yep. For sure, mate. So, um, uh, way up, way up and going, Tony, are we recording? Cool. Perfect. Awesome. Mike.
Thanks for joining us. Appreciate it. Thanks for the invitation to. So mate, um, do you want to tell us a little bit about, um, a little bit about you as opposed to a little bit about as a starting point? Sure. Okay. So my background, um, I guess, you know, how I ended up doing Biko and, and the brewing industry is, um, I’m a home brewer originally and started home brewing when I was very young, like high school age and, um, through university.
Took time out, uh, when I was learning in my early twenties and that sort of thing, um, was busy traveling and I traveled with work. I was fortunate to travel through Asia and then enter the UK, um, landed back in Australia and about 20 2003, actually. And so I’ve been here for nearly 20 years and, um, I was working at a big brewer originally at fosters and, uh, looking after.
Marketing through Southeast Asia and I used to piss her other brothers about why don’t you make some beers with flavor and they’d laugh at me and that sort of thing. Um, and then after I did that, I worked in a dairy and drinks business, which ironically got purchased by line. And I worked in. Southeast Asia.
So I’ve always had an international business focus and, uh, after, oh gosh, I don’t know how many years of corporate, I decided to do some consulting and I was helping food businesses, but I kicked sort of getting pulled back to, um, uh, the brewing industry. And it’s just something I’ve always loved and it’s been really exciting to.
Startup business in the brewing industry. Um, but I sort of felt like when I was quite funny, when I started beco and going back 2013, I remember stewarding at the bureau awards and there was just all these bees coming from around the world. And I thought, why am I thinking of starting a brewery? Because you know, there’s already all these great breweries from around the world.
And then I sit in this. Well, maybe they didn’t, there was 50 or a hundred craft breweries in Australia. Now there’s 650. So I thought there was probably a better opportunity for me personally, and that I could serve the industry better if I worked on the supply side. Um, so, so we started a business, um, myself and a couple of friends in 2013, mainly.
Homebrewers directly delivering to people’s doorsteps ingredients and supplies to make beer. Um, that quickly grew, um, as our customers, some of them were basically like all good start-ups they were in the garage making beer at home, and then they wanted to go professional. So they would start to ask for ingredients and bigger sizes and bulk.
And we also got approached by suppliers who. Um, good. See, we were doing things a little bit differently and said, you know, would you like to take our products to Kraft rose? And, and then we even had, uh, suppliers who had products for craft distillers. So we’ve just sort of grown organically with the industry.
Um, and it never stops amazing me, just how fast it changes and how many new things are happening all the time. Yeah. The, um, We got involved in the industry probably two years ago was our first furor into the industry. And even since then, when you look at it, there’s a, you know, that’s probably another 200 breweries have opened in the last probably 24 to 36 months old thereabouts of what.
I mean, you look at that they’ve that basically the industry would have had to have, um, either almost, almost double in that you think about it. There may have been, say 400. There’s now 6 5700 active operating commercial breweries. Yeah, it’s basically doubled in three years. It’s a, it’s enormous. Yeah. And there’s a lot in planning as well.
So we’re constantly, um, as a supplier to people when they’re guarantees as well as, um, people in breweries, um, which are big carriages, I guess, pick sheets. Um, we’ve constantly got people who are, um, prototyping or what they call gypsy brewing. So bringing in someone else’s facility and, um, sitting ingredients to them, um, or sitting ingredients to the contract brewery.
So there’s a lot of people. And I think we spoke just before we started press record. Uh, the other explosion we’ve seen in the last couple of years as craft distillers, um, and, and, uh, and predominantly the growth too for both areas is into the regions. So I think the craft distillers conference, the last one I went to was 2019 before the big, uh, the big flu, um, They said something north of 90% of craft distilleries are in the regions.
And I’ve certainly heard it bandied around at craft rose conferences that may be over 50% of craft breweries are in the region. So it’s a really good story for regional and rural Australia as well. There’s a, yeah, there’s a massive focus on localizing things. And then, then growing out, so only your little patch first, and then, you know, then expanding.
We’ve seen it with a number of the early growing breweries. They credit partnerships that were local and it might be partnerships with a pub and a sports team and that type of thing. But yeah, you have to start somewhere, right? If you can own a small patch later on, you can work out how to own a bigger patches, but you know, you kind of gotta, you have to walk before you can run, I guess.
Saturation. Um, so obviously the, you know, with this scale of breweries and distilleries coming on board, do you think the market’s saturated? I mean, certainly with the way I look at it with beer, with the breweries, there seems to be a lot coming on and there doesn’t seem to be that much shelf space.
What’s your, what’s your feeling? It’s interesting. Um, I wouldn’t say saturation because, um, you know, as quickly as we say, there’s no room for one more, um, A new bureau will come and to the industry, or if it’s distilling a new distillery will come into the industry with a different. Angle on, um, what they want to do and, and sometimes it’ll just take off.
So, um, I think, um, the industry goes through waves of evolution and revolution, but like a bicycle, you know, the wheel spins around and, and some ways we’ve really just gone back to we’re brewing wasn’t Australia and, you know, pre-colonial days, um, when you mentioned. Um, because in the past, and you know, a hundred years ago, you didn’t have refrigerated transport, you didn’t have supermarkets.
So you brewed beer close to where people live. And now people are connecting with whether it’s local breweries or local distilleries or local artisans, whether it’s cheesemakers coffee roasters. And there is also that circular local economy, people love their, um, sourdough bakeries and that, so. I don’t think it’s saturation.
I think the competition has intensified. Um, and you know, Breaux is a very cognizant and aware of that. And so they’re also very astute business people. So when we saw the hard seltzer trend, like we talked before about trends coming from United. The bureau didn’t sit by and watch that happen. Um, they thought, hang on, here’s a new trend coming.
And you could argue that seltzer really is the domain of the spirits makers, because it’s like vodka, lime, and sodas, and then it exploded with different flavors. But the brewers sort of said, well, hang on. We can make a neutral. Uh, so to tight or hard cider as they would call it, and then we can flavor it and we can do all that using our existing equipment.
Um, and likewise they’ve even embraced non alcoholic adult drinks, so, or low alcoholic addled old drink. So brewers are sort of. I’ve got equipment here. I can brew beer. They actually also, uh, the front end to distilleries. So some of them are cottoned onto the fact that they can not only brew beer, but they could also distill spirits or at least make the wash to make whiskey or, um, they could even, you know, brew their own base for gins.
So brewers are sort of branching out. And I think we’re seeing that with the new opening, some of them come. Private money and capital and, and hit the ground with a really big vision. Um, some of them are still those classic. Give it a crack Ozzie entrepreneurs who will start in their garage and then see an opportunity in their local town.
I think there’s always room for more breweries. Um, but certainly the competition has intensified. Yeah. I’ve found that the ones that have grown really steeply in the last 12 months definitely doing something different. W great hips, normal and two bays. And, you know, they’ve got gluten free beer or non alcoholic.
Non-alcoholic beer, very, very different. So the usual, you know, standard way of doing things. They asked some of the ones that have really gone, gone crazy over the last, you know, over the last 12 months that I’ve seen that, um, you know, as a, you know, we, we get, you know, we we’re privy to, you know, the right information and you can see the growth in it and it’s really, really fast.
So, um, yeah, it’d be interesting to see how all these new things. Go and, you know, cause it’s, cause it ain’t cheap and I’m getting set up is bloody expensive in that environment. Isn’t it? Isn’t so I think the interesting thing is, um, and it’s, you know, it’s good that you guys are doing this, um, podcast to help educate your customers about the business of brewing and, and, and, um, managing your accounts and things like that because.
You can do things very cheaply. And there have been craft brewers who have been very successful and grown over the years. Um, you can buy equipment very cheaply from China. Um, but the other thing is that, um, If you do want to be a big brewer, I, and you mentioned a couple of very successful, very large brewers, like heaps normal, or, um, two base are doing very specific functional type drinks, one being gluten free and one being low, no alcohol, you need to, um, and if you want a range with national retailers, you need to have expensive equipment, but again, you, you know, and full credit to the heaps normal team, they didn’t have a brewery.
They had. Uh, be it that thought prototyped and at home, like the neck, the home-brewed up. And then they went to a very large well-established contract facility and manufactured that, which, you know, they hit the equipment, um, that was required, uh, tunnel pasteurization, things like that. So in the past, that was never available to people.
But now whether you’re a food maker who creates, uh, an amazing gluten-free low sugar, um, measly bar or some cereal, you can go to contract manufacturing facilities, and there’s plenty of contract manufacturing facilities for brewers and distillers secret, almost test your product ideas, um, without having to spend all that money on capital.
Um, so as long as you can, as long as you can execute sales and marketing and branding, which is branding so important in beer, I know that, but as long as you can execute those functions, there are providers out there that can bring your beer as long as you can give them the prototype type of thing. I think another great success story at the moment there.
Blown away by his better BS from, um, naked talky beverages and the mighty craft team. And that’s, um, you know, it was Nick’s idea and he worked with, uh, um, apologies to the very famous on Instagram, the something unemployed. Um, but that contract manufacturing that the, uh, and, um, it’s hitting a note with drinkers in terms of flavor and the proposition of the product.
So. There will always be like with sit with, be it they’ll always be these breakout success stories that’ll come out of left field and people will go, wow, I didn’t didn’t see that one coming. Um, but at the same time, I think if you want to own your local patch, whether it’s Wagga, Wagga, or Bendigo Ballarat, um, you probably need a temple there and a brewery there.
So, um, You know, if you’ve got a very functional product, that’s different, like a low, no alcohol beer or beverage offering or, um, something like that, then maybe you can contract manufacture that. And even the heaps normal team have said they want their own brewery sort of raise money to, to breed their own, um, future of low, no alcohol beverages.
So yeah. The amended at this podcast is, is obviously about, you know, um, you know, this one here is obviously about, you know, beer and breweries and that’s up at this, but it’s also a business podcast. When you want it to get started? Obviously you’ve had a long history in business. I was, um, I was actually on your, on your YouTube channel earlier, having a little look inside of Europe, some enroll presentations when all of a sudden management consultant, that’s the one.
So, um, you know, I had had a good look through that. And, um, so obviously, you know, you’ve got a background in business and you understand, you know, every liver and every mechanism that go into, I guess, a P and L, which is pretty important. Can you run me through the setup of beco obviously there’s, um, we know you’re not a brewery, but you, um, you obviously you’d need to have a lot of the aspects that go into a, that go into a brewery.
Probably not the machinery, but, um, everything else and stock on hand. Can you run me through. The challenges of setting up a business like Biko and then, um, kind of some of the challenges that you faced early on in the, yeah, sure. So I guess I took the, um, uh, pots and pens, um, You know, bootstrapped being without, uh, you know, or ran the boots with no laces on, um, shoestring startup approach.
So I started, um, you know, literally vacuum sealing hops on the kitchen table and packing up light dried multi-strat to my wife’s dismay. And she sorta kicked me out of the house. Eventually I went into a third party warehouse called hunter express down in south Dandenong. And then I eventually kicked me out of there cause I started with malt down there and we shipped it to, um, home brew shops and directly to home brewers.
But then I started putting fridges in, um, and running them off power boards and then asking them to pick different things. So, um, we took the approach that, uh, The internet and, uh, doing business through the internet was a revolution. Um, I’d seen so many great internet businesses. I’d always struggled coming from the consumer packaged goods industry, um, with why more companies didn’t do direct sales direct to consumer.
And so we started with a website and we were really insistent on orders being placed online. And we still are. We even with a trade customers. Try to terms with, and, um, the reason for that as we thought it was efficient from an ordering perspective, but it gave us a sense of a double check. So if someone telephoned an order in, and it happened when I moved into my warehouse and, and 2017, um, I’d be running around with the phone, to my ear, pecking, a pellet or picking products.
And then at the same time, someone would email or not email on order, um, order on the internet. So I figured it was the. And most efficient way for the orders to be dispatched in order of receipt of the orders. And also, um, we had a printed record we could print out and then I witnessed through working inside warehouse and logistics companies like hunter express, the way they do it, wherever there’s a person involved, you have to have a double, uh, uh, backup safety check.
So one person would be the picker and then another person would be the ticker and they would take the orders. Wherever, um, humans are involved as much as we love humans, we make mistakes. So, um, we tried to automate everything and that was really from the point of view of making everything as efficient as possible.
Because the other thing I was very cognizant of with. Someone making beer at home, uh, or spirits at home or, or a craft brewery or distillery, you really want your goods as quickly as possible and as efficiently as possible. Um, so that was one of my key principles. And then, um, building relationships with our key suppliers, many of whom.
Value that customer base. So home brewers and distillers and craft brewers and distillers, but they’re just not simply set up to serve them efficiently. So, so they would quite happy for us to be like their sub distributor. Maybe they were looking after line Nathan or, um, so you’d be, or a psyche and dealing and trucks.
You know, they were like, if you can efficiently pick pack and dispatch pallets with multiple molts on it, um, to our customers, then you’re doing us a service, um, as well as your customers. So we tried to look for areas where we could offer. You know, value and the genuine sense of the word without sort of being, you know, an intermediary or a middle man who, who didn’t head value both for suppliers and customers.
So kind of complimenting the entire supply chain because there’s obviously gaps in the, in every supply chain. Yeah. There is. And obviously to imported products. So there’s lots of products that brokers use and distillers use they’re important. And of course we’re just feeling absolutely excruciating pain as.
Um, with the supply chain crumbling, um, under the weight of covert and the global stimulus and the shipping delays. So that’s a real headwind that we’re all facing together this year. Can we go into that in a bit more detail? I’d love to learn a little bit more about that. Cause then, you know, if the people that are going to listen to this podcast are going to be brewers and I’d love to dig into the economic impacts of, of the supply chain issues.
Okay. Well, without going too far back, um, and I, we were talking about crypto before, but. Basically, we’ve never seen a global fiscal stimulus. Like we have over the last couple of years, so all around the world, all the federal treasurers have printed money effectively, so pushed more money into the money supply and a beautiful government has done it again.
Um, despite the fact inflation’s at, at, at, um, starting to pick up. So what that, and that coupled with the fact their service economy was taken away overnight travel restaurants, buyers, cafes. Just caused a massive demand spike. And then, um, the world’s factory, China has gone through some massive stresses in the last sort of 12 months.
So they had energy shortages before the Beijing Olympics. They wanted the air clean and all that sort of thing. So. Total a lot of factories and shut a lot of factories and the playing geopolitics with coal on that. So the manufacturing side of, of China slowed down. And then the other thing that happened was globally.
Um, we had COVID outbreaks at ports and, uh, we had skeleton crews in factories, um, and effectively what we’ve seen as, um, everyone buying more stuff. Like not just a little bit more stuff. I think new south Wales bought like, it wasn’t phenomenal. It was like six times more home furnishings. In 20, 21 than the previous year and stuff like that.
So people have just ramped up demand and then the system has broken and like I’ve been talking to brokers better than I’ve been public knowledge, but we import milk from England and we’d been part of multiple containers. The shipping was roughly speaking, pretty standard six to eight weeks. Um, the price was pretty standard.
Um, we could budget that. We could get the mold and quickly get that, get it through to our customers. The last container we landed just after Christmas, took twice as long and cost 60% more in terms of freight. And then when we sold a lot of that stock, because everyone was running out of stock, um, we went to a freight forwarders and said, we’re going to need to import another container.
Nice at all. Here’s the bad news. The shipping price has gone up another 60% and you’re like, really? And it was pushing the. Of just the transport cost of the malt, pretty much to where we could buy, um, a sector of domestic milk from our partners at malt Europe. And so I was sort of saying, well, I can’t look at my customers in the face and say, I’m going to double your.
Well price. And I was talking to a small brewer today who said he hasn’t put a price rise through to, um, you know, his customers for six years, but they’re all getting hat. We’re all getting hit with price rises. So we’ve sort of created a bit of a monster and the forecast on the shipping side of things from the global shipping experts as that, that monster.
Start to die down until about middle of next year. So people are making decisions, uh, buying less stuff, and, um, people will get back on planes and go for holidays to see their loved ones and go to beautiful resorts and things. People are going back out to restaurants and bars. So we’d like to think that.
Just the volume of general merchandise shipping around the world will drop. And also we’d like to think that the ports will get on top of the congestion, but at the moment it’s really, really bad. And it’s really bad in the United States. It’s also quite bad at, um, and China and the shutdown Shanghai now for COVID and also it’s bad Singapore.
So yeah, system that were beautifully. You know, the last 20 years, unfortunately, is quite broken and will be for about 18 months. So we’re working really hard with all our suppliers to look for local substitute products. Um, and for those essential products, we’re just asking everyone to plan for, um, much longer lead times.
You know, we can’t take it for granted. And even when I was shopping online yesterday, Coles or Woolworths, there’s a lot of out of stocks. And I thought if those guys can’t. Um, you know, frozen fruit or whatever it is that they stocking in their freezers. Um, uh, you know, it’s really difficult for small businesses to secure raw materials.
So we’re just sort of encouraging people to be creative by local, back to the whole thing we were talking about, for sure. The, um, it’s clear that VAX mandates being across the globe. Destroyed the destroy, the labor force for, uh, it might be a 10, 12, 14 week period there. And we know that put everything along way behind.
It was probably a long way behind, well, prior to that, but that certainly didn’t help. And then you’ve got the addition of, you know, 7% inflation in the U S the UK is now up to 6.3% inflation annualized. So. You know, and the UK is each growing and the whole Russia thing is, is actually having the, all the sanctions that having a little bit of the opposite effect of what they thought that they would have.
And, um, there seem to be hurting the west a lot more than they’re hurting Russia. So it’s, um, it’s going to be really interesting times over the next, you know, the next six months they’re going to be weird, but I think longer term, it’s going to be really weird. Yeah. It’s interesting. It’s really, really hard to crystal ball things, but, um, it’s sort of.
Uh, everyone’s been saying that volatility has been increasing for the last oh gosh. Um, decade, at least whether it’s climate volatility, seasonal for farming, um, price spikes on the markets, petrol bananas, you name it, whatever. But if you look at things over like very, very long hundred year trend lines, they sort of generally hit in the same direction and yes, the governments have printed more money, so the price goes up, but effectively what they’ve done is they’ve deflated the value of the Australian dollar or the us dollar.
Um, so. We’re getting less for it. I’m fortunately wages aren’t picking up, but what we, everyone has a job on the positive. Um, everyone enjoys a drink. Maybe everyone is also more health conscious than they were. I I’m starting to sense that Australians. Very physical, mental health aware and, um, and maybe trying to moderate their consumption, which is a good thing, you know, rather than binge drinking.
So we’re probably still gonna see the same megatrends we spoke about before premiumization. So instead of buying a slab of VB or Carlton and. Drinking another set day afternoon, and watching the footy of the barbecue or whatever it feeling worse. We’re on the Sunday and not learn the lawns and not spending time with the children.
People are saying, well, you know, maybe during the week I’ll have a hips normal. So I don’t, uh, so I can get up and function. And then on the weekend I might treat myself to four pack of my favorite craft beer. So, and when they do that value equation, the prices. Good. Um, but I think we’re probably going to see consumption of alcohol and total drop.
Um, but the quality of the spirit or the, um, beer, um, will improve. So that, so that that’s amaze says that the people that are going to suffer it, going to be the major, the majors, where, where all the volume is and where all the, you know, there’s gonna be. Yeah, IB and Belsen and you know, and, uh, in Australia obviously see you, babe, because if, if the volume is being taken down and it’s been more premium, then that would make sense.
Wouldn’t it? It’s interesting. You say that because I’m a guy much smarter than me, who was the founder of one of Australia’s largest independent breweries is no longer independent. So you can do the guessing then, um, told me that. Tutor is of the market. We can do really, really well. You could do really, really well.
If you’ll see Joby or line who produced beer, absolute scale and very efficiently, and they will always do well. And they can also muscle up to a Woolworths and Coles and sorta stand toe to toe with them. And as the economy, um, if times get tough and the trade, you know, it doesn’t like the price of diesel and the ranger then.
Tried back to a slab of VB or a slab of line to easel for excavator. Um, at the other end, there are people who, who has a lot of money and always wanting the absolute best specificially cheese, the best sparkling wine, the best craft beer and things like that. It’s if you’re in the middle that you get hollowed out, so see your bees not going anywhere.
Um, lion’s not going anywhere. So he, um, and Cooper’s, but if you’re a middle. Sort of a craft brewer who maybe you started in Brisbane or Sydney, and you’re pushing into another state. If you’re overstretching yourself financially and you don’t have security over your immediate local precinct, and you don’t have your beer in every single bar and, and, and, and your, your beers and every bottle shop.
And you’re not making outstanding product for that top end consumer you’re at. So that’s the pickle in the middle, uh, of that curve. And, you know, so it’s like with bread making, you’ve got artisan sourdough selling it $8 at your local regional bakery. And then in the supermarket, you can get something for half the price, but it’s only top or focus.
So I would say it’s a mid midsize people who are maybe a bit lost, not sure what they’re doing, you know? HIPAA says or reason for being so things like the more expensive bread in the supermarket might be the Kobe, the software. I know it makes sense. It’s it’s always the middle class. They get hollered out.
That is happening. Yeah. That’s actually happening on a, on a global scale. The middle-class is getting hollowed out. It’s happening to the United States as well. And, but the middle-class. Provides the wealth, um, for a democracy, but, um, here, let’s, now let’s talk about for another book. Unfortunately, unfortunately, unfortunately, the people that lead the countries and states have kind of forgotten about that a little bit, but, um, we should be, you know, absolutely.
It’s a different conversation, but, um, who, uh, who in your, in your, in your beer career, who was, um, who was the person that got you interested in. Yeah. Interesting. Um, so I mean, I worked, I was fortunate enough to have worked in a large, um, corporate brewery, which was fosters, I’ll be it on the sales and marketing side of things and to their credit, they are, you know, star wars, um, Asahi slash see, you’d be passionate patient of ROAS.
So, um, I remember we would have, um, time at the Abbotsford brewery and sensory training with Tina , who’s still there and she’s amazing. And. Whilst, you know, you could sort of knock the big brewers for saying they just brew, you know, 10 different styles of blogger. They were very passionate about their lager.
And so I, and I was fortunate. I worked in the. Side of that business. So we looked after Asia, um, exports, and we were sort of tasked with the focus of selling fosters through Asia. So we had a lot of, um, documentary referred to us all the older brothers who had been put out to pasture, but they were really, really good brewers had been there for 25 years.
So they. They also installed in me the value of quality and, um, you know, how to taste beer properly. Um, appreciate it and, and head of, uh, match it with food. But, um, I tend to follow, like, I, I don’t follow individual bros. I love all the brewers in Australia. Um, I do. Uh, a lot of the brewers from the U S and Europe as well, and I’ve always gone to the Hybris conference and they have really cool brothers come out, um, from the U S and the UK.
So they had John Keeling come out from, um, uh, from England, from forums, um, sorry from London pride and, um, chest butter and all that sort of thing. Um, which follows brewery in London. And he was just an amazing guy. They had Vinny come out from Russian river. Steel was at stone and that, and, um, and I met people like Matt Brindle, Stan from Firestone Walker and all of those brewers, just like we’ve got amazing brewers here in Australia.
I just incredibly passionate about beer. Like some people would say, oh, the last thing that person wants to talk to you about is beer. But I sat next to Mitch Steele at the Australian national homebrewers conference. Been to ear for about two hours over dinner, about beer. And he just kept listening intently and asking questions and talking back.
And it’s because he’s so passionate about. So I always say to people, you know, don’t get into craft brewing or craft distilling, unless you’re passionate about it. Because like we mentioned before, the business challenges are tough. Um, so you need. Good at your game and just have that patient to override the tough moment.
Yeah. I think the people that get into it for the economic reasons and economic benefits, it’s the wrong reason. It’s you do need to be, um, you do need to be 100% all in you can’t, they can’t be a side daughter. Can’t be a second business. It needs to be everything. It seems. Yeah, it does. Because if you think about it, um, who was I listening to the other day they were talking about, um, Oh, the value of, um, brains.
So Coca-Cola is a product and it was the world’s most valuable brand. And, and the, um, the old argument was, it was always one within, so Richard is probably a Coke and a new fridge here. Um, it is a Greg’s house. I’d probably not, he’s his, body’s a temple Pepsi next man. That that’s been overtaken by echo.
And I, people keep thinking that, um, apple is a hardware company and they are, they make amazing laptops and all that, but it’s really the software that, um, that, that, that got the adore adoration and locks, everyone. And, and so when you talk about getting rich brewing, you’re not going to get rich brewing, um, It’s a capital intensive business where you have to keep buying stainless steel.
You have to employ a lot of stuff. Software is going to get your rich much faster. You may, maybe you guys know that better than anyone, but, um, you know, I love zero accounting software. We use it at our business. We were born online. I love Shopify. Um, and once you build out a piece of software, the incremental customer acquisition cost is close to zero, but.
As a brewer. So you get your local postcode or your local region say you’re down the Bellarine peninsula. And then you go right now, we’re gonna take Melbourne and get all the tech points in Melbourne that costs you more to get those tech points because you have to transport it up from Turkey or wherever you are.
Or if you’re a Sydney Bruin decide, we want to move into Queensland state. You’ve got to pay all that transport costs, but with software. To send it through the wires and the internet. Um, and then when you get more customers, you get more engineers and you build more features and you get a network effect.
So, um, yeah, don’t enter the brewing industry to get rich. I think. That’s the opposite you probably going to get. Yeah, it’s interesting. Um, at what you say with apple, the way we look at it, the same way they, they suck people in with the, with the shiny objects, but they retain people by having them in almost with, uh, with the software.
You can’t leave the iTunes store, you can’t leave the app store, everything. That’s what retains and the shiny objects are the things that actually bring people to the, you know, to the party, I guess. Exactly. So where’s your business going to go in the next 10 to 24 months? Yeah, it’s a lot to be brutally honest and know it’s trying to be open and honest and transparent.
I’ve sort of said to everyone and saga my business and outside my business as she is going to be the toughest of the last three. And so 2020 was a bit of a shock to everyone and probably a few of us drank our way through that. Myself included. Um, that wasn’t so bad. 20, 21, there was still some stimulus and that sort of thing out there, 2022, we are going to see business closure.
So I’ve been full confession before I came here, I parked the car a couple blocks away and I walked around chapel street Pran, just looking to see how many Felice signs there are and, you know, it’s interesting. I still see great innovative food businesses and. Offering coffee at a windows, but I see a lot of empty real estate.
Um, so, and, and I’ve been out on the road in the last three or four weeks, um, everywhere from sort of a reservoir Preston down the Southeast today. And there is a lot of businesses closing. So I think, you know, hand on heart confession. I think a lot of people took the checks and I think now they’re winding up their businesses.
So I think now more than ever, it’s important, you have something like pencil and you have good, um, Good tight control over your trade credit. Um, and I’m telling all my great customers and craft brewing who are family independent businesses to not, um, sit by and let your margins get eaten up. If your prices go up in terms of the inputs to your processes, and you’ve done everything you can from a productivity efficiency point of view, you have to lift your prices.
So for us at Baco, it’s all about. Get the products that we know will sell and price our products profitably, but not high margin. We’ve never tried to gouge our customers or anything like that. Ride through this wave. I think the good thing about our industry. Because predominantly those 650 craft brewers are independent and they’re in there.
And for one way or another, the investors are in, cause it’s not easy to liquid liquidate your investment. Um, and same with the distilleries they will ride through this year. Um, but then I think we’ll probably see, um, it really start to pick up in the spring of. Yeah, people will start moving around, getting out to the regional holidays and having a beer and having a drink and, um, the camping holidays back up again, which is great.
Um, so yeah, I just sort of think to people, my own perspective is to sort of listen, get close to customers, um, stay close to suppliers and, um, ran the weight, the balance sheet hat, you know, The any business with a shopfront any retail business? Um, one of the, one of the things that, you know, we predicted this a couple of years ago, and it was always going to come back and bought everyone on the ass is.
Um, people weren’t able to pay their rent and then the government put in place a number of, um, I guess a number of, um, uh, pieces of legislation where you would, that would the, um, the landlord would have to negotiate with the tenant and all those type of things. Um, what they didn’t do though, they didn’t plan for the fact that I.
Cafe or a restaurant or what have you, that was paying a hundred grand of rent. Their rent next year was effectively going to be 200 grand because, because it would continue to accrue. Now they couldn’t pay it off and all these rankings you need to accrue. And then you’ve got landlords who are asking for it and asking you to pay double repairs.
It it’s untenable to do business that way. And that’s, that’s what that’s my feeling is that’s what the pinches, because they didn’t have to pay Powell pout for power while they were closed. So it was all the other costs. Staff, staff costs went away. The only thing that didn’t go away was rent and rents effectively, just crept up and double or triple, probably two and a half times what it was.
And it’s just, um, It’s impossible for a retail business to get out of that, unless they’ve got big capital backers, it’s just impossible. So, um, this is a making of government closures. It’s, uh, you know, I’ve, I’ve done every other, some under the, in the book and there’s nothing else in my head that, um, that, that has had as such a capital effect in such a, such a cashflow and a capital effect on retail business.
As the fact that their rent was unable to be paid and now they have to pay it and they have to pay the arrays. And that’s, that’s the killer. Like a small businesses are walking away from, um, untenable laces. And if they have to unfortunately close. Reopen, um, then then good on them because that’s the market operating the way the market should.
I think the risk for our customers, aircraft Rosen, distillers, and talking to you guys here is make sure you don’t go wrong. Um, with on-premise customers. And extend credit and extend credit and extinct credit, um, and get played off against the next craft brewer and the next craft distiller. Because if, like you say are the unfunded pinnings of the business are uneconomic because their rents are exorbitant and they are, we all know that everyone knows that Australia, that we have a big, big property problem.
Um, that’s too expensive for a, uh, residential and commercial property. Um, then that. As a blowback. So that blows back to the craft brewery or a craft distillery. Cause then they can’t pay their suppliers. And I, and I guess it’s with the tools that you guys sell and, and the, um, the, the software is really, really important.
So, um, You know, anything that collects the money efficiently and also anything that alerts, um, small businesses to credit risk. You know, I think this is a year that, um, you know, we will see those closures because like you said, they kick the can down the right around, uh, business closures. Right? That’s a healthy part of the economy to be brutally honest, you have to have businesses closes and, and, and then new ones open up.
Um, and yeah, I think we’re gonna see a lot of that happen this year. Absolutely. The, um, the hospitality industry was saturated tres ago that, um, certainly cafes in restaurants. They would just, they just opened everywhere and there was always going to be a slight correction, but obviously this, this, um, the last two years on top of it, um, Have corrected it, but they’ve, um, they’ve obviously gone beyond that and it’ll get back to a point of equilibrium where there’s no.
Um, there’s enough business out there, um, for the amount of places there are, but right now there’s too many places for the number of people who want to go and Dawn, um, that’s just the reality. Um, but this place is closing everywhere. And, you know, as you said, you’ve just walked down chapel street, this house.
Yeah. You know, we live, um, you know, both Greg and I live within ear shot of chapel street and we’ve noticed, um, we noticed the south Yarra end. So between Toorak road and Marvin road was the first to go. That was 10 years ago until we’ll say five or six years ago. And then the area from Marvin road to high street went and then now it’s Windsor.
So as those. Increased the market’s standard market conditions pushed back against it and people would just wouldn’t lease these places. Cause the rents got too exorbitant and they’ve told the, you know, they’ve told the landlords what it is. And I think the big commercial landlords modular, they got plenty of cap, plenty of, uh, capital, most of them, but they’re going to really feel it like the Sydney.
Half of the city office blocks are due now. And every single business knows that working from home is the future for part of their workforce. So the commercial real estate market is going to, unless they’re, unless they’re, um, they own their property out. Right. Which a lot of them do. Um, the ones that are leveraged, they’re going to see some pain in the next little bit.
And to be honest, it’s, um, It’s probably had it coming for a little bit, um, with the, with the amount that they’ve been requesting from, from tenants. Yeah. Yeah. Look, it would be nice to see rents dropping and property prices drop because the reality is it’s not a productive asset that doesn’t create.
Properties don’t create jobs other than the builders who build them. Um, so yeah, so if we could have affordable housing in Australia and, and lower rents, um, we’ll see more entrepreneurs have a go at a bar and a cafe, and we’ll see more people who have money invest in, um, startups. Um, so that’s a big problem, but unfortunately it’s politically, it’s untouchable in Australia.
And I think one moment. Seven Australians have an investment property negatively geared and one and three politicians. So these are things you can’t change about the Australia where the second highest cost of doing business in the world, uh, behind Switzerland and. It’s really hard when I’m trying to explain that to our international suppliers, they just can’t understand how expensive it is here.
And that has a cascading effect. So expensive rent means high wages so that people could afford to rent. Um, so I hope that, um, we do see a property collapse as much as it’ll hurt a lot of people, um, because it will help business, but I don’t think it’s gonna happen. I think there’s the big buildings and the office towers, like the NABS got 10,000.
Spices of office space in the city and it’s only 3% occupied, but the reality is they’re on very long leases and the Navy is going to keep paying that. At least I know they’ll repurpose it and they’ll figure it out and I’ll sublet it. And that’s just the market taking its course. I think the key thing we just need to think about and, um, small business, small, medium businesses, you know, be smart with your F um, uh, with your software choices and stay on top of your books this year.
The the, um, the biggest risk for small businesses is labor labor. Is that the massive cost? And it’s the, it’s just, it’s, it’s actually debilitating certainly for service businesses, but even supply businesses, the labor, the labor know everything is labor intensive, um, to a point, but, um, and you automate as much as you can, but the cost of basic labor now, Just crazy.
And the government is continuing to push wages to wages to go up and they will continue because that’s where all their voters are. So we, we get that. Um, it does make it very difficult for businesses. Um, and that’s every business across the, across the, across the whole gamut. Every business has people. Um, So I think, um, there needs to be more incentive for small and growing businesses in Australia.
It’s just, don’t think there is enough incentive. Um, you work hard and you employ people and, um, you know, and it is, it is tough at the, you know, the best and the worst of times, um, but a bit, but I just think that, um, the government does need to do something for small businesses because. Small business owners are the ones who are putting their ass on the line and taking all the risks and putting everything they’ve got into it.
And the amount of people that have lost a lot of, a lot of stuff over the last, you know, 36 months. Um, and you know, there’ll be no recouping any of that. They have to start again, which, you know, lucky business owners are durable. Um, but, um, but yeah, it’s, uh, it is a, it is, uh, it’s a, it’s a challenge for the country.
Um, yeah, look, I think, um, the small businesses, the government actually understands a lot more about them and they lay them on. So, um, during the COVID pandemic, they did cashflow boost to small businesses and a lot of smart, small businesses, you know, bought some capital equipment. Like we bought a, uh, call room and I call it call room.
Um, because you know, we wouldn’t be able to afford it otherwise, um, to help store our hops scenario, enzymes and everything. Nice. And I’ve seen that. The smart small businesses. We’ll, we’ll, we’ll use those checks wisely. Um, I think the other thing is for small businesses is you just got to play the hand that you get dealt, you know, and, um, you have to be clever, like you said, and that sort of thing.
Um, but you know, Australians love having a go against all the odds and there’s a lot of great success stories coming out all the time. Um, I think you have to pay your staff at least minimum wage of not bitter and. Take your stuff with respect. Cause they’ll help help you grow your business. But yeah, just like you said, try and automate as much as we can because we are in a high labor.
Um, country and stay up. Um, you use your, if you’re small and medium-sized business, use that to your advantage. So the breweries that have got tap rooms that tap into the community, like to mention sponsoring their local teams and, and connecting, um, with local customers and, and selling locally. Um, that’s, that’s a, that’s a really strong barrier against big business.
Um, and, and everyone’s in the same boat. So ordinary Australians want to support their local businesses. So the audience of this podcast is obviously breweries. And, you know, I know they’re one of your customer sets. You got one which is direct to consumer and the other is breweries community. Just to, just to finish off, can you give ’em a little bit of a plug, um, to be a co and just explain exactly, you know, what, what, how you can help, um, how you can help any breweries out there.
Oh, look. What we do. Um, it’s pretty simple. We young try and supply the ingredients you need to make the air. And, um, we also supply distillers. So in the case of roaring it’s, um, we supply molts, um, we have local, um, Victorian, sine grown, and molted at Pilsen molded down at Jalong. Um, it’s beautiful, clean, crisp, consistent Pilsner malt.
And it’s used by major brewers. And I say to the small brewers, you know, the reason the major brewers are using that malt is because it’s consistent and it’s really well made. So I encourage people to buy that it’s more affordable than important. Molts we also have. CRI premium Chris ML. Um, we’ve been around for 150 years from the UK.
That’s where we’re filling a lot of stress with the supply chain and Putin’s guest prices going up. Um, and we sell uni grain loaf, locally, melted serials, again, a family owned company, um, the, my family, um, and make Bellarat. So we’re encouraged to customers use them. Um, we don’t important sell hotspot. We do resell a lot of different hops.
I’m telling customers preserve your cash flow. So don’t contract hops when demand’s up and down, or you don’t know whether they’re going to drink this beer next week or that beer the next week by what you mean. Thea bruise this week or this month and, and, um, hops come in big sizes like 20 kilo boxes and they could be north of 800 to a thousand dollars for wholesale price.
Um, so if you only need three kilos, don’t buy a box and put cash in the courtroom. Uh, We sell dried, brewing yeasts, um, that, uh, from, from other wholesalers and we also import some from the United States and then we’re increasingly selling more what we would call adjuncts, interesting things like botanicals for distillers, but brewers use them as well.
And, um, aids like enzymes, which help make your brewery more efficient and, um, also flavors. So we’re back to, you know, brewers jumping on nutrients with. Um, some of our customers as far north, as Brisbane who are entrepreneurial and have great tech room, that’s thinking, well, I’m selling all this beer here.
Um, and I can see there’s a lot of people coming for lunch and the weekends or, or drinks after work, who don’t drink beer. Why don’t I try making some seltzer? Cause I’ve got the equipment I can make seltzer. And that’s really easy to make. And we sell them the rice syrup and we sell them the flavors. And again, because they’re in a tech room environment, they control.
We’ll have a say over what the customers drink and I’ve seen a good uptake, so it’s an incremental sell. Um, and then the other thing is just give us a call and have a chat. Um, you know, I’m unfortunately not going to expect. Tri credit or terms. Um, but if there are difficulties and problems and, and, and open and transparent, just like I am with our suppliers, when we ha ha ha hit the wall, um, they then just, just reach out and talk to us.
Or if, you know, you’ve had a, um, supplier can supply you something, reach out. Cause I think this year is about, um, you know, my helping mates, um, and the industry. And, um, we’re all getting back to. Normal. We’re getting back to sports. We’re getting back to kids back to school. We’re getting back to our regular working week.
Maybe it’s a split week. Like you mentioned hybrid week, a few days in the office, a few days at home. So, you know, Work together to sort of find out what that new normal looks like. Cause I think we haven’t sort of still found that. Um, but yeah, that’s our plug. We young, we’re always here at anytime. You can call us at the, at the warehouse or, or email firstname.lastname@example.org.
Do you all our products are on online as well. Great, man. Thanks so much for your time. Appreciate it. Yeah. Thanks Tim. That was great. Thanks for the invitation. Awesome. Cheers.