Craft brewers reach out for external investment

The latest craft brewer to reach out for external investment is Katoomba brewery, Mountain Culture Beer Co, setting its sights on a lofty $70 million valuation for a 10 per cent stake.

Nestled in the heart of the New South Wales Blue Mountains in Katoomba, Mountain Culture Beer Co crafts the renowned Status Quo Pale Ale and the beloved Cult IPA.

Now, with the assistance of Morgan Shaw Advisory, they are primed to embark on their inaugural journey into external investment, fuelled by their skyrocketing sales and numerous accolades.

At the helm of Mountain Culture Beer is duo DJ and Harriet McCready. They've been funding this venture since its inception in 2019, but now, they're on the lookout for investment to cover the rising costs of expansion.

Mountain Culture Beer's sales have taken a huge leap, growing from a modest $1.5 million in 2020 to a staggering $16 million in fiscal 2023. Their earnings before interest, tax, depreciation, and amortization have clocked in at roughly $3 million. The target for the current year is sales of $25 million and earnings crossing the $4.5 million mark.

This business began with the transformation of a former Civic Video store in Katoomba, a place that once housed the local paper, The Echo, and now stands as a popular brewpub.

The brewery's rapid success led to a bottleneck in production. To overcome this, it expanded production capacity from 2 million litres to an impressive 13.8 million litres, courtesy of a new factory in Emu Plains on the western fringes of Sydney. However, this expansion came at a cost, as the founders took on a substantial debt load, ballooning from $2.7 million to $8 million to fund their dreams.

Mountain Culture Beer, priced at $24 for a four-pack, and its unique concoctions like the Halloween Mixed Packs at $58, have managed to maintain their allure, evading the pinch of rising living costs. Nonetheless, the relentless inflation of input costs is nibbling at their profit margins, a challenge shared across the industry.

It is predicted the beer market will stay flat this year. A recent report from Statista says Aussies are sipping less beer, with less than a third indulging over a four-week period as of March this year, compared to over 37 per cent in the pre-pandemic era.

In addition, major retailers are experiencing customers tightening belts with the rise of living costs and favouring cheaper mainstream beer over more expensive craft offerings.

In a larger context, major beer conglomerates have acquired craft breweries in recent years, like Carlton & United Breweries buying Pirate Life and Balter Brewing, while Lion made headlines in late 2021 with its acquisition of the Fermentum Group, which includes iconic brands like Stone & Wood and Two Birds Brewing.

Craft brewing is not an easy business and can be expensive to expand and grow. For those not wanting to sell out seeking investment in other ways is the only way to stay on track.

Some have suffered unfortunate closures, such as Tribe Brewing and Queensland's Ballistic Beer Co. while others, such as Philter Brewing this week, have embraced the crowdfunding equity solution to pave its future.

The NSW craft brewer raised $2.2 million in a crowdfunding equity raise, the third successful crowd equity raise in two years after Your Mates Brewery in 2022 raised $2.5 million, and Black Hops with $2.2 million.

Co-founder Stef Constantoulas said it was an important win for the Australian beer sector.

“It's an expensive industry, particularly when you're in growth, and the more you grow, the more expensive it gets, and the only way to help facilitate that growth is to take additional investment on board,” said Constantoulas.

“There's still a massive job to be done. It's still over 80 per cent consume beers from two players. I'm well aware that the consumers' financial position plays a massive part in beer decisions, and that's where we need government intervention to give this very small portion of the industry, but a very important part of the industry, a little bit of a leg up so we can compete on a more even playing field with those boys,” Constantoulas continued.

“We need some good news. It is a tough time. It's constantly reminding consumers that craft beer is here and worth paying more for.”