Back in the brewing game: Panhead founders buy up Boneface as their second craft beer adventure begins

Panhead founders Mike and Anna Neilson are the new owners of the Boneface Brewing Company craft brewery and eatery at Brewtown, Upper Hutt. Photo / Mark Mitchell

When your first craft beer business was “a runaway train” that brewing giant Lion was quick to jump on, what do you do for your second?

You have “more fun, be more creative”, says Mike Neilson, founder of Panhead Custom Ales, who, with wife Anna, has big plans for their new venture, craft brewery and eatery Boneface, in Upper Hutt’s Brewtown.

The “runaway train” success line is Lion’s, on buying Panhead in 2016, just three years after the couple founded it in a mothballed Dunlop tyre factory in the Maidstone site that would soon become Brewtown, home of craft brewers and fine food.

Boneface, which they agreed to buy mid-year just days before it went into liquidation, was relaunched this month, with the same name, a new look and a bold business plan.

Head brewer Neilson, 42, plans eventually to lift production of his “generously hopped” ales from Boneface’s current 50,000 litres a year to 800,000 litres and is aiming to reach 400,000 litres by this time next year. (Panhead was targeting two million litres a year.) Boneface’s kitchen and taproom operations are being cranked up and a function room created.

The purchase of Bonehead coincided with the expiry of Neilson’s restraint of trade with Lion. He stayed on with Panhead, which operated independently of Lion, after the 2016 deal but left last year.

“I couldn’t say I looked after the company any more. I was basically made redundant by the corporate structure they put in,” he says.

Mike Neilson is head brewer at Boneface Brewing Company. Photo / Mark Mitchell

Lion paid $15.1 million for Panhead. When the couple started it, they had to sell their house and car and ask for help from family.

The Lion deal further entitled them to another $10m dependent on earnings over the four years from 2016. They collected.

The Neilsons, “bored” with their new brewery-less life, knew plenty about Boneface before they made an offer for it. Their friend Matt Dainty, who owned 43% of Boneface, was lead brewer at Panhead, having been encouraged to come to Brewtown by Mike Neilson.

Dainty left Panhead in 2016 and founded Boneface, a taproom-focused business known for its dark comic book graphics. Its beers won awards and accolades – which is why the Neilson’s kept the name – but, like many taproom ventures with a “front of house” function, it struggled during the Covid-19 lockdowns and the following economic crunch. Covid struck just as Dainty made a significant investment in the brewery operation, Neilson says.

It is one of at least four craft breweries to fail in the past year as hospitality earnings plunged amid rising interest rates and household costs.

Because of the ongoing liquidation, Neilson was unable to say how much he paid for Boneface, which had reportedly been for sale on Trade Me since last year for $1.7m.

With the hospitality sector in a bad way – Neilson cites a conversation with a host who’d just shut up shop after 30 years, saying his turnover was 50% down and he’d never seen things so bad – what’s to stop the economy strangling Boneface again?

“We have working capital, we don’t have to take on debt, so we’re in a better position than most at the moment,” Neilson says.

“We’re lucky Matt invested in the brewery in 2020 [so] to double our capacity and add a couple more fermenters, $200,000 should get us there.”

The Neilsons are investing with their eyes wide open to the current economic challenge of hospitality.

Anna Neilson co-founded the Panhead craft brewery, now owned by Lion. Photo / Mark Mitchell

“The industry drives a big portion of our beer sales and it’s substantially down. People aren’t supporting the bar scene any more. Bars and restaurants (customers) probably make up 50% of our turnover and we are down 25% just on that, so that’s big.

“Some other breweries are down 30-40% as well. We knew that going in. If we can make $1 profit while the rest of the industry is down, we will be in good stead when things come back.

“And it will come back.”

While all systems are go to grow Boneface, with two new beers already launched – a cold IPA called Slipped Disc and an American-style pilsner dubbed Floating Rib – and 25 staff taken on, that growth trajectory will be carefully managed, says Neilson, who took up brewing at home after learning some skills in a London pub on his OE.

He went on to refine them in big-batch brewing at the Tuatara craft brewery, before creating Panhead, named after the rocker cover of a Harley-Davidson motorcycle engine.

Hot-rodder Neilson is a devotee of Kustom Kulture, the global cult-like embrace of artwork, vehicles and fashions, born out of the post-World War II early hot-rod culture of Southern California, which exploded during the 1950s and 60s.

The Neilsons created a sub-culture of Kustom Kulture within Panhead, offering fans products and marketing visuals dedicated to particular cars.

Why the cautious approach to growth, and why the magic target of 800,000 litres a year?

Brewing with its costly stainless steel and special imported equipment, high food safety standards and skilled brewers soaks up “massive” amounts of money, says Neilson.

“At Panhead, we were borrowing money left, right and centre.

“Every time it took off debt skyrocketed and, to get the best beer, we needed the best gear.”

When Lion came calling, the Neilsons needed $12m-$25m to upgrade equipment and had been talking to a private equity firm about a partial acquisition to finance new plant.

“We were just a humble little family business, we didn’t have $12m to $25m to invest. Lion took a problem off our hands.”

So assuming Boneface is to avoid a repeat of Panhead’s growing pains, the couple plan to sell mostly to specialist outlets and to manage the expectations of those stores.

Only some supermarkets will be offered Boneface products, along with grocery and bottle stores.

“If we are in every store, we’ll have the Panhead problem, so we’ll keep it to specialist stores.”

As for the production target of 800,000 litres, that’s “the stage in a brewery when everything operates like a well-greased machine”, says Neilson.

It’s also the point where there’s enough money coming back to invest in the brand and make the owners some money.

“At the moment, there’s no money to invest in the brand because we don’t make enough beer. Also at that level [800,000 litres] we get to have a bit more fun.

“We want to have a bit more fun [with this one], to be more creative.

”We’re totally passionate about brewing – it makes sense to invest in your passions.”

Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the $26 billion dairy industry, agribusiness, exporting and the logistics sector and supply chains.