Interview: Brewery Director gives advice on staying afloat in current economic climate

After publishing this article reflecting on the 20+ Australian craft breweries that either entered into liquidation or voluntary administration over the past year, the Brewery Director at Frenchies Bistro & Brewery offered to sit down with Drinks Trade to discuss some of the business decisions that have helped to alleviate some of the economic pressures induced by the current trading climate. The following interview covers:

• adapting to trends,
• offering value-oriented SKUs,
• expanding beyond beer,
• mitigating canning expenses,
• and benefits of contract brewing.

This is what Vincent de Soyres, Director, Head Brewer and Co-Founder at Frenchies Bistro & Bar, had to say:

Drinks Trade: What does Frenchies do differently to other breweries?

Vincent de Soyres: Every brewery is run differently. One thing is that our directors are very involved in the day-to-day production and the day-to-day sales. I think that being 100% involved in this means that, yes, we might grow the business a bit slower because we don't have much time to work on the business (we work so much in the business) but at the same time, it keeps us really in touch with the market. I think that's very important.

We don't consider ourselves as a tech company or anything like this, but we know we're like a small craft brewery and we have to stay true to what we actually are, so keeping in touch with our markets (with the local markets especially) and keep working in the business. I know that there's lots of breweries that are run by people who run it a bit from afar and they're not really involved in all the sweaty parts of the job. As I always say, if you're not sweating by the end of the day, it means that you're not working hard enough in the brewery.

DT: The current economic pressures currently being faced by beer are now pretty well established… Do you think we’ll see any improvement anytime soon?

VS: At the moment, no, I don't see it getting better anytime soon. I think there's a few things on the beer side, there hasn't been any new style that's been exciting for a while now. It's been the hazy IPAs that have been the last big new style [and] they've been around now for five/six years. I think people are getting bored of them, like, okay, we've tried everything now, and I think the demand has gone down and lots of people drinking beer might be interested now in other drinks. You find a lot of cocktails, packaged cocktails, or liquor.

Those are the two big things at the moment.

DT: What styles of beer have you found to be selling well at present?

VS: What works is making beers not too high in abv, trying to focus on cheaper beers to produce and producing big volumes… I think there's just not much demand for beer/people are a bit bored with beer, so [it’s about] finding the right positioning: Do you want to continue creating lots of very crazy beers? Or do you want to maybe just bring the price point a bit lower and make more volume? But then you have to be careful of the amount of alcohol you produce to stay in the right spot in excise, so there's lots of components to check.

Depending on the size of the brewery or your product mix, there's lots of different answers.

DT: Has Frenchies adjusted its portfolio/approach to suit reduced consumer spending?

VS: Pretty much everybody at the moment is struggling money-wise, so we created a few new products under the Frenchies brand that are cheaper for us to produce. Still the same great quality, but just cheaper on production… For instance, on the beer side, we just started a Frenchies Dry and Frenchies Mid (which looks a lot like a Carton Dry and a Great Northern) but those beers are actually quite cheap to produce. And that's what consumers - well not all consumers, but a lot of consumers - are after, and it drives volumes for us and be at a better price point for the consumer.

On the ‘other product’ side, we do an aperitivo spritz. [We’ve] worked with some big retailers to get it nationwide and at a very decent price, and it's a great quality product, but it's not that expensive to produce either.

DT: Looking at your website, Frenchies Dry and Mid are still $28 a six pack and $95 a case. How realistic is it for independents to compete with the big breweries in this value-oriented space?

VS: At the moment, we just started this [and so] we're still using digitally printed cans. So it's cans that we just do in small volumes, because we're still accessing the markets. But we're now about to go to printed cans that are printed in big volumes, and that makes it much, much cheaper, which will allow us to bring the case price much lower… With the Dry and the Mid, we're looking at bringing the price down wholesale to $30 for a case of 16.

DT: Can you explain the can printing options out there?

VS: Pretty much there's two types of printing. There's the digital printing, which is offered by East Coast Canning in Australia, and the minimum print is 400 cans roughly - so like 16 cases of beer - it's really nothing. We use this for our limited releases; and every time we try a new product, we'll first start with this. Then when we start to get traction, we move to bigger production runs, which are done either by Orora or Visy, two big companies who produce cans, but it's 50,000 cans at once. So you kind of got to commit.

DT: My first encounter with Frenchies was your Saison - which I remember always used to sell well in a previous job working retail at Toms Cellars, a boutique bottle shop - but looking at your website it appears this is no longer a fixture… How does Frenchies adapt its portfolio to suit current flavour trends?

VS: Some people love it, and they go back for it all the time, but Saison as a style in Australia has kind of died off a bit… We had one that's a bit more European style, and the one that we had here, I think, was a bit too intense. Slowly, people kind of moved away from those flavours.

The fact that we do so much contract [brewing], the contract guys, they always come up with new products. They're like, oh, we've seen this new trend in the U.S./we've seen this new thing here and there, and so it sort of sparked my curiosity and I look into it more. It helps us stay really in the trends and not missing them too much.

DT: You seem to have a fairly pragmatic approach. Do you feel that’s important given the current pressures on breweries?

VS: That's actually a good word - pragmatic - because there's also like heaps of people who run breweries who either may be disconnected from the market or they also maybe [are] stubborn and have a certain idea of, like, it's brewery i'll make this and that's how it should be. Sometimes it's like yeah, we'd rather make fun beers all the time, but then at the end of the day it's also a business and we need to make sure that we do what's right for the business so that when the beer cycle turns and goes back up we're still here and we can still produce great beers and have fun.

DT: How important are on-premise sales for Frenchies?

VS: For us it's really important. Half of our turnover is the restaurant and bar, so it is a very important part of the business, and it's been growing actually quite well in the last 12 months.

Last year, we doubled the capacity of the brewery just because we had so much demand, because we always have something to offer that people want.

DT: One of the common links across impacted breweries has been an outstanding ATO debt. It sounds like last year was probably a risky moment in time to expand?

VC: Yeah, obviously when we doubled the capacity, we started planning this before inflation went crazy, and as we were doing it, we were a bit worried; like, oh, is it really a smart move? Then I really focused on filling up a pipeline of contracts so that as soon as we got started/as soon as we were operational we got really busy. And we were.

That's how we thought we'd manage it. We tried to fill up all the tanks, and now we're trying to focus on better margins.

DT: Frenchies does a lot of contact brewing. How important is that to the overall business model?

VS: It used to be about 60% Frenchies and about 40% contracts, and now it's more the other way around, it's more like 60% contracts and actually more than 70% contracts, 30% Frenchies.

We also have lots of tanks that we can use just for beer, but also to carbonate any products. Even on the contract side now, we do have some non-alcoholic stuff. We found that after COVID, people started drinking less and less alcohol, and they're more health focused [and] so functional drinks seem to be taking off at the moment.

DT: How much of your contract brewing isn’t beer?

VS: I don't know exactly, but as a feeling, I'd say probably 15%/20%. The thing with products that are not beer, and they're often quite cheap, so it's often like sparkling water with flavours. If it's a soft drink, there will be some sugar components to it as well. But in itself, the actual product inside the can is fairly cheap. What's more pricey is the cans, filling the cans. The whole packaging is more expensive.

DT: We’ve covered quite a bit about what breweries can do to improve their balance sheets. Any final advice you’d like to offer?

VS: I would say trying to not having too many middlemen and not necessarily trying to have the beer everywhere… Distribution is a big cost. Storage, deliveries: it's a massive cost, and we decide now to focus more on independent groups… Often they have their own distribution within their retailer group, so you send the pallets to a distribution centre or to their head office and they will send it to each shop instead of us going to each shop. It's a big saving on our side, it's more efficient for them and it means that we can sell the beer to them at the cheaper price. When we approach new groups, we tell them hey this is the price x factory [sells our] produce [at]... and then from there we start seeing like, is it better if we do the delivery or if you come and pick it up?

Then on the sales side, if you have sales reps, making sure that every single one of them is profitable and, according to my calculations, that means to make at least $1 million dollar sales to be profitable; because between the wages, the car, the petrol, all the cost of a salesperson, the salesperson should not be more than 10% of the turnover it produces and and at $100,000 a year including all the side bits all the side costs it's hard to find a sales rep who is happy to do that. So yeah, we decided not to have sales reps anymore.

I think the last thing I'd say is yeah, making sure that quality stays really high, but that you keep good control on ingredients and staff cost, production, sales um and all the overheads which are often third parties/distributors, storage deliveries, electricity bills… Every three months I check if I can have a better deal for electricity. It's incredible the amount of savings you can make on that side.

//

During the interview, Vincent de Soyres gave further insight into his experience with the ATO and the different taxation brackets applied to Australian breweries. This will be published to www.drinkstrade.com.au soon.