Cambodia’s New Craft: The Challenges Of Brewing Success

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Craft brewing is taking off in the Kingdom: Phnom Penh boasts a dozen microbreweries producing some delectable brews.

“Science and art, that’s what craft beer is all about; a blend of the two,” says Erich Phillips, managing partner of local craft beer label Cerevisia Craft.

Phillips, who started his own microbrewery in 2013 together with fellow American Chad Richman, was beckoned by a market with untapped vast potential. Back then, Himawari and Munich were the only players in the craft brewing game.

In the span of less than four years, half a dozen new businesses have fattened up the offerings in the capital—from smaller ventures such as Australian/American-run Riel Brewing and Distilling to major undertakings like Spark & Tawandang, which boasts flashy on-stage performances. Breweries have also sprung up in Siem Reap, Sihanoukville and Kampot.

Science and art may be the essence of beer-making as Phillips says, but put on your business goggles and there is suddenly a new dimension. To set up and prosper in the increasingly complex and demanding world of craft beer, entrepreneurs need to figure out highly complex supply chains, learn how to deal with customs, get past prevailing notions of beer, and deal with a recent and notable tax hike for alcoholic products.

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Spark & Tawandang’s flagship brew is a lager with an ABV of 5 percent and a biscuity taste. PHOTO COURTESY OF CAMILLE BACZYNSKI

Finding the right staff

We’ve heard it before, and we’ll hear it again: finding the right staff is a problem in almost every industry in the Kingdom. But zero in on novel industries, such as craft beer-making, and the skills gap prevalent in Cambodia acquires even bigger proportions.

“Finding experienced brewery staff is a barrier. Cambodia has a lot of hard-working people; people who are willing to learn, just not the industry experience ,” says Phillips, who sees this as one of the biggest impediments to finding a good match for his business.

“If you put up an ad for a brewer how many people will show up? None! If someone does, then they’re probably working for another brewery and I don’t want to steal staff,” he says.

Hops Brewery’s Bernd Kirsch, a certified brewmaster from Germany, says that finding a talented brewmaster is key for the success of your craft brewing venture. However, in the Kingdom, this is no easy task. “Beer is not like coffee,” says Kirsch, who is also a coffee sommelier. “It requires more in-depth, expert knowledge. To be successful in the craft business you need a talented brewmaster. This is a big investment. A German brewmaster will cost you somewhere in between $4,000 to $5,000 a month.”

For Andrew Tay, the director of Himawari Microbrewery, the problem of finding the skilled staff his business needs is compounded by high turnover rates, another hurdle that riddles most industries in the country, with employees being easily lured into the competition by the prospect of a higher salary.

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Himawari’s Andrew Tay says the industry faces exceptionally high turnover rates.

Getting the raw material to your doorstep

Beer, in its basic form, requires just four ingredients: grain, hops, yeast and water. The latter is the only one readily available in the Kingdom, while brewing grains, hops and yeast need to be imported, whether it is from neighboring countries (such as Thailand and Vietnam), Europe (mainly Germany) or the US. “We source all materials from abroad to ensure we can brew and operate at the highest standards,” says Pierre-Marin Perez, General Manager at Hops.

Importing raw materials and equipment into the Kingdom is an uphill battle faced by every brewer in town; a daunting task that can suck the joy right out of brewing. A crucial obstacle, as reported by some, is a slow and inconsistent customs system, which puts extra strain on the brewer’s pocket. Customs duties and taxes seem sometimes arbitrary—virtually identical shipments may be billed with different duties and service charges. Although there has recently been some improvements in this regard (such as the recent introduction of the ASYCUDA system), customs clearance remains one of the most dreaded steps in the already tedious process of getting all the necessary ingredients into the brew kettles.

Also worth noting is that microbrewers deal with fairly small amounts of raw material, making their supply chains relatively more expensive than those of commercial brewers. “It is difficult for us to purchase our material because the amount of goods that we deal with are small, and so it will cost us double the price,” says Ken Puthea, the Cambodian brewmaster behind Sihanoukville’s microbrewery Five Men.

Fortunately, it’s not all doom and gloom for the little guys when it comes to the supply chain. Taking advantage of the trademark comradeship of craft brewers, businesses often work together to mitigate the relatively elevated costs of shipping small amounts of raw materials from overseas.

“The cost of transport is one of the bigger problems. As a microbrewery, we don’t buy big volumes, therefore we will try to order sharing with other breweries or from time to time find alternative suppliers or logistic companies to give us the best price,” says Himawari’s Tay.

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Grains, hops, yeast and water are the core ingredients in beer.

The new alcohol tax

In April this year, the special tax on beer produced locally was increased from 20 to 30 percent, forcing the local microbreweries to readjust their business models in order to remain profitable. Five Men’s Puthea says that the hike will have a significant effect in his business, but tells me it’s a nuisance he is willing to put up with for the greater good of the country.

His thoughts echo those of Cerevisia Craft’s Phillips: “For the small guys, it’s a big hit, but taxes are taxes. You can’t fight that; you live in a country and you want to see that country grow, and the way to growth is through taxes.”

According to Phillips, the new taxation directive will force microbreweries to increase production in order to make up for the extra cost of selling the beer.

“In any business, in any country, you have to find out what the sweet spot is for production,” he says. “But in this country in particular, in this situation, because of the taxes, you have to find out exactly what’s the level of production to give you and your investors the best return over the right amount of time.”

The new tax increase makes Cambodia a significantly more expensive place to produce beer than Thailand—where the tax is 300 baht ($8.51) per litre of pure alcohol. The tax rate for alcohol in the Kingdom, however, is still well below that of Vietnam, where the special consumption tax on beer is 55 percent (and set to increase to 60 percent in January 2017).

To put it in perspective, a 340ml bottle of IPA with an ABV (alcohol by volume) of 6.7 percent that retails for $3.50 would be taxed as follows (from biggest to smallest tax imposed): $1.92 in Vietnam (55 percent of retail price); $1.05 in Cambodia (30 percent); $0.72 in Colorado, USA (20.5 percent); and $0.20 in Thailand (5.85 percent).

Is the market ready?

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Brewing equipment at Hops Brewery & Craft Beer Garden. PHOTO COURTESY OF HOPS

“Would-be brewers need to ask themselves one question before taking the plunge: is the market ready for more microbreweries?,” reflects Tay

Some, like Hops’ Kirsch, hold no doubts. “For the last 10 years, Cambodians have been improving their own beers. Before beer was just a mainstream product, now people are finally ready for taste, and that means craft.”

Kirsch says Hops is already very popular with locals, who come to the venue for the their “house taste”, despite the fact that they haven’t engaged in any advertising outside of basic social media and word of mouth.

Others are less optimistic about the locals’ appreciation of the libations. “Cambodian people don’t know yet about the quality of fresh beer,” concedes Puthea.

Phillips, meanwhile, believes the market is sustainable by expats alone, but says that that’s not his focus. He wants to break into the local segment, where prevailing ideas about beer present a challenge to the rise of craft brews. “We are fighting to instill a new concept of beer: that you don’t just drink to get drunk, you drink to enjoy the flavour. We are trying to change the image of beer in this country.”

Is the market ready? Phillips, like Kirsch, is confident.

“It’s ready. It just needs people to produce, to take the risks, to just go and do it. It needs pioneers.”