Craft beer makers Gage Roads Brewing Company will release 17 new products over two years to help cement its place in Australia’s microbrewery market.
Craft beer makers Gage Roads Brewing Company will release 17 new products over two years to help cement its place in Australia’s microbrewery market.
The Palmyra-based brewery plans to eventually double production to seven million litres, a fraction of the 1.3 billion litres of beer Australians drink each year.
Despite the company handing down disappointing half-year results in March, along with Subiaco’s Empire Beer Group Ltd and Mount Pleasant beer maker Oz Brewing Ltd, CEO Nick Hayler said brewing boutique-style beers was a fast-growing and lucrative market.
Gage Roads increased sales from $79,900 in 2005 to $2.1 million in 2007, but its two-year strategy was drafted to overturn last year’s $3 million net loss and break even by December 2009.
To break even, its brew masters would have to make 2.8 million litres of beer – more than six times the amount produced last year – to service 4,000 of the 20,000 distribution outlets in Australia.
“Before, we didn’t have a plan, we’d bring a product out then bring another one out, then [head brewer] Aaron Heary and the boys would talk about what they might bring out,” he told WA Business News.
“We knew where we needed to get to, but it wasn’t planned out how we were going to get there.”
Mr Hayler said the resignations of former managing director Peter Nolin (still a major shareholder) and chairman Michael Perrott in October 2007 provided an opportunity for a cultural change.
“So we essentially took the business apart, and then put it all back together again,” he said. “Now, one person doesn’t make all the decisions.”
With only three products on the market in 2007 – mid-strength Pilsner, Indian Pale Ale and pure malt Lager – the board decided to increase its product line “to take advantage of our capacity”.
Starting with its recently-released Wahoo Pale Ale, Gage Roads will strategically flood the market with 17 beverages over two years, including two ciders, a low-carbohydrate beer and a non-alcoholic ginger beer, to achieve current capacity of 3.5 million litres by December 2009.
Mr Hayler said the business would follow a model created by New Zealand company Independent Distillers Group.
“If the cider doesn’t work in the first three months, we’ll put another cider out, and then another cider until it sticks,” he said.
“Like Matilda Bay brought out eight products before Redback, but nobody knows what those products were.
“We don’t know what our Redback’s going to be until we get that traction.”
Gage Roads will spend $2 million on a marketing push into the eastern states and on launching its new lines against direct competitors Oz Brewing, Empire and Little World Beverages Ltd (LWB).
The Palmyra beer maker has lagged the three major WA microbreweries in the share market since the beginning of February, trading at 12 cents from February 28 and throughout March, before dipping to seven cents on April 18. It traded at eight cents on April 28 with a market capitalisation of just over $3 million.
Oz Brewing on the other hand, which brews and sells European-style beers under the Mad Monk label, dropped to four cents on March 3, peaking at 10 cents on April 24, before trading at 8.8 cents on April 28.
Empire shares peaked at 16 cents on February 29, dipping to 12.5 cents from March 5-11 before decreasing to 11 cents from April 2-9, eventually trading at 15 cents on April 28.
Frontrunner LWB traded at $1.50 on February 28 with steady increases over the same three-month period, before peaking at $1.70 on April 3 and trading at $1.65 on April 28.
LWB director Howard Cearns, a founding shareholder and director of the company who played a lead role in establishing the concept, strategies and brand, attributed the company’s strong share performance to its major projects “being on track”.
“The mid-year results have been positive, but when we listed and put our prospectus out which detailed the projects we were going to undertake, they were initially seen as risk factors,” he told WA Business News. He added that shareholders saw property developer Adrian Fini’s move to boost his stake behind LWB’s Little Creatures to 14.3 per cent over the past month as a positive sign.
Mr Cearns said works on the new microbrewery in Fremantle and plan to open a Little Creatures bar in Fitzroy, Victoria by mid-2008, were other contributing factors.
Meanwhile, Mr Hayler said although the future looked bright for LWB, the Gage Roads board was confident its two-year strategy was the right move.
This is despite the company having only a 20 per cent take up in its March 13 rights issue which saw a shortfall of $2.3 million in its $4.1 million capital raising.
“It was a tough market to send a rights issue out in to,” Mr Hayler said.
“If we’d done it before Christmas, it was a more buoyant market and a lot easier to raise capital in that market.
“In the current market, some days the market is tanked, a lot of people are consolidating and selling their shares, sitting back then waiting. It’s a hard time to go out there.
“But we’re confident we will raise the required amount of money to keep the business running through to profitability.”
Mr Hayler said launching the new lines would help move Gage Roads’ share price forward and enable the company to represent itself at all key account levels, taking some of the responsibility from current distributor The Hardy Wine Company.
