Sydney-based independent breweries Wayward Brewing Co. and Batch Brewing Co. have today announced the formation of a partnership business, Local Drinks Collective, designed to leverage the strengths of member businesses without the companies needing to merge.

The new entity, Local Drinks Collective Pty Ltd, will be co-owned by ‘member’ breweries and is designed to share common functions such as logistics, sales and potentially share production facilities to tackle the increasingly difficult business environment.

Founder Peter Philip from Wayward Brewing said the new entity flips the typical consolidation model on its head.

“Normally you’d go out and raise private equity or something like that, and go and buy the brewing companies and create the mothership model, like the Good Drinks model,” Philip explained.

“They go out and buy breweries, and that’s how they consolidate.

“This flips that on its head and says, ‘it’s not the mothership that owns the breweries, it’s the breweries own the mothership’.

“So everybody’s motivated for the mothership, to win and to succeed.”

In an email to investors announcing the move, Batch Brewing described the new entity as a ‘services company’.

“LDC is a new initiative set up for breweries to work together to help achieve efficiency and economies of scale, but within a cooperative structure whereby the breweries retain their core brewing philosophies,” the email read.

“LDC is a services company owned by the member breweries and setup to support the breweries.

“We are the first two businesses to join, but we are in advanced chats with other breweries and we expect this collective to become one of the biggest independent brewery groups in Australia in the not too distant future.”

Despite Wayward and Batch referring to the collective as operating ‘within a cooperative structure’, the business isn’t legally set up as a cooperative entity but as a company under corporations law, into which participating breweries will buy shares.

Philip said the approach would see the breweries remain independent entities, but apportion ownership of the new collective that would benefit all breweries.

He said the new model would be different from Mighty Craft which saw the breweries involved there often selling competing products.

“None of the breweries have incentive to do things in a symmetrical way. It’s like ‘which one of these 10 Pale Ales Do you want to buy?’ and then just sell whichever one is squawking the loudest.”

He said under the Collective model members would have to have some difficult negotiations to ensure they avoided this situation.

“There’s a difficult decision at the beginning for the shareholders to go, ‘Okay, well, I’m putting all my business into this’. And I’m not selling my products separately. The sales team is all in Local Drinks, so that’s my sales organisation.

“We’re going to manage this as a collective to bring the most appropriate products to each market. And all we’re looking for is growth and profitability in selling that.

“So, you set the ownership at the beginning when you come in, and that’s a negotiation.”

“Every litre of beer that gets sold advantages every participant in the collective,” he said.

“We’re all-in for the success of every brand, so my sales team does not have a Batch quota, we have an overall quota for sales and we want sales to continue to grow whether I sell.

“Whether they sell a can of Batch, a can of Wayward or a can of whatever the Victorian brewery who eventually joins is, I don’t give a shit. Just sell more.”

Philip said this was a better approach than the breweries just merging their brewing businesses as it allowed each to maintain their current excise relief.

“As one brewing company owns another, one of the aspects of that is that we lose our excise, they stop being separate entities for excise purposes,” he explained.

“That 350 [thousand dollars] excise relief that we have is essentially responsible for, I think, 90 per cent of the survival of the industry, particularly in like the last 18 months. It has been brutal for the industry and had we not had excise relief, then there would have been mass bankruptcies.”

Details of how the new entity apportions shares between participating breweries is not yet known, though Philip said it was currently in negotiation with other breweries, with plans for a national footprint.

Both breweries involved in the launch raised the potential for a liquidity event for the new entity, though Philip acknowledged it would need to reach a ‘critical mass’ before that was possible. In August he had flagged a potential IPO for Wayward.

Media release

Content published under the media release byline is promotional content produced by the business(es) named in the media release and remains unedited by Brews News

Australian independent brewers are passionate about creating quality brews that express their creativity and innovative flair. Many of these entrepreneurs started breweries to express their passion for the craft of brewing but have struggled to cope with the demands of running a growing business while also facing the challenges of competing against foreign multinationals with unlimited access to capital that has been used to sew up taps in too many pubs across Australia.

Today, the Local Drinks Collective (LDC) has launched to address these challenges and represents a new phase in the evolution of Australian independent brewing.

The collective leverages the strengths of its members to create great quality beverages for all Australians while retaining the innovation and local focus that each brand is known for.

Turning the normal consolidation model on its head, the Local Drinks Collective will be cooperative structure, owned by the member breweries. The collective sees the creation of a distribution, sales and services company to help small and regional brewers compete more effectively, sustainably and profitably. Together, they intend to become a leading force in Australian independent craft that is infinitely local but nationally accessible.

Peter Philip, founder of Wayward Brewing Co and former chair of the Independent Brewers Association is the initial Chairman of the Local Drinks Collective.

“This is not a sell-out or a rollup”, said Peter, adding “each member brewery in the Local Drinks Collective retains its unique identity, its brands and its founders with the collective providing services to each of the breweries to help everyone succeed in an ever-increasingly competitive market that is dominated by massive multinational beer companies.”

The Australian beer market is dominated by the Japanese, with Kirin Holdings owning local brands such as XXXX, Tooheys and James Squire and Asahi Holdings owning Carlton, VB, Reschs and Great Northern. Together they have a market capitalisation of nearly $30 bn AUD.

The Local Drinks Collective is a cooperative structure that seeks to level the playing field with these multinational goliaths, giving independent craft brewers some of the scale benefits enjoyed by big brewers while maintaining the independence and innovation that is driving the inclusive and exciting craft beer culture enjoyed by so many.

The first two participants in the Local Drinks Collective are Wayward Brewing Co and Batch Brewing Co of Sydney, being two of the original Inner-West Sydney craft breweries with discussions currently taking place with a number of other regional breweries which will give the collective national coverage.

“Wayward and Batch have a long history of collaboration, so it was an easy discussion to have between a couple of mates over a beer”, said Pete Philip.

Andrew Fineran, the co-founder of Batch Brewing Co agreed, “Pete and I caught up and when he told me the idea, I immediately saw how it could be a very successful model for retaining independence while growing nationally.”

Like many of Pete’s brewing inspirations, the idea of the Local Drinks Collective came from his travels and looking at how artisan producers in other markets have worked together to become more competitive while retaining the unique character of each producer.

He saw firsthand how winemakers of Europe have gotten together to form cooperatives for the mutual benefit of all the participants. The co-op structure provides many of the shared services that the individual winemakers need to produce their product – ranging from production to marketing to distribution. The structure allows for individual brands to grow without needing to duplicate expensive infrastructure, allowing the winemaker to focus on their craft while gaining the economies of scale necessary to compete in a market dominated by multinationals – exactly the same issues faced by Australian independent brewers.

The Local Drinks Collective borrows from this tradition to provide common functions that are necessary for Australian independent breweries to grow their businesses in an increasingly competitive market while maintaining the innovation that made them successful in the first place.

One simple example of this is logistics. Breweries that handle their own logistics often scratch their heads at the sense of multiple delivery vans making the same rounds each day. Outsourcing options exist, but they dramatically impact the profitability of the brewery and result in a loss of control.

Another common issue for many fast-growing breweries is how to manage production growth. Brewery owners agonise over the decision of how and when to expand production and many are loath to outsource for fear of losing control of their IP and unique processes.

The co-operative ownership structure of the collective means that all the manufacturing capabilities of the alliance are available to all members. This means that manufacturing can take place closer to the customer, reducing transport costs and being more sustainable.

Other models have emerged in Australia in the last few years that seek to provide some economies of scale, but they have largely faltered because the members of these groups have no incentives to work together.

The Local Drinks Collective addresses the flaw in alternative models through an ownership model that means that every participant shares in the growth of the collective. Thus, the members have an incentive to cooperate and grow every brand in the collective.

The Local Drinks Collective provides distribution efficiencies for customers who can deal with one entity rather than many individual breweries. It also means the collective can more effectively partner with national retailers to make the products of the partner members more available to consumers nationally. With these diversified sources of revenue, the collective will over time become a more attractive entity for raising capital. Long-term the collective will provide liquidity opportunities for shareholders without the need to “sell out” to big beer – and it is this element that ensures that the collective is a sustainable model for independent beer to truly stay independent.

“We want to provide a model that lets independent craft brewers stay independent”, said Pete, adding “this will allow us to more effectively compete with massive foreign multinationals so that we can continue to get great craft beer into the hands of Australian beer drinkers everywhere.”

So, while the Local Drinks Collective borrows from older traditions, it is truly a new paradigm in the Australian beer market.

“This has the potential to be one of the top 3 independent brewing collectives in Australia within 3 years”, said Pete, adding “I’m always open to having a chat with like-minded independent breweries who have something to offer the collective”.

FAQ

What is the Local Drinks Collective?

The Local Drinks Collective is a service provider that is owned by the brewery members participating in the collective.

Who are the brewery members? Wayward Brewing Company and Batch Brewing Company are the founding members of the Local Drinks Collective with other regional breweries expected to join the alliance in the coming months.

What does the Local Drinks Collective do? The Local Drinks Collective provides shared services to the member companies to help them make and sell beer more effectively, profitably and sustainably.

Such as? The Local Drinks Collective will provide shared sales, marketing, production and logistics services. Each member company will retain its own brewing capacity but these resources will be available for use by the member companies.

Why ‘Local’? Being a contributor to their local community is a key value of the members of the collective and it is this common vision that binds them together. Each member brewery will always be focused first-and-foremost on its local community and state. The collaborative structure of the collective means that each brewery can be infinitely local while being nationally accessible through leveraging the sales and production capability of the members of the collective.

What about the taproom and other hospitality venues? Each of the hospitality venues will be retained and there are plans to grow the hospitality offering of the alliance. Each venue will gain the benefits of being part of the Local Drinks Collective with new beer offerings from Local Drinks Collective members being available across the alliance network. Branding of some venues may change over time to provide better support to the beer brands in the alliance.

What about the founders? A key feature of the Local Drinks Collective is that each of the member brewing companies retains its ownership structure and founders. It is the vision and passion of the founders that made these breweries successful in the first place and the founders retain their leadership role within each of the brewery members while also helping to guide the development of the Local Drinks Collective.

What does this mean for shareholders? Shareholders in each member company retain their shares. The member companies are owners of the Local Drinks Collective, so all shareholders indirectly own a portion of the Local Drinks Collective through their shareholding in the member company. Through the combination of the member companies all working together in the Local Drinks Collective, the collective group will all grow and benefit from higher profitability and better access to interstate markets. Shareholders will benefit from the growth of all the brands in the Local Drinks Collective through their indirect ownership in the Local Drinks Collective.

What are the details of the transaction to create the Local Drinks Collective?

This information is confidential.

What is the long-term plan?

As the collective gains further members, its revenue and footprint will grow into a major national distributor, bringing great independent beer to local markets around Australia. The intention is to continue as an independent entity and potentially look to float the company on the ASX when it reaches a critical mass. This would provide the Local Drinks Collective with better access to capital and some liquidity for shareholders without needing to sell-out.

Batch announcement to shareholders

Wow, what a crazy rollercoaster of a year it’s been!

Going into FY22 we saw ourselves hiring a new head brewer and head of sales, with plans of wholesale and venue expansion. But just as we hit FY22, we also went straight into lockdown for several months. With a new team though we still got straight to work on improving brewing operations and recipes as well as getting the Sales Team ready to fire going into summer. And when we finally came out of lockdown, we made good progress with wholesale sales, and with a few large volume opportunities in the pipeline, we expected to see even stronger growth as we went into Christmas and summer. We even had some irons in the fire on potential venues leading into the festive period and felt we were making great progress toward fulfilling our business goals. But unfortunately, Covid reared its ugly head in December and the recovery we were hoping for didn’t materialize.

We entered the new year expecting that we were just around the corner of it all ending, and we continued with the expansion of venues via the purchase of Bucket Boys. During this time however, the wholesale side of the business continued to suffer, something that we’ve seen happen right across the board with a lot of producers. And rising inflation, threats of recession, rising interest rates and a general lack of consumer confidence, and finally, a saturated craft market, have taken their toll on the business and our industry. Simply put, we were losing money and needed to fix it ASAP, but with the belief that “normal” was coming soon, we made the decision to keep the team together to be ready to capture opportunities as the market opened up. We accrued significant losses due to this decision, and worsening of the economy. After the dust had settled with the Bucket Boys acquisition, and with “normal” never returning, we started to look inward at the business and what we could do to return to profitability and drive it into the future under hard and crowded market conditions.

The business review yielded two options. The first was to retreat and cut back our investments in wholesale, and the sales reps and brewers needed to support competing in the wholesale market, and focus on the success of our higher margin venues. Reducing our wholesale presence was unavoidable, but an exciting development occurred leading us to our second option – cooperatively working with other likeminded brewers who have the same expensive and underutilized business functions as us.

Luckily, we had been exploring this second option for several months when the stars aligned. And with that, we are happy to announce that we are working with Wayward Brewing Company in the creation of the Local Drinks Collective Pty Ltd (LDC). LDC is a new initiative set up for breweries to work together to help achieve efficiency and economies of scale, but within a cooperative structure whereby the breweries retain their core brewing philosophies. LDC is a services company owned by the member breweries and setup to support the breweries. We are the first two businesses to join, but we are in advanced chats with other breweries and we expect this collective to become one of the biggest independent brewery groups in Australia in the not too distant future. We also expect that at some point there could be an IPO or other liquidity event, which would allow those that would like to exit the opportunity to do so.

From November 1st, LDC will be managing wholesale sales, marketing, production, hospitality management, and administration for the member breweries. This means that we can sustainably grow our wholesale sales function not only in our local area, but deeper into NSW and national with a dedicated sales team with a proven track record. This will also see some efficiency in production and hospitality as we’ll be making some changes to our very crowded Marrickville Road site while we rationalise production with Wayward’s Camperdown site. Reducing the complexity of the Marrickville production site will free up space for more seating and a permanent food truck (and sshhh but maybe even A/C!). This will allow more people to enjoy our world class beer and atmosphere for longer without sacrificing on the experience of being amongst an authentic working brewery.

Our Petersham brewery and Darling Square bar will remain the same for now, but we will change Bucket Boys in Marrickville to Local Drinks Collective (or a version of this), and give a bit of focus to the Wayward products at the bar. We’ll certainly be sad to see the Bucket Boys name removed, but what that team created is what we will continue to pursue – a collection of the best beers, wine and spirits we can bring together in an inclusive and comfortable space. We think by giving this site a new name and by making some cosmetic changes to the bar and bottle shop, we will help to reinvigorate the space and make this a true neighbourhood bar and bottle shop you can be proud of!

So that’s us! You’re all still shareholders of Batch, and Batch owns a portion of Local Drinks Collective. When there is an exit, the economics will flow down from LDC to the breweries (Batch, Wayward, and anyone else that joins), and in turn out to you, theshareholders. For more information related to this, please see the press release below. We hope you are all as excited as us about this new phase for Batch, and we think there are a lot of good things to come!