Australia: Broo Ltd completes first production run under contract with Carlton & United Breweries

One of Australia's smallest brewers, Broo Ltd has completed its first production run under the contract brewing agreement made with Carlton & United Breweries earlier this year.

The beleaguered brewery told the ASX on December 9 that it had received the first stock into its warehouse and has commenced the sale of the products through the company’s distribution channels.

The deal, first announced in August, was funded by a A$1.25 million capital raising and subsequent rights issue.

On December 9, Grogan said that Broo was “very excited” with the completion of the first production run with CUB, which the beer brand predicted would see them place orders of 432,000 litres per quarter, or 1.7 million litres a year.

“The CUB Agreement provides Broo with increased production and supply capacity and a scalable business model enabling Broo to meet and capitalise on market demand for our brands,” Grogan said.

“This is the first step for our growth in sales as we continue to focus on expansion of distribution channels and increase in revenue.”

Broo Lager and Australian Draught are not available online from Endeavour Drinks or Coles Liquor-owned bottle shops.

Broo has previously had deals with Metcash to supply independent liquor stores across Australia, but it is unclear the current status of that deal, or Broo’s prior agreements with Liquid Mix in Western Australia or ALM in Victoria.

A small group of bottleshops in Bundaberg in Central Queensland that comprise the East End Hotel Group stock Broo’s beers following a Queensland distribution deal last year. Grogan previously said the group “comfortably rank as one of the state’s largest independent wholesalers”. The group owns three bottleshops in Bundaberg.

Asahi-owned CUB confirmed that Broo’s production order was being fulfilled from its Yatala brewery, highlighting the excess capacity available at Australia’s major brewers, which led competitor Lion to close down its West End Brewery in South Australia this year.

In Broo’s contract agreement announcement, it said the ’iconic’ Mildura Brewery continues to produce beer under its existing sales arrangements, but it will shift focus to increasing production of premium craft offerings and on-premise keg production.

In its annual report released in September, Broo said 2020 had been a “challenging trading environment” due to COVID-19.

Revenue for the year to 30th June reached A$2.2 million, a decline on A$2.8 million the year before. Losses after income tax expense for the year reached A$3.5 million, increasing from A$3.2 million the year before.

Broo’s pricing strategy on beer produced under the CUB deal would appear to provide very slim margins for the contracted product.

East End Hotels Group told Brews News it sells cartons of Broo Premium Lager at a regular price of A$37.99, whilst the Australian Draught, also at 4.2% abv, is sold for A$39.99.

By comparison, the bottle shop chain sells CUB’s Great Northern, also a 4.2% abv beer on special at A$45.99.

Excise on a carton of 24x 375ml at 4.2% abv would equate to A$14.37.

Broo is currently advertising cartons of Broo Lager and Australian Draught for sale through its Mildura Brewery for A$30 each, although in images posted to the Mildura Brewery’s Facebook page, it appears these are the higher abv versions at 4.6% abv.

There has been no word as of yet on the much-lauded Chinese distribution deal signed in 2017 which was due to bear fruit this December. At the time of the Chinese deal announcement, Broo’s share price spiked to a high of 47.5 cents.

Its share price currently sits at 1.5 cents per share.

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