It’s time for a level playing field for our craft beer over there
Wellington’s Hashigo Zake craft beer bar closed this week. Set up in 2009 by fintech software engineer Dominic Kelly, the timing and the location saw it quickly become the hub of the craft beer wheel in the capital.
At a time when cyber-Welly was at its peak, the underground location at the bottom of Taranaki St meant it was across the road from Trade Me, literally in the foundations of Xero, and within a stone's throw of dozens of startups.
Hashigo Zake became the default meeting spot of many tech companies, with ideas for irresistible online offerings and innovative code sequences being scribbled on the backs of beer coasters while the patrons imbibed cutting-edge craft beers.
And what beers they were. My old friend Pattrick Smellie once described Hashigo Zake as the first beachhead of IPAs (India Pale Ales) in Aotearoa, and he was probably right.
Hashigo Zake imported and distributed potent brews from the likes of Bear Brewing (Racer 5), Ballast Point (Sculpin) and Sierra Nevada (Torpedo). It also inspired many locals to try their hand at entering the then nascent industry.
My beloved Garage Project brewery naturally chose Hashigo Zake as the launch venue for its 24/24 genesis. Garage Project announced its birth by committing to brewing 24 beers in 24 weeks, and launched each beer on Tuesday evenings at 5.30pm over the winter of 2011.
Public sector chief executives would line up alongside gangly software developers and hipster entrepreneurs to sample Pete Gillespie’s maverick brews, many of which are still being brewed now.
I dropped into Hashigo earlier this week to have a beer, commiserate with Kelly and thank him for the pivotal role he played in unlocking the growth of an industry.
He told me that the closure was a perfect storm of many factors, including the digging up of the road by Wellington Water, the move to working from home, and flooding challenges in the subterranean location. But he said that standing away from all this, beer aficionados vote with their chequebooks, and they had simply stopped coming in the numbers they used to.
It’s not just a Wellington problem. The week before Kelly announced that he was pulling the pin, the latest Stats NZ figures came out showing the largest fall in alcohol consumption in 15 years. Beer has fallen dramatically, with the total volume falling 4.4%.
The core market of mid-strength beers has been hit particularly hard, with these falling 6%.
At Garage Project, a brewery known for its big, potent beers, it’s a telling data point that its biggest-selling beer last month was Tiny, a zero-alcohol beer that now accounts for 15% of all sales.
For a craft brewery that brews over 100 beers a year, that's an incredible figure.
Over a year ago, I wrote about the perfect but painful storm hitting craft brewing, and predicting that it was likely to result in the 220 breweries at that time reducing by 20% or more. Sadly, we are well on the way to that occurring.
One of the problems is the difficulty of expanding into Australia, typically the first export market eyed by Kiwi breweries. An export market which, ironically, is tilted against our players.
Despite the existence of the CER trade agreement, Kiwi breweries do not enjoy a level playing field with Australian craft breweries, which benefit from a A$350,000 (NZ$375,000) remission on excise tax.
In simple terms, Australian breweries don’t have to pay excise tax on the first 150,000 litres (assuming a 5% beer being packed in slabs of 24) of beer they sell. A pretty useful sweetener for craft beer companies, and a meaningful leg up to a growth trajectory.
This same treatment for an excise tax remission is not available to New Zealand manufacturers selling into the Australian market. Which really isn’t cricket.
It’s also inconsistent with the wine industry, where Australia operates a wine equalisation tax for anyone selling wine. New Zealand vineyards can claim a rebate worth up to A$500,000 a year.
Since this rebate was made accessible to Kiwi vintners in 2005 under the auspices of CER, we’ve seen substantial growth in New Zealand wine exports to Australia, to the tune of 200%. It’s also allowed us to compete meaningfully on price as well as quality.
Whereas in the beer market, we’re starting the race 150,000 litres behind our Aussie cousins, thanks to this non-tariff barrier.
The Australian craft beer market is worth A$1.1 billion of revenue every year. Giving New Zealand craft breweries equal access to that market would help to protect our breweries against the perfect storm that’s hitting our industry.
A storm that’s hit much-loved breweries like Epic, Brothers and Deep Creek, as well as much-loved venues like Hashigo Zake.
Speaking of which, I asked Kelly what he’s planning to do now. “Head back to the world of cutting code for fintechs,” he told me.
Mike O’Donnell is a professional director, writer and strategy adviser, and a regular opinion contributor. He is the chairperson of Garage Project.