economical issues
Alcohol consumption
New Zealand’s entrenched beer culture is starting to fade as recent statistics show the total volume of alcohol consumed in New Zealand is starting to decline. More importantly, the consumption of beer, as opposed to wine and spirits, has received the sharpest decreases over the 7 years (Figure 1). Although the total alcohol consumed is decreasing, wine and spirit consumption has stayed relatively constant over the last decade (The Australian and New Zealand banking group, 2014). This is of significant concern for both industrial scale and small craft beer breweries. In the year leading up to 2012, DB breweries, New Zealand’s second largest brewery, profits fell 2 percent (Adams, 2013). While this may seem insignificant this loss is equivalent to $26.2 million (Adams, 2013). Similarly, New Zealand’s largest brewery, Lion Breweries, saw a drop in profit of $21.9 million over the same year (Adams, 2013). Although small decreases in profit can be overcome and generally does not cause a large amount of strife for large breweries, the effects to small craft breweries can be damaging and in some cases overwhelming. This is often due to small craft breweries having higher running cost to profit ratios. However, while we as a country may be drinking less, the percentage consumption accredited to the craft beer sector is rising at around 40% per year (Devlin, 2015).
Based on (The Australian and New Zealand banking group, 2014)
Figure 1 - Alcohol Consumption in New Zealand
Brand Loyalty
With a plethora of different craft beers available in New Zealand, craft breweries are finding it difficult to retain customer loyalty in such a highly competitive market. While there are close to 70 breweries in the New Zealand craft beer sector, the total craft beer trade only accounts for as little as 2 percent of the total beer trade (Adams, 2013). This excludes craft beer sales from ranges produced by New Zealand’s two largest breweries, Lion and DB. Statistics from 2012 show that Lion and DB dominate the vast majority of New Zealand’s beer market, accountable for 90% of beer sales in New Zealand (Adams, 2013). The collective revenue of the two companies was recorded to reach $1.07 billion in 2012 (Adams, 2013). Mainstream beer consumers tended to stick to a brand, while craft beer aficionados tended to shopped around widely, often trying a different product each time they visited a bar or buying their next beer. Tuatara breweries has found a way of bypassing this challenge by creating new flavours and consistencies all the time so their range is constantly changing and fresh to the consumer (Adams, 2013).
Taxation
New Zealand has a relatively low alcohol taxation when compared to other countries. For the last secen years leading up to 2013 New Zealand had a 10 percent beer tax while the Australian beer tax remains over double that at 24 percent (Alcohol health watch, 2010). There is a distinct correlation between alcohol taxation and consumption. In 2011 alone the alcohol generated tax revenue reached $852 million (Ministry of Justice, 2014). This accounted for just under 2 percent of total Government taxation revenue in 2011 (Ministry of Justice, 2014). Taxation poses a significant threat to growth within the industry. Between the years 2013/2014 alcohol taxation has seen as increase of 1.45% (New Zealand Customs Service, 2013). If this trend continues the industry may find observe a decrease in sales, making growth and expansion increasingly difficult.
New Zealand grown hops
Since 2014 many New Zealand craft breweries are finding a shortage in one of the main ingredients used to produce craft beers, hops. This is primarily due to the lucrative price points and high demand for New Zealand grown hops overseas, persuading hops growers to export rather than supply local craft breweries. The US$14 billion dollar American craft beer industry increased 17.6 percent in sales in 2014 alone (Waston, 2014). With a growth of 14.3 percent in US microbreweries in 2014, American brewers are paying competitive prices for high quality hops, such as those grown in New Zealand and the price is continuing to rise (Waston, 2014). Currently, there are 17 commercial hop growers in New Zealand, including two joint ventures, and 764,000 kg of hops were harvested in the 2014 season (February-April). New Zealand Hops Ltd (NZHL), a grower controlled company, is the coordinated marketing and promotion organisation for the New Zealand hop industry (NZN, 2015). They also process and arrange shipment for the entire New Zealand hop crop. Over 85 percent of the hops grown in New Zealand are exported to international markets (NZN, 2015). In 2013 the hop industry gained NZ$8.5 million in exports while only generating NZ$3.2 million in sales from the domestic market (NZN, 2015).
Most craft breweries use between four to ten times more hops than industrial-scale, conventional brewing such as the processes used by Lion and BD breweries, and the demand has outpaced supply (Fensome, 2014). The lack of hops is restricting large economic growth in the craft beer industry as it is difficult for craft brewers to get high quality beers from vessel to shelf, especially in Wellington where the demand for high quality beers has exploded.
Carbon consequences
The effects of climate change are beginning to threaten the brewing industry globally, putting both jobs and the future of the industry at risk. Rising temperatures and unpredictable weather patterns are starting to show their negative impacts on the global hop industry. Constant increasing demand for high quality hops and lower yields in south Asian countries have driven up the price of hops over 250 percent over the last decade (Ceres, n.d.). In recent years many breweries have become increasingly critical of their carbon emissions. The process of fermenting wort into beer releases a significant amount of CO2 into the atmosphere, this can be shown below (Figure 2).
C6H12O6 + 2PO43- + 2ADP → 2C2H5OH + 2CO2 + 2ATP
(Campbell, n.d.)
Figure 2 - Ethanol formation from glucose
For every glucose molecule that is fermented, two molecules of carbon dioxide are formed. In November 2013 the UK based brewer Adnams became the first brewery to measure the carbon footprint of its entire range of bottles beers. The company estimated that the production of one bottle is equivalent to travelling 8.5 kilometres by train (Sustainable Brands, 2014). One solution to carbon emissions that has seen success in the United States of America is brewers sharing a pool of beer kegs rather than owning their own. This involved over two hundred breweries collectively sharing kegs, reducing their carbon foot print by over three million kg of carbon dioxide in 2013 (Sustainable Brands, 2014).
Additionally, whilst not appearing as a challenge to the industry, breweries throughout New Zealand produce hundreds of tonnes of spent grain every year. There is possible by-product innovation in this area. While a large portion of spent grain used by breweries is sold back to farmers as fertiliser, there is still huge potential to create marketable and/or sustainable by-products from the abundance of grain. The Alaskan Brewing Company (US) has developed a completely spent grain fuelled boiler that is now used by the company in the processing of wort. Over ten years the boiler is expected to have fuel savings of nearly 1,500,000 gallons (5,700,000 litres) of oil (Witkiewicz, 2013). If implemented and/or subsidised by the Government in New Zealand this could save millions of dollars in plant operation fuel costs.