Set above the banks of the Yarra, the brewery is the oldest in the city and among the largest in the country. Every afternoon, smells of barley and malt hang heavy in the air. Every day, an astonishing 2.7 million bottles of beer are produced here. The Abbotsford brewery produces more than 2 million bottles of beer a day. Credit:Joe Armao But Peter Filipovic has a problem. It's a problem not unique to CUB, but one that is troubling big brewers everywhere, causing nervousness among their factory workers, uncertainty across supply chains, and headaches for executives like Filipovic. Simply put, people aren't drinking beer like they used to. According to the latest available data, Australians' beer consumption has been falling 2.4 per cent a year for the past 10 years, pushing national per-person alcohol consumption to the lowest level since the '60s.

And it's the classic, mass-market beer brands that are driving the steepest decline. "VB and Carlton Draught are still the cornerstones of our portfolio and very iconic brands within the Victorian and Australian landscapes," says Filipovic, who describes the challenge facing the industry as multi-pronged. "But tastes are changing. Consumers are wanting more. Moderation is a big trend … and we have got to adapt." Inside the big breweries of the world, the effects of these changes are filtering through. Industry analysts estimate that revenue in the Australian beer manufacturing sector has contracted by an annualised 1.1 per cent over the past five years and margins have shrunk.

Loading There's still money there. The most recent accounts for global beer colussus Anheuser-Busch InBev's Australian operations, which includes CUB, show it pulled in $2.87 billion in revenue here in the period from October 2016 to the end of last year. From that, it was able to generate a profit after tax of $331 million as it sold roughly half of the beer drunk in Australia. But consumers' rising health consciousness, preferences for more complex craft beers and take-up of other drinks like cider and spirits, analysts say, are all to blame for the beer industry's "constrained" performance. The impact of our dwindling love affair with traditional beer is being felt already. In October last year, CUB's biggest competitor, Lion, was forced to retrench dozens of employees at its XXXX brewery in Queensland and its West End brewery South Australia, citing falling sales. "The decline in per-capita alcohol consumption and the move away from traditional beer is still a problem for the industry, and especially the larger companies like Lion and CUB," says Matthew Reeves, a senior industry analyst with IBISWorld."However these companies have certainly begun addressing these issues and have seen positive results."

With Lion boasting 40 per cent market share, the two companies sell nine out of every 10 beers in the country. This is a big business moment. For companies like CUB and Lion, it's an adapt-or-die proposition. The solution, Filipovic insists, is to innovate and keep up with the societal changes he has seen sweep the industry over his career. The decline in per-capita alcohol consumption and the move away from traditional beer is still a problem for the industry. IBISWorld's Matthew Reeves Before becoming CEO, he had worked for CUB for more than 20 years, starting out as a tax graduate when the brewer was owned by Foster’s Group. Later, when it was owned by SABMiller, he was made sales director and Australian business unit president.

Now, under the ownership of the world's biggest brewery Anheuser-Busch InBev, whose best-known beer is Budweiser, he has been in the top job since January. "Back when I started ... most people had one or two beers in their repertoire, now we have three to seven, which is quite a big increase," says Filipovic. "I don’t know what’s going to happen in three years," he goes on, "but our role in society is to continue to adapt to what consumers want." IBISWorld notes the industry has found commercial success in new product lines targeting changing preferences for easier-drinking lagers and the alcohol "moderation" trend, including CUB's mid-strength Great Northern Super Crisp Lager. That beer shot to prominence as one of the most popular beers in Australia, accounting for up to 5.7 per cent of beer sales in 2016-17.

Lion, meanwhile, has invested heavily in the hugely successful Furphy and Iron Jack beers – sales of which grew 125 per cent and 86 per cent respectively in the 2018 financial year, according to Lion's parent company Kirin Holdings. Loading Last month, Lion launched its first gluten-free beer, Hahn Ultra Crisp, made from rice, which Lion brand manager Amy Darvill says will ensure Hahn continues evolving to "meeting the needs of the modern Australian consumer". Across CUB's parent AB InBev, about eight per cent of global beer volumes is now from low- and no-alcohol beers. One of its newest products, the no-alcohol Carlton Zero, hit supermarket shelves in Australia in August. The Australian Bureau of Statistics' latest figures show that alcohol consumption among people over the age of 15 has continued on downward trend that began in 2010 and, in 2016-17, reached a 55-year low.

Per person alcohol consumption for the year was equivalent to 9.4 litres of pure alcohol per person, or 224 stubbies, down from more than 500 stubbies in 1974-75, with beer driving the bulk of the decline. According to Filipovic, the industry's move towards low- and no-alcohol beer is both driven by the company’s promotion of responsible drinking, in addition to catering to what consumers want. How will the beer industry respond to far from frothy times? Illustration: Joe Benke. Credit: "We have done a lot to promote responsible drinking, as well as adapt to the consumer trend," he says pointing out that CUB is the single biggest contributor to an industry-funded responsible drinking group called DrinkWise. "Carlton Zero has been incredible."

Public health advocates, the Foundation for Alcohol Research and Education, have welcomed the increase in low- and no-alcohol beers, but have been critical of CUB for offering the products for sale on supermarket shelves, "where it is visible to children alongside grocery items such as water and Easter eggs". Trish Hepworth, the foundation's policy director, rejects the argument that brewers like CUB are doing enough to drive down alcohol consumption, accusing them of prioritising their responsibilities to shareholders, "irrespective of the harm" alcohol causes. "Alcohol companies, supported by alcohol industry bodies, sell alcohol for profit," says Hepworth. "Alcohol is a harmful commodity that confers no health benefit and leads to detrimental health outcomes, which is in direct conflict with the public interest and public health objectives." Loading Replay Replay video Play video Play video Hepworth says there is a general trend of improving health consciousness among Australians.

"However, this does not translate across all population groups," she says. "Older Australians are drinking more than ever before." As drinking rates among younger generations keep dropping, industry analysts point to another interesting trend that is coming into view. Millennials appear to be increasingly favouring "quality over quantity", gravitating towards smaller, more natural and more locally produced food and drink products. Loading In the beer sphere, what this means is a move away from classic, mass-produced lagers like Carlton or VB, and a move towards craft and microbreweries instead. In the US, craft beer has experienced double-digit growth in market share over the past several years. In Australia there are more than 400 craft or boutique breweries operating nationally.

"Millennials, being the 'information generation', like to know the story about what they are buying, especially when it comes to food and beverage purchases," says Reeves. "Millennials prefer to buy locally produced products, so in buying craft beer, they know they are buying a local brew and not an import." Craft brewers – much smaller operations than major beer companies – have focused on European and American styles that were previously under-represented in the Australian market, such as pilsners, pale ales, porters, amber ales, dark ales and wheat beer. Having people talk about beer again is actually the positive attribute. CUB's Peter Filipovic Mass-market brewers, too, have been steadily increasing their 'craft beer' offerings in response. CUB has long owned the Matilda Bay Brewing Company, best-known for its Yak ale range, while Lion snapped up Little Creatures in 2012. Both brewers have also embarked on a run of further acquisitions in the fast-growing craft beer sector. In 2017, CUB parent AB InBev bought out Sydney-based Four Pines and Adelaide’s Pirate Life.

For his part, Filipovic says he is a classic lager drinker: VB in the fridge at home, Carlton on tap at the pub. "But what the craft category has been able to do for us is provide romance … the wine category has led that for many years,” he says. "Having people talk about beer again is actually the positive attribute." Adding to big beer's challenges are their largest customers, retail chains Woolworths, Coles and Aldi, which have substantially increased their own private-label beer offerings in recent years. Products like the Woolworths-owned John Boston and the Coles-owned Steamrail are putting a dent in demand, intensifying price competition and damaging manufacturers’ profit margins. The other major buyers of beer, of course, are the nation’s pubs, bars and nightclubs. The relationships between the two big beer giants and these venues have been the subject of scrutiny in recent years. Independent brewers say they are being "locked out" of beer taps in many venues because of CUB and Lion contracts requiring venues to dedicate more than 80 per cent of their taps exclusively to their beers.

The national competition watchdog, following a three-year investigation, ultimately rejected the concerns. The head of the pubs industry group in Victoria, where CUB is most prominent, says the vast majority of its members had CUB beer taps, either through exclusive contracts with CUB, contracts allowing for a mix of CUB, Lion and independent beers, or no contracts at all. According to Australian Hotels Association state chief executive Paddy O'Sullivan, CUB under Filipovic has gone from being "not only a supplier to the pub industry, but a key partner", and was proving adept in responding to rapidly changing consumer demands. "The pub industry looks to CUB under the leadership of Flip to drive a lot of that customer insight and that market insight,” says O'Sullivan. "They are leading the way to deal with those obvious challenges." He says Filipovic, whom he describes as skilled and respected, "never looks to create an unfair advantage" against competitors, but was more interested in growing the industry as a whole.

"He's got a great knowledge of the business, a great commercial background, but what's really impressive is he spends a lot of time and effort on industry partnerships and relationships," O'Sullivan says. From runaway energy prices to high labour costs, much has been made in recent years of the pressures facing the Australian manufacturing industry, making tough times even tougher. Filipovic, however, is upbeat when he talks about the manufacturing environment, and the prospects of CUB's five breweries nationally, stressing the company has a focus on working collaboratively with its employees' unions to drive efficiency and sustainability. "We make and sell a lot of beer," he says, "and we work with our employees here to be efficient for the long term." His comments reflect a sharp turnaround in CUB's approach to unions in recent years after a long and hostile dispute in 2016 when the company sought to cut costs at its heavily unionised Abbotsford brewery to make it more competitive. CUB said conditions negotiated over the decades had resulted in an "unsustainable situation".

CUB's then management stoked the ire of trade unions when it axed a long-standing maintenance contract and left 55 workers out of a job unless they agreed to re-sign on a new contract on lower pay. The laid-off fitters and electricians and their union officials protested outside the brewery gates for more than six months, prompting sometimes ugly confrontations, while the broader labour movement launched a national boycott campaign urging drinkers to stop drinking CUB beers. Well-known pubs including the Tote in Collingwood, the Lincoln Hotel in Carlton and the Kent Street bar in Fitzroy backed the union push and ditched their CUB taps. The protracted and highly public dispute ended within two months of CUB being taken over by AB InBev, with the workers winning their jobs back. The Construction, Forestry, Mining and Energy Union (CFMEU), since the dispute, now represents the majority of CUB Abbotsford workers.

A new workplace agreement struck earlier this year provided a 4 per cent wage rise per year for the next three years, a joint consultative committee with union representatives, a full-time health and safety representative and a special production run of a limited-edition VB can celebrating Labour Day. The union's assistant state secretary, Elias Spernovasilis, said the mood among the workforce was positive. "It's great to see a more consultative approach from CUB Abbotsford to industrial relations," he says. The other question hanging over the future of the business at its historic home is related to that other great Australian passion: property prices. CUB's sprawling Abbotsford brewery sits on valuable real estate, 10 hectares of prime inner-city river frontage about four kilometres east of the city centre. With an estimated value of more than $100 million, questions have arisen over the years about CUB's plans for the site, which would be a contender for future development.

"It’s an iconic brewery," says Filipovic. "We think it’s sustainable for the near future, but we need to work together. It's incumbent on both the company and the workforce to continue to challenge itself to continue to be more efficient and effective."