In a remarkable strategic move, Devil’s Peak has acquired all taps by South Africa’s biggest craft beer distributor company “The Tap Room” and immediately began to remove competing breweries from the bar counters of this country, replacing (some, but not all of) them with their own wide range of brands.
After Heineken bought craft breweries like Jack Black, Soweto Gold and Stellenbrau and SAB’s aquisition by AB-InBev and the influx of their international brand portfolio (like Budweiser, Hoegaarden, Corona, etc) this the next big story, that is going to affect beer lovers in South Africa.
Since opening our doors on Long Street 5 years ago, BEERHOUSE has always owned their own tap equipment to have absolute independence on which beers to put on our 25+ taps and which one to pull at our own discretion. Nearly all other restaurants and bars in South Africa rely on taps being installed and maintained by breweries or distributors and their variety on tap will be seriously affected by this move, while we will proudly continue offering an independent variety of the best beers from all over South Africa and beyond.
These Brands are brewed by Devil’s Peak and distributed by their Signal Hill Products umbrella company: Devil’s Peak, Alpha Cider, Mitchell’s, Fokof Lager, Little Wolf, St Francis Brewing. They are also brewing many house beers like our own LIT Lager, contract-brew for international brands Mikkeler, Fierce Beer and Amundsen Brewery plus own exclusive distribution rights to Guinness(!) and Striped Horse for South Africa, meaning that people will walk into bars seeing a big variety of beers on tap, not understanding, that they all come from Devil’s Peak, squeezing small independent breweries out!
Industry veteran Carl Nienaber broke the news on Facebook, where he explained the significance of The Tap Room’s (aka “The Draught Guys”) asset acquisition by Devil’s Peak (aka “The Pizza Dudes” as they are funded by US money, that also invested into Pizza Hut), which he allowed me to quote in full (scroll down for my own comment):
“This week, quietly and without fanfare, the landscape of the South African craft beer scene changed radically for the worse when the country’s largest craft beer distributor (who I’ll hereafter refer to as The Draught Guys) sold all their draught dispensing equipment to the country’s largest “craft” brewing group (hereafter The Pizza Dudes). Overnight, many hundreds of taps in scores of restaurants and bars became the property of one brewery.
To put the scope of this development into perspective, let me explain the underlying business model driving draught beer sales in the craft category. Draught dispensing equipment refers to the taps, towers, coolers and other items required to pour beer out of a keg, through a tap into your glass. This equipment is quite expensive to buy, install and maintain which means that the majority of bar and restaurant owners choose not to own their own equipment. Instead, they typically take on the services of a distributor or brewery who will install and maintain the equipment in exchange for sales exclusivity on that equipment. So, if my bar has equipment installed by a particular distributor/brewery, then I undertake only to order products from that distributor/brewery. The cost of the equipment is then amortized over a period through the profit margin generated by the sale of kegs.
This model has proven to be very popular in recent years, resulting in the proliferation of craft beer on tap throughout the country. Over time, a certain amount of consolidation has taken place – we’ve seen the majority of tap space in the trade being dominated by the Big 4 local craft breweries and – significantly – by The Draught Guys. Competition for taps has become fierce recently simply as a function of limited real estate. A bar can only sustainably operate a certain number of taps before they start running into issues of space and stock expiry, meaning that every brewery who wants to grow their market share either must put taps into outlets that don’t currently have taps (a rarity these days) OR they need to convince an outlet to replace their taps. The second option happens quite frequently, particularly when certain of the bigger breweries offer aggressive deals and low pricing.
This is where The Draught Guys have hitherto played a very important role in our industry. As a distributor, they represent a large portfolio of breweries which they can offer to trade customers. However, unlike most distributors, who only offer a delivery service, The Draught Guys also owned a huge stockpile of dispensing equipment that they could install in the trade. What this means is that if I owned a bar and I chose the services of The Draught Guys, they would install a dispensing system at no cost to me and I would then be free to choose whatever products they offered in their basket, whether it was from a big craft brewery or from a tiny micro operation.
Additionally, if I had multiple taps, I could order products from a whole range of different companies, thereby giving the consumer a choice of products from different breweries.
The Draught Guys’ model was hugely beneficial to smaller breweries in particular, who – unlike the Big 4 – can’t afford to buy, install and maintain their own equipment. In fact, this model was so successful the The Draught Guys owned probably as much dispensing equipment in the trade as any one of the Big 4 Breweries. And a large proportion of those taps were pouring beer that was not supplied by one of the Big 4. The Draught Guys were central in providing the craft beer consumer with a diversity of interesting and independent products and this is why the sale of their equipment to The Pizza Dudes can’t be good for the industry.
One of the reasons that the “craft” beer industry came into being in the first place, is that consumers grew weary of being offered only the illusion of choice provided by a handful of macro breweries making light lagers. Craft beer gave people choice again, not only in terms of the beer styles on offer, but also in terms of who produced the beer.
Now, in a tactical master stroke, The Pizza Dudes appear to have taken us closer to the pre-craft era than we’ve been in years. What have they done specifically, you ask?
Step one: create the illusion of consumer choice. The Pizza Dudes set up various in-house brands in addition to their core brand; they quietly acquired several small independent breweries; they secured distribution rights for some big international brands. They were now able to offer a product basket appeared diverse and interesting to the consumer, even thought the vast majority of those products were produced in the same factory.
Step two: hit the market HARD. Armed with their lovely product basket, The Pizza Dudes’ sale force began aggressively targeting beer tap market share. By leveraging economies of scale, and by not shying away from loss leaders, they were able to offer keg prices and incentive deals that no other brewery in the country could match. This proved immensely successful and soon the Pizza Dudes had the largest market share of any individual craft beer supplier.
Notwithstanding this success, The Draught Guys remained an obstacle to the Pizza Dudes’ market domination. Unlike their other 3 main competitors, The Draught Guys could also make a compelling case to customers in terms of the variety of their offering.
So they implemented Step three: buy out your competition.
Effective this week, all of The Draught Guys’ dispensing equipment has become the property of the Pizza Dudes. That means that the Pizza Dudes now own taps in the trade that are pouring their competitors’ products. And in light of their historical marketplace tactics, is it likely that the Pizza Dudes will abide this? I think not.
Over the next few weeks we are likely to see dozens, if not hundreds of taps that had been pouring beers from small independent breweries being replaced with products from the basket of one company – the biggest, least independent craft brewery in South Africa. And if that’s not a loss for the craft beer consumer and the small producers in South Africa, then I don’t know what is.
My own comment and Beerhouse perspective is: We are not here to badmouth Devil’s Peak, Tap Room or any other market player. I got mad respect for Devil’s Peak beer quality, innovation and their pioneering work and we proudly work with and sell their products, but it is important for us to educate our customers on the source of the beloved product and make sure they can make informed decisions. I do believe, that Devil’s Peak is helping grow “craft” beer, by lowering the price point and making it more accessible, but I also believe, that we will need real and authentic variety to convince these customers to drink craft forever. Craft beer is not a winner-takes-it-all market, but can only thrive, if the ecosystem, the craft beer community is functional.
Old Taproom customers have already lost taps in the few days since the change was announced and there’s now a distribution gap in the market. I do hope, that breweries, that lose their taps will find new independent outlets and distribution partners. My Beer Revolution group of companies happens to have a dormant nationwide distribution license and licensed warehouse in Paarden Island, which I’m happy to utilize, if required for such an undertaking…
P.S. after publishing this article an intense debate erupted on social media, some even questioning, if Devil’s Peak is still craft
P.P.S. Devil’s Peak finally released an official statement on Monday emphasizing, that they are going to continue sharing a lot of their lines with small brewers as they always did…
P.P.P.S. I was sent this copy of The Tap Rooms email to their brewer-customers:
We wish to advise you that the Board of Shareholders at The Tap Room has taken a decision to sell its assets in trade to Signal Hill Products. We have until now been unable to inform any our stakeholders of these happenings as we have been bound by confidentiality.
This decision has not been taken lightly and was motivated by the consolidation in the industry. In addition to experiencing substantial pressure by large players targeting our outlet space we have also seen a significant drop in volume of product sold. As a result, the sale of our assets was a strategic imperative that we believe will enable the Tap Room to go on from strength to strength.
Pursuant to the sale we are changing our business model to be one that focuses on distribution and dispensing services. Should you be interested in us doing installs on your behalf, we will gladly assist where possible. We would also like to continue distributing your products going forward.
We can advise that it is not in SHP’s interest to remove all competitor lines, and they have intimated that they want to work with you guys going forward as they do with all other breweries. The Tap Room will continue to service and maintain these lines and will continue to collect line rentals.
Joe Louis Kazadi Kanyona – 32, who was employed as a doorman at Beerhouse On Long, was stabbed by unknown assailants in front of Beerhouse on Long on Saturday at 10:38 pm. The incident occurred after Kanyona requested identity documents from a customer. Despite being attended to by medics, Kanyona tragically passed away.
Joe, as he was affectionately known by the Beerhouse team, was a much-loved colleague and friend, and although he worked in the security environment he had a gentle soul, friendly demeanour and ready smile.
The Beerhouse family has been deeply hurt by this tragic incident, and we wish to extend our heartfelt condolences to the Kanyona family and loved ones.
We would like to assure all concerned that we will do everything in our power to look after Joe’s family. Due to many inquiries received, we’ve set up a fundraiser page on BackaBuddy – all of the proceeds will go straight to his family as he left a wife and his 4-month old baby behind. Donations of baby formula, powdered milk, nappies, baby clothes, etc can be dropped at Beerhouse on 223 Long Street.
In honour of our friend and colleague Joe Kanyona, Beerhouse will reopen at 4pm on Monday the 22nd June, with 100% of the takings on the day going to Joe’s family.
After months of planning and construction, weeks of training and many times the question “when are you going to open?”, we are proud to invite you to our official opening celebration, this Thursday, July 24th, from 8pm at the Beerhouse Fourways, at Pineslopes Boulevard (same complex as Billy the Bum’s & Stones) on Witkoppen Road!
Since opening the first Beerhouse on Long Street, Cape Town in 2013 we were often asked to bring our variety of 99 bottles and 20 taps to Johannesburg. We’re proud to bring Africas biggest beer variety to Gauteng and open in Fourways!
First 25 people to walk in will receive a complimentary bottle of our 999 limited Gold Rush House Brew bottles.
For a chance to WIN ALL 99 BOTTLES, enter your email on Fourways.co.za and share the news with your friends!
If you’re working for media you can get invited to our media launch earlier that day: Please RSVP!
After only 8 months of trading it is clear, that not only the media, but specially our guests love our Beerhouse and it is getting clear, the Beerhouse is here to stay and grow with the first Beerhouse in Johannesburg about to open.
We are very happy with our baby, that opened August 2nd 2013 and we’d like to share, how the idea of Beerhouse started during a trip to Germany:
Other than Babies, the Beerhouse concept took a solid 16 months from conception to birth. It was exactly two years ago on April 2nd, 2012, that my (then pregnant) girlfriend Varnia and me were sitting in a beer bar in Heidelberg, discussing the various available Beers and their stories and wondering why no similar place exists in Cape Town. Quick market research through text messages and Facebook followed and we realised, that there might indeed be a gap in the South African market.
Thanks to the pregnancy, we went back to the hotel quite early that evening and I reserved the most obvious domain name beerbar.co.za, created a brand new Facebook page, invited Capetonian friends and started posting, before going to bed.
I couldn’t be bothered to work on the Beerbar idea when we returned from our Eurotrip, as pregnancy and my OMClub party took up all my time, but I did notice the friends congratulating me on our new bar business.
Just a few days after the birth of our daughter it happened: Varnias uncle told us, that some of his rugby mates asked him, ‘whether he heard about these mavericks, that were planning to open a beer bar with more than 40 different beers’ and they mentioned my name. Beer blogger Joakim had written about us, although we had no location, no experience in the hospitality industry – we did nothing, but promise beer variety…
I slowly realized what we’ve done: it wasn’t only friends & family, that liked our idea. We had planted an idea into peoples mind and they actually really wanted a beerbar with 40+ different beers! We finally started to seriously turn a drunk crackpot idea into a business.
Even without any experience in the industry, it is obvious, that a successful bar business starts with a good location and Long Street is where it’s at. After looking at smaller available vacancies, we finally called the ‘Restaurant space to let’ number, that we walked past so many times and found a fascinating venue we knew would work.
Few days after signing the contract for 223 Long Street we still had no real idea how to open a bar, but were ready to spread the word. We printed blue Beerbar T-Shirts and visited the Cape Town Festival of Beer, where we met all the brewers, that are now our best partners for the first time and we also found our vision: give our guests at the Beerhouse a 365 day a year beer festival experience and be the tasting room for the South African craft beer industry.
With the new name finalised we decided to not wait for a logo and the Artads artists painted the name, two beer mugs and the opening soon message on the building, that would stay visible way past the April due date we originally anticipated. We invited all our new beer loving friends to the Beerhouse fundraising & christening party and were able to collect more than R5000 in donations for Baphumelele, Stormont Madubela Primary School and the Butterfly Art Project thanks to the support by United dutch Breweries, Keg King, Rob Heyns & Roeland Liquors.
With all this exciting momentum, we launched into 2013, knowing that a family-team together with relentless Jane, wouldn’t be able to do it all themselves and would need to grow. Once again fortune was in our favour and Murray joined us after just returning to Cape Town from a career and his own restaurant in London…
We have the perfect way to celebrate Valentines day. Beer is the way to a man’s heart and what better place to bring him but a house full of beer. You win too because we have teamed up with Belgian Beer Company and will be giving away our first 50 Liefman’s Fruitesse on tap for free on Friday the 14th. There will also be prizes of Fruitesse Gift packs and iphone covers.
Fruitesse is a unique, fresh beer blend, maturing for 18 months on cherries in the Liefmans cellars.
The Fruit base is then blended with fresh, natural fruit juices of strawberry, raspberry, cherry, elderberry and bilberry. The result is a summery, refreshing fruit beer that is delightfully sweet, with the sparkle of champagne and the freshness of a beautifully chilled glass of wine.
It has proven to be one of our most popular beers on tap especially with the ladies. We have sold over 2000 litres of it since opening in August 2013.