The number of Aussies working in distilleries has exploded by 240% but taxes are limiting growth

Census figures from 2021 have revealed employment in the spirit manufacturing industry is up 240%, but some distillers say a number of factors are still holding the Australian industry back.

According to the Australian Distillers Association, the local spirits industry has an economic contribution of $11.6 billion in total value add between 2018-19. The industry also compromised of 104,500 jobs at the time. While COVID-19 did have an impact, Census figures show that growth in the sector has been massive since 2016 — especially for gin distilleries.

The Australian Distillers Association has also seen momentous growth in its membership. In 2020 it had less than 40 members, but that has risen to almost 400.

And there are a number of factors that have contributed to the exponential growth in the sector.

Australians are looking for quality in their spirits

Recent statistics have shown that Australians are drinking less, but paying more, showing a pivot towards quality products.

“People are wanting to spend their money on better quality things. Premiumisation, as they call it,” Gemma Duff, general manager of Poor Toms, told SmartCompany.

“And you actually see that across not just alcohol but clothing, makeup and everything. It is definitely a trend to want to get really good stuff.”

Localisation also seems to be playing a part. Customers are wanting to buy local products, particularly when they travel.

Philip Crossley, founder and head distiller of Mobius Distilling Co, said that people are looking to connect with local producers.

“Consumers in general are looking for points of difference in what they’re they’re buying. They don’t want to just drink the vanilla, your mass market,” Crossley said.

“I don’t want to drink, you know, say a multinational product that’s been shipped halfway around the world that I can drink in any bar in any city globally. I’ll find if I’m travelling somewhere like Tassie, I’ll look for local distillery.”

Australia also has unique native botanicals that can’t be found anywhere else in the world. These, along with our strong agricultural industry, creates a high-quality baseline for gins in particular.

“I’d love to be the guy who between 2016 and 2021 grew lemon myrtle. It’s in every gin in Australia right now,” Stuart Gregor, co-founder of Four Pillars Gin, told SmartCompany. Gregor is also the president of the Australian Distillers Association.

Similarly, Gregor mentioned that Cape Byron Distillery uses Davidson Plums as a base for its award-winning Brookie’s Byron Slow Gin. It’s now buying up to 60% of the indigenous plums in the region due to its popularity.

Gregor also pushed the importance of sustainability, local agriculture and using the right crops, saying that local manufacturers are using crops, such as barley and wheat, that have been planted in the right regions of Australia to make a great product.

“Our gins win awards because they’re unique and bloody delicious.”

Industry accessibility has grown

One point that was agreed on was that entry into spirits industry is much easier than it once was. Access to information, particularly online, means that just about anyone can learn about distilling.

It also helps that gin is easier and faster to make than say, whisky. And in Australia we’re not hampered by the same production constraints as Scotland the US.

Furthermore, access to locally made parts has made getting started easier than ever. While there was once only a handful of global suppliers of equipment, distillers can now access local parts that are high quality and have a shorter wait list.

Gregor also made the point that during the 2016-2021 Census period, interest rates were lower so it was easier to start up a distillery. And plenty of people did.

“In 2016 to 2021 there were a lot of startup distilleries. Most of it has been fed by new distilleries starting up. And many of them are in regional and rural Australia,” Gregor said.

“They’re set up by one or two people, mates or friends… and they set up a business. They have someone in the cellar door, someone helping them out in in the still and two people working on the sales, marketing and distribution.”

Excise taxes and growing pains

While the industry may be seemingly booming, most distillers seem to agree that they are being hurt by the excise tax on spirits. These taxes go up every six months and are significantly higher for spirits than beer and wine.

Combined with inflation and current economic difficulties in Australia and worldwide, it makes it tough.

From August 1 2022 the tariff became $94.41 per litre of alcohol. Comparatively, beer sits at $47.86. Wine is subject to its own wine equalisation tax (WET) which is 29% of the wholesale value of the product.

“For us on a 700ml bottle at 41.3% ABV the tax is $27.29. Coupled with huge increases in almost every part of the manufacturing process our ability to continue to grow is being stifled,” Gemma Duff said.

While this disparity has a huge impact on the industry’s ability to grow and export, Gregor believes it particularly caps the growth of small startup distilleries

“One of the things that I think that might happen over time, they’re gonna have to figure out ways to be profitable and reinvest in their business and continue to grow their business and maybe export their gins, whiskies or whatever else,” he said.

“And that’s where it becomes difficult because that’s where the excise really kicks in. Because the government takes so much out of each problem you make. It becomes difficulty to reinvest.” 

Sadly, those costs inevitably get passed onto the customers who have to pay increasingly more for a bottle of spirits or a cocktail at a bar.

“People still don’t understand that when you’re paying $72 for a bottle of gin you’re paying $35 tax. And it’s definitely stopping people from entering the complex, competitive landscape. Because if you only looking at tax going up every six months forever, it’s not going to be very long before there’s absolutely no profit to be made,” Duff added.