This article is an opinion piece in relation to this story and reflects the views of the author.

Beer tap contracts, under which breweries formalise what they argue are mutually beneficial commercial arrangements, have long been a contentious feature of the Australian brewing landscape.

Publicans by and large embrace them. Small breweries often hate them, but many – including Stone & Wood – come to employ some form of them as they grow large enough to do so, even if it is just preferred pricing or other competitive benefits.

However, using a supply agreement to specifically target a competitor orders of magnitude smaller is not competition, even following the ACCC’s own logic.

After an investigation spanning several years, the ACCC found in 2017 that the impact of tap contract is unlikely to substantially lessen competition in any of the markets it investigated because it found that venues were “responding to consumer demand for certain beer brands, rather than restrictions imposed by the big brewers”. [emphasis added]

This week, Brews News was supplied with a copy of a contract between Lion Australia and a venue which shows that big brewers are specifically imposing restrictions and excluding a brewery that even the ACCC considers small. It’s not a new development, but these contracts usually do not see the light of day.

What is new is that Lion is seeking to paint Stone & Wood as a major brewery that is a competitive equal in the messy game of tap contracts.

What are the numbers?

Stone & Wood, part of the Fermentum Group, was founded in 2008 and has grown to become the largest privately-owned ‘craft’ brewery in the country. In its 2019/20 results, the group reported revenue of $62.3 million, with after-tax profit of $5.1 million.

By comparison, Lion – which reports through Japanese parent company Kirin – saw revenues of $4.4 billion for its last financial year, with an operating profit of $607 million.

This is not fair competition between equals.

In its competition assessment this year into the purchase of CUB by Asahi, the ACCC found that Australia’s 600 craft brewers were unlikely to “replicate Asahi’s competitive presence” in Australia’s “highly concentrated” beer market.

The watchdog found that despite their growing numbers Australia’s craft brewers, of which Stone & Wood was one, provided little competitive pressure on Lion and CUB.

“Although there are a large number of individual craft beer brands being sold in Australia, with apparent low barriers to smaller-scale entry, these independent craft brewers only have shares of no more than 0.5–1 per cent each,” it said.

“The ACCC considered that while the presence of independent craft brewers may increase consumer choice, individual craft brewers may not place effective competitive constraint on the two large incumbents.”

Brews News understands that Stone & Wood projects it will brew 15 million litres for the current financial year. Australia’s largest independent brewery Coopers which the ACCC places at 5-7 per cent of the market, brewed 80 million litres in the past financial year.

Based on these figures, Stone & Wood has less than one per cent of the market. Lion and CUB control more than 80 per cent.

While large in the world of whatever is regarded as independent craft beer these days, Stone & Wood is a minnow in the beer market. Even the ACCC would appear to accept that a brewery with less than one per cent of the national beer market does not pose a competitive threat to the nation’s largest brewery. It is disingenuous for a giant such as Lion to try and portray this as competition between equals.

More than anything, how will small brewers grow to a size that the ACCC considers sufficient to impose a competitive restraint on the big brewers, when the ACCC permits the brewers to selectively exclude them from markets in which they do offer competition?

We regularly hear from the Brewers Association that small brewers are inefficient and consumers do not want to pay for that inefficiency.

With its scale and efficiency of production, its logistics chain, its technical expertise, its expansive sales teams and its market research capabilities, Lion should hold all the cards and be able to out-compete any brewer of the size of Stone & Wood on price, distribution, quality, customer service and innovation. The beer industry and consumers would be well served if it did.

Instead, when confronted with a growing competitor, Lion appears to have run up the white flag on competing and instead uses its size to throttle the growth of a small brewery and inherently deny consumers choice.

When a business, many orders of magnitude larger than another, is permitted to choose not to use the competitive advantages that come with that vast scale to compete, but instead uses that size to exclude an emerging competitor from the market, there is a problem with competition law or with the competition regulator.

It may pass the competition regulator, but it doesn’t pass the pub test