The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sands Beer’s manufacturer has been forced into a last-minute postponement of a planned $1 million expansion, and yesterday warned it will have to “shrink drastically” if the Government imposes a 75 per cent increase in its tax burden.

Jimmy Sands, the Bahamian Brewery & Beverage Company’s principal, told Tribune Business he had been “shocked” by a Wednesday meeting with Ministry of Finance officials, and left with no choice but to cancel yesterday’s planned signing of a contract to expand his Freeport premises by 25,000 square feet.

Warning that the company’s “survival” might be jeopardised, Mr Sands said Ministry officials had told him the Government wanted to increase the duty he paid on domestic beer sales from $2 per liquid gallon to $3.50.

This, he explained, would effectively slash the ‘duty spread’ advantage the Bahamian Brewery & Beverage Company enjoyed over its main rival, BISX-listed Commonwealth Brewery, by 50 per cent.

Commonwealth Brewery is paying $5 in duty per liquid gallon, but Mr Sands said it did not incur the shipping costs his firm did in getting product to the Nassau market.

And, backed by the deep pockets and economies of scale provided by its 75 per cent majority shareholder, global brewing giant Heineken, the Bahamian Brewery’s main rival enjoyed distinct competitive advantages.

If the Government went through with its threat to increase the Bahamian Brewery & Beverage Company’s tax burden as planned, Mr Sands told Tribune Business, it would have no choice but to increase prices and become uncompetitive versus its main rival.

The end result, he added, would be to destroy the Bahamian Brewery & Beverage Company’s current and future ambitions to grow “throughout the Bahamas”.

Questioning why the Government’s tax policy seemed to be favouring a foreign company over one that was 100 per cent Bahamian-owned, Mr Sands said: 
“The impact will be that I couldn’t expand the company’s operations throughout the Bahamas. The company would be stagnant.

“All the expansion would have to cease. Instead of growing the company, I would have to shrink the company drastically, and that’s if we survive.”

This, the Bahamian Brewery & Beverage Company founder said, would result in lay-offs, “no question about it”.

Mr Sands told Tribune Business that $27 million had been invested to-date in the Bahamian Brewery & Beverage Company, following its founding six years ago.

During that time, its Freeport headquarters had been expanded twice, and the brewery had established a physical presence in Nassau via retail outlets and its Nassau Street distribution centre.

Mr Sands added that the company’s workforce had expanded more than five-fold over that period, from an initial 14 to its current total of 80, and the now-postponed construction project would have added another five-six full-time employees.

Recounting the events that had led to the deferment, the brewery principal effectively told Tribune Business he had been ‘blindsided’ and ‘ambushed’ by Wednesday’s Ministry of Finance meeting.

Having been asked to come to Nassau, Mr Sands said he was expecting a discussion over the Budget’s new and increased taxes, and their impact on Freeport, particularly the 1 per cent Customs administrative processing fee.

Instead, he found himself on his own faced by around 12 officials from the Ministry of Finance and Customs. And the meeting was intended to put the Bahamian Brewery & Beverage Company on notice that the Government wanted to increase the duty it paid on domestic beer sales.

“It was at 10am this morning [Thursday] that I was to sign and initiate an extension to the Brewery,” Mr Sands told Tribune Business. “It was another $1 million investment for about 25,000 square of storage space.

“The contract was going to be signed and the deposit laid down. But I went to Nassau on Wednesday, got this news about what they want to do. It went through my mind: ‘Jimmy, you’d better not sign that contract’.

“I came back up to Freeport on the first flight [on Thursday], and said to Bruce [Silvera, chief executive of FRECON Construction]: ‘I can’t do this’.”

Blaming the uncertainty created by the Government’s tax policy towards the brewery, Mr Sands said: “This company is a growing company, it is a young company. I can’t expand it on this basis, as I don’t know what will happen down the road.”

He added that the extra revenue generated from increasing the Bahamian Brewery & Beverage Company’s tax burden would be “minute” compared to the impact on the firm, totalling $400,000-$500,000 per annum.

And, although the Government wanted to increase the Bahamian Brewery & Beverage Company’s tax burden, Mr Sands said it planned to leave Commonwealth Brewery’s at the existing rate.

“I’m up against an international giant, have a duty spread of $3, and if that is reduced it will put me out of business,” Mr Sands told Tribune Business.

“I’m in Freeport, have to ship to Nassau, am an independent Bahamian brewery, a fully-owned Bahamian company, and a big foreign competitor has more rights than I’ve got.

“What they’re [the Government] doing is forcing the Bahamian company to go under. We’re in our sixth year of operation, and have done a good job due to hard work on the part of myself and my team, and are getting hit for this.”

Mr Sands acknowledged that the Government had been seeking to increase the duty burden on his domestic beer sales “for some time”, and had looked to do this for May’s Budget.

He accused Commonwealth Brewery of lobbying for such a move, and explained: “The spread is the most important thing.

“I told them [the Government]: By all means go up, but we both have to go up, and maintain the spread. When you narrow that spread you put me out of business.

“It would crucify me and that’s exactly what Heineken wants. It wouldn’t be good for the consumer, and would be a disaster for me. This international competitor doesn’t want to keep you down; they want to wipe you out. I would love for the Government to leave the spread as it is.”

Mr Sands said that “before we came on the scene”, Commonwealth Brewery had enjoyed a $6 per liquid gallon duty margin spread advantage over imported beer, paying $4 compared to $10.

And he noted that his main rival had also enjoyed a 20-year exclusivity period when no other Bahamas-based brewery could be established to challenge it.

“I’ve tried to work things out,” Mr Sands said of his tax talks with the Government. “I’m a firm believer in not trying to stir the pot. But now I have no choice. It seems the more I talk, the less people listen.”