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In this section the focus moves away from evolution and geography of craft micro-brewing in South Africa and instead turns to examine structural aspects which underpin the industry development. Included within this discussion is the critical issues of the shifting legislative environment which has impacted the emergence and growth of the craft beer industry in South Africa.
Based upon interviews and industry press reports it is evident that current industry dynamics are complex as the South African craft beer industry is comprised of different segments. Figure 4.5 represents an attempt to map out the key features of the existing structure of the industry.
Figure 4.5: Schematic View of the Different Segments within the Broader Structure of the Industry (Source: Author)
1
• Informal Homebrewers2
• Microbreweries (Licensed) = [187]
• Microbreweries (Unlicensed) = Estimated [25 - 35]
2.1
• Microbreweries which are directly linked with certain amenities.
2.2
• Microbreweries which manufacture craft beer for distrubution only (off- sales).
2.3
• Microbreweries which do both of the above.
2.4
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At least five different segments of enterprises can be differentiated within the South African craft beer industry. First, there are several groups of informal homebrewers who generally brew experimental craft beers for personal satisfaction and often operate from their home premises via a make-shift or so-called “garage brewery”. Homebrewing is essentially perceived as lifestyle choice or hobbyist pursuit; however, many homebrewers in South Africa strive to eventually one day establish a recognized microbrewery. Indeed, with that goal in mind, many of the country’s already well-established microbrewers evolved from homebrew clubs. One example of this trend is Andre de Beer current owner of ‘The Cockpit Brewhouse’ in Cullinan. This entrepreneurs is quoted as saying that “Without the Wort Hogs I wouldn’t have reached the point of brewing decent beer as quickly as I did” (Corne and Reyneke, 2013, p.160). Under current regulations in South Africa individuals are allowed to produce home brewed beers in unlimited quantities for personal use without any required permits or licenses. Such homebrews may be given to family and friends as gifts as, according to national legislation, the brewing of beer or the making of wine and producing distilled spirits at home is limited ‘for own use’ only. Therefore, products may not be sold, or used for commercial trading.
The second segment of the craft beer economy relates to the activities of unlicensed microbreweries, which in essence can be regarded as breweries that are still in the transition of obtaining their liquor licences and are on the verge of opening in the near distant future. This segment prominently markets their craft-beer products at local craft beer festivals. There is no approximate number in terms of how many such unlicensed brewers actually are in existence as this is essentially an “informal economy” of craft brewers. This said, from the audit that was undertaken and from interview sources, the best estimate is between 25-35 in total (2016) or in other words these are microbreweries potentially to be established as formal craft beer breweries in the next few years.
The third segment of the craft beer industry is the current licensed and operational microbreweries which as identified from the national audit as a total of 187 microbreweries. These microbreweries are well-established within the current market; many of them have been in existence for some time, while others have only recently entered the market. It should be noted that a large portion of the microbreweries that were interviewed 75 percent were
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associated with amenities such as a restaurant, brewpub, tasting room and conference facilities. These amenities provide microbrewers with an alternative way to differentiate their business aside from the craft beers that they produce. By selling on their own premises they gain a vital business advantage by not having to invest a great deal into networks for distribution. This situation allows them to spend more of their money on overhead costs and brewing itself. These amenities also give microbrewers another advantage of creating an environment where consumers develop more of a “connected feel” to the craft brewery and essentially ‘puts a face on the product’.
One further sub-segment within the current structure of the licensed industry is contract brewing with total of 18 existing in 2016. This type of craft brewing refers to an arrangement whereby a microbrewery will produce its beer on another brewery’s equipment. This arrangement either involves them hiring the services of the contract brewery’s in-house brew master or alternatively brewing it themselves. This type of agreement usually is employed when newly developed microbreweries are incapable of fulfilling current demand or the launch of a new brand of beer without having a big enough equipment capacity or premises (Corne and Reyneke, 2013: 252). The contract brewing company usually handles marketing, sales, and distribution of its beer, while generally leaving the brewing and packaging to its producer-brewery. Some examples of contract brewing that exist include the mutual brewing relationships between ‘Boston Breweries’ to brew beer on behalf of smaller capacity microbreweries such ‘Darling’, ‘Jack Black’ and ‘Citizen Beer’.
Changing government legislation has been critical in influencing the current industry structure as well as industry development. In April 2004 the Government Gazette promulgated the core legislation pertaining to the South African liquor industry which refers to the Liquor Act, 2003 Act No 59 (Republic of South Africa, 2004). Other related legislations are the National Liquor Regulations, 2004, which relate to the procedures for registration of liquor entities and other related matters as required under the Liquor Act of 2003. In South Africa the application for granting of a licence for a micro-manufacture and sale of liquor for consumption both on and off the premises where the liquor is sold must be made at a Provincial Liquor Board. This would usually be required by a microbrewer or other manufacturer of alcohol. The responsibility for regulating the liquor industry rests jointly
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with national and provincial governments. Each province will eventually have its own Provincial Liquor Act. The requirements and types of licenses differ from province to province. A “micro-manufacturer” means a person registered as such in terms of this Act to manufacture liquor at or below the prescribed threshold volume, and includes micro- manufacturing of craft beer, wine, African traditional beer and distilled spirits.
In the case of Gauteng liquor licenses are divided in two distinctive categories:
1. On-consumption liquor License which refers to liquor which is sold may only be consumed on the premises and may not be removed from the premises. With regards to this liquor license the brewer would be allowed to permit beer-tasting and/or consumption on a restaurant or built amenity such as a bar or tasting room that the brewer might have on the premises (Gauteng Province, 2011).
2. Off-Consumption Liquor License which refers to liquor that is sold but may not be consumed on the premises. This in addition allows for the incorporation of other licenses a) Distributors Liquor License or b) Wholesale Liquor License, which basically means liquor may only be sold to licensed entities such as Liquor Stores or Pubs (Gauteng Province, 2011).
The following types of licences are considered as micro-manufacturing licences and are indicated below, under the new ‘Liquor Act’, to which the volume of liquor manufactured in the preceding 12 months may not exceed the threshold limit prescribed in terms of the Liquor Act:
Producer's Licence Brewer's Licence
Wholesale Liquor Licence
Sorghum beer brewer's licence; and
Special liquor licence for off-consumption/ on-consumption, which refers to the right to micro-manufacture liquor.
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According to the Liquor Act, it is stipulated that the following persons shall not be granted a liquor licence:
A person, who has, in the past 10 years been sentenced to imprisonment, without the option of a fine;
A person suffering from insolvency; A minor;
The spouse of (1) or (2) above (Republic of South Africa, 2004).
Other important factors are legislated, most importantly relating to the zoning of the property and renewal of liquor licenses are also seen as prerequisites in trying to attain a liquor license. This usually requires the local ‘Municipality`s Planning Department’ or ‘Land Use Department’ to conduct an inspection and determine the suitability of a premises for an application for a specific liquor license. In Gauteng some of the zoning restrictions include for example the question of the proximity of licensed premises to public facilities such as not within a 500 metre radius of places of worship or of educational institutions (Gauteng Province, 2003). These regulations, however, as mentioned are variable across different provinces.
An important regulation is that all liquor licenses must be renewed every twelve months. Should a liquor license holder fail to renew, the liquor license will expire after a specific time frame. Once a liquor license has expired, a new liquor license application must then be lodged. According to Section 23 (3) of the Gauteng Liquor Act 2 of 2003, if an application for a liquor license has been refused by the Board, it is stipulated that no new application may be resubmitted in respect of the same premises within one year from the original date of refusal, except by special leave granted at the discretion of the Board (Gauteng Province, 2003).
The question of the regulatory environment was an important focus in the interviews with craft beer entrepreneurs. From the responses of interviewees regarding the question ‘What regulations they had to comply with in running a microbrewery and whether they may have encountered any issues with liquor licensing and/or zoning restrictions’, the respondents raised a number of contrasting responses which included the following direct statements;
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*“Three liquor licenses were needed, and yes it was a massive effort needed to get brewing license, the rest were health inspections etc. for setting up of kitchen” (Interview, Chameleon Brewhouse).
*“Yes, There is a massive problem in Gauteng with obtaining licences” (Interview, Aces Brew Worx).
*“As we are on a farm, we had to rezone the buildings. This took 4 years. Had to get a number of reports drafted for various government organizations - Water Affairs, Environmental Affairs, Roads Management, etc. The provisional liquor license took 1 year to come through” (Interview, Honingklip Brewery, Bot River).
*“Yeah our Liquor Licence was a long road we basically waited a year for it, so each province has its own Liquor Board but the Natal one I think is just a little backwards. Otherwise zoning not a problem” (Interview, That Brewing Company).
*“Oh yeah, the liquor licence was the main thing that held us back – unfortunately our government is not the quickest when it comes to these types of applications and our experience was absolutely horrible and we basically waited a year and six months for ours to be finally processed” (Interview, Sir Thomas Brewery).
*“Yes the KZN legislation at the moment is quite hectic for a new brewery to get going and actually very difficult because the process is tedious and bureaucracy is very slow...” (Interview, Shongweni Brewery).
*“Oh Yes, it took us three years to get licensed – that’s regarding our manufacturing licence and by the time the licence arrived the laws had changed. So as it stands at the moment it’s impossible for us to be compliant because by the time the licence arrived we then had to apply for a conversion in accordance to the new ‘Liquor act’ as well as apply for a renewal which had to be completed 6 months before the old licence expires – And by the time we actually received our physical licence we had less than 6 months in which to do it. So in my opinion, it’s a very convoluted situation and I’ve spoken to the local licensing officers about it and what I’ve been told by them is there’s two sides to the liquor licensing from an enforcement point of view. You get a licence inspector and you get a licence enforcer, the inspector simply inspects according to terms of the law and writes up a report based on how compliant you are. The licence inspector then hands the report over to the licence enforcer, who will then take the appropriate action” (Interview, Bassett Brewery).
*“No not at all, I was brewing already in Cape Town for over 10 years and have a relationship with customs and excise, and actually mentored most of the guys there. So in ten years of brewing at ‘Paulaner’ I had maybe only two Audits. In terms of zoning and getting ‘Cape Brewing Company’ set up, I think customs is very helpful and very knowledgeable and to be honest they are more on your side. I know a lot of other microbrewers say that they come across as suspicious and almost over bearing with their audits and inspections but they do know their acts and the business of microbrewing and
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its important for them to make sure everyone if fully compliant”(Interview, Cape Brewing Company).
*“No, our location for the microbrewery was originally zoned as an industrial area – and we planned accordingly prior to our launch so we never really encountered any major setbacks...” (Interview, Stellenbrau Brewery).
*“For me there were no obstructions, but I do know of a number of brewers who have encountered serious problems, whereby it took some of them two years to receive their licence...” (Interview, Triggerfish Brewery).
Overall, these voices of craft beer entrepreneurs across South Africa show that government legislation exerts an important influence on the numbers and potentially also the geography of microbrewery operations in South Africa. The continued growth of the South African craft beer industry should be viewed with caution, as currently there appears to be considerable concerns with obtaining a liquor license throughout the various provinces. Green (2015: 5) mentions that a ‘High Court Judgment’ was made in towards the middle of 2014, which fundamentally called upon the public protector to investigate the “malfunctioning” issuing of liquor licences within South Africa’s nine provinces which has ultimately resulted in a substantial administration backlog. This may potentially explain why we see big spikes in the number of new microbrewery entrants, with many licenses perhaps being approved all at one time.
Craft breweries have in recent times gained valuable recognition as a sub-set of small and medium businesses which positively contribute to the local economy development in South Africa. For example, the Western Cape’s Department of Economic Development and Tourism affirmed in a strategic development plan that it would support “the development of independent breweries as small businesses to ensure the 13 diversification of the local beer market” (Department of Economic Development and Tourism of the Western Cape, 2004). The Department of Trade and Industry (DTI) commissioned its own report and states that the diversification of the South African liquor industry, through increased presence of competitors will allow “the promotion of small, medium and micro enterprises” which are “central to the current economic policy” (Truen et al., 2011). Once more, this argument exemplifies the important role that craft breweries can play within the ‘Small Medium Enterprise Sector’.
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An important structural support for the growth of the craft beer industry in South Africa has come through the establishment of industry associations. “Craft Beer South Africa” is one of few trade related South African craft beer associations which is in its infant stages of development. The association has established a steering committee which is comprised of key role players from within the craft beer industry itself and appears to have a lobbying agenda not dissimilar to that of already established in international craft beer markets such as the USA or the UK (Craft Beer South Africa Interim Steering Committee, 2014). In order to illustrate this, the current steering committee provided input and suggestions to the National Treasury of South Africa guiding excise tax on craft beer. The document explicitly states “craft brewers are small business owners” and hence should not be treated in the same light as multi-national producers such SAB Miller (CBSA Interim Steering Committee, 2014). The above mentioned submission estimates that the average volume of beer produced by craft breweries in South Africa is 188, 000 litres per annum. As per the National Liquor Act of 2003, this figure validates that craft breweries in South Africa are small business where as micro-manufacture licenses are only granted to those producing up to 100 million litres of beer per year (Liquor Act, No 59 of 2003, 2004).Arguably, the entire industry of South African craft brewers currently fall way below the required threshold and cluster on the very “micro” side of micro-manufacturing.