Over the coming weeks I intend to reacquaint you folks with what I’m been up to in terms of research over the past couple of years (yes, the blog had been moribund for that long!).
One project I commenced while overseas earlier this year looks at the nature of collaboration in the global craft beer scene. Here’s a blog post over at a beer site where I talk through our initial findings.
Melbourne is about to celebrate Good Beer Week – a festival of beer-related events showcasing the output of Australia’s burgeoning microbrewing industry (plus some folks across the from NZ, the US, Japan etc).
Microbrewing startups are popping up across Australia in startling numbers, introducing a much welcomed diversity of flavours, styles and business models to our decidedly bland duopolistic beer market (I find myself uttering that duop_ word far too often around here).
One considerable barrier to even more entrants (and their subsequent growth) has been some nasty excise (i.e. taxation especially reserved for such vices as alcohol) imposts that impact most severely on small brewers. Here’s a pretty comprehensive explanation of the problems faced (courtesy of RMIT student TV – head to about the 3 min point for the specifics):
Put simply, small brewers pay a huge whack of tax (in the vicinity of 25% of value) at the point of production (indeed, within 7 days of brewing) rather than sale. This is a huge cashflow constraint on these businesses. The very small brewers have had some minor relief whereby up to $10,000 per annum would be refunded (but only to a production threshold of 30,000 litres).
Last night’s Federal Budget finally saw a move in the right direction, with that refund increased to $30,000 per annum and the eligibility threshold removed. This will make some small difference in terms of the capacity of such craft breweries to expand and achieve something like minimum efficient scale.
You may have noted that the RMIT vid is from 2007. The battle has been a long one for these guys, and the concessions relatively minor. Last November, a national industry association was finally formed, and perhaps this helped get some movement in Canberra (it’s worth noting this change costs a paltry $2.5m per annum in government revenue).
I’d love to see the Aussie Craft Beer Industry Association become as wide-reaching and influential as their US counterpart (especially because they gather some excellent data on sales growth and relative scale that is sadly missing in Australia). This small win speaks to the import role of lobbying (case in point: small wine-makers in Australia have had much more appealing rebates for years – perhaps it helps to be in rural seats and to have no shortage of owners from the legal community?).
Most importantly, I hope this excise shift fuels even more growth in the diversity (and success) of local brewers… so this Spectapular can be even larger next year.
As many of you may be aware, my home state of Victoria has been ravaged by some brutal fires in the past week which have killed hundreds and destroyed the livelihoods of thousands more. It is a truly tragic and heartbreaking state of affairs. Australians are being very generous with donations and efforts to help rebuild people’s lives. I thought I would take this opportunity to highlight a particular instance of loss.
One young business devastated was a microbrewery dear to my heart at Hargreaves Hill just north of Melbourne. This business had recently expanded into a full-blown offsite brewing facility that has now been totally wiped out by the fire. Such growth was no doubt a very large financial risk and to see it destroyed must be heartbreaking.
The founder of the firm has been a leader of the microbrewing community in Victoria through his role as president of the Victorian Association of Microbrewers, and lobbied hard for more sensible taxation of these start-up businesses.
A Melbourne beer bar, The Local Taphouse, is running a fundraising effort to try and kickstart Hargreave’s recovery effort (as well contributing to the broader post-fire effort).
As any of my past students know, I am not a particularly generous fellow :), but I have handed over some cash to help them out and hope other beer (and small business)-lovers amongst you will do similar. More information at this blog.
Other agencies helping out in these difficult times, and also well worth donating to include the Red Cross and the RSPCA.
Please do not see this post as belittling or trivialising the losses of any others in these fires. Rather this is an effort to target some small percentage of the generosity towards a particular entrepreneurial effort.
You may have noted a more than passing interest in beer around here. I do tend to drink a bit of the stuff, but I am also intrigued by the emergence of smaller, craft brewers in recent years.
While in Copenhagen back in 2007, I stumbled across this book at an excellent microbrewery that I frequented on more than one chilly afternoon. I raced through the front half over a couple of visits, and subsequently ordered my own copy on my return to Oz. And finally I got back around to finishing last week.
The book is an autobiographical account from Sam Calagione, founder of one of the US’s most successful small-scale breweries, Dogfish Head. This brewery (motto: off-centered beer for off-centred people) was, at one point, the smallest commercial brewery in America. It has subsequently expanded considerably, with a strong focus on extreme beers (which can mean high alcohol, lots of hops, odd flavours or all of the above). Such a story is certainly worth hearing.
Calagione is a one-time college lit major, and clearly has an inquisitive mind, an ability to digest and apply ideas, and a strong capacity to weave a coherent tale. This book thus becomes much more insightful than the typical business bio one sees on airport bookstore shelves.
I’m not usually one for motivational stories of entrepreneurship, simply because I find such works tend to lean towards mis-attribution of cause and effect (especially through the lens of hindsight e.g. I did this and I think it worked, so you should do the same) and often showcase highly idiosyncratic experiences.
This book falls for few of those traps and instead offers strong analysis and a clear message for budding brewers and niche businesses more generally. Calagione integrates a lot of pretty mainstream strategic management concepts (environmental analysis, the importance of unique resources, value chain decisions, specialisation, diversification) and explains them in a non-academic, non-technical fashion, fleshed out with fascinating (and often outlandish) tales from the brewing coalface.
Calagione has a pretty neat take on his experience, and the lessons for entrepreneurs. He considers what he does alt.commerce (as in alternative, like alt.country music). His business is all about expanding a niche. The firm succeeds by delivering a truthful and resonant product and experience (i.e. customers become fans and advocates). By the end of the book, Dogfish Head is still fielding more orders than they can supply (despite considerable expansion), and has certainly become a cult producer of beer, rum and soap(!), as well as running three restaurant/brewpubs. Offering $20 beers becomes viable!!
I can highly recommend this book to budding entrepreneurs, strategic management professors and beer-nuts (the aficionados, not the snacks). For more on Dogfish Head’s extreme brewing see this excellent article from the New Yorker magazine, and this video interview:
A key business strategy challenge is raising consumers’ willingness to pay. There are huge gains to be made if you can persuade customers that your product offers much greater benefits. Several authors have spoken about the idea of Trading Up, whereby seemingly unglamourous product markets are altered by the emergence of high-end, boutique-style brands.
This article explores the experience of just such a firm – Mighty Leaf, a firm based in San Francisco who have developed a wide range of exotic sounding and attractively packaged teas. They appear to have ticked off all the required boxes so as to appeal to their target consumers: biodegradable materials, obscure flavours to request (pu-erh anyone?), and ample theatre at purchase.
The economics for their major customers (i.e. restaurants) looks very, very appealing also:
Mighty Leaf spends 20 cents on an average tea bag – the couple contracts out the production of the bags. It then sells its bags at an average 40 cents. Is the restaurant going to complain about the price? No. The theatrics enable it to sell the resulting beverage for up to $7.
This is a clear example of effective differentiation. As the article notes, Might Leaf’s success is attracting the attention of the big tea brands. In many ways, this is comparable to the attempts by large scale beer brewers to elbow in on the microbrewing (or craftbrewing) niche. The challenge for the big players is gaining legitimacy in the eyes of consumers who are paying not just for the product itself but also for the experience of engaging in something distinct or exclusive. Of course, the larger firms often have huge cost advantages spring from economies of scale and scope (for example, you would imagine they could dramatically reduce the costs of getting the teabags to the restaurants, and also target a lot more restaurants through their existing distribution networks).
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