Craft Beer Makers Object to Ontario Retail System - WSJ.com#printMode
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APRIL 27, 2011
Fight Brews in Craft Beer
Small-Batch Makers Say Ontario Retail System Is Stacked in Favor of Big Rivals
By DAVID KESMODEL
TORONTO—Small brewers in Ontario are pushing for changes to one of the world's more unusual beer-selling
environments.
About 80% of retail beer sales in Ontario occur in a chain of stores that's jointly owned by Canada's three largest
brewers: Anheuser-Busch InBev NV, Molson Coors Brewing Co. and Sapporo Holdings Ltd. Between them, those
brewing giants account for about 88% of Canada's beer sales.
Known as the Beer Store, the retail network is partly a relic of
provincial alcohol laws that date to the post-Prohibition era.
Critics of the system, including smaller brewers and some
consumers, complain that the big brewers' control of the Beer
Store gives them a competitive advantage.
Elsewhere in Canada, retail outlets aren't controlled by brewing
companies.
Calling the province's current system unfair, Ontario Craft
Brewers, a trade group representing about 30 of the province's
Greg Taylor, left, shown with his Steam Whistle
craft beer makers, is trying to gain more visibility at the 440 Beer
Brewing co-founder Cam Heaps.
Store outlets. The group pitched the management of the chain
last month on rewriting its contracts with all brewers in hopes of
garnering more store displays and other opportunities to rev up sales.
Zuma Press
Ontario's retail landscape is different from the U.S.'s, but craft brewers in the U.S. have also complained at times
about their access to the market, which is dominated by large brewers and their distributors.
Craft beers—made by small brewers in small batches—are gaining popularity across Canada. Volume sales for
such brewers in Ontario have risen between 7% and 10% annually in recent years, said John Hay, president of
Ontario Craft Brewers. Together, craft beers account for about 2.3% of the province's sales.
Mr. Hay said the group is trying to work "in a positive way" with the brewing giants to retool the system. "We're
not trying to tear the thing apart, but it needs to be tuned up."
If his group fails to make headway, he said, it will explore options such as lobbying the provincial government, a
process that could prove arduous.
Jeff Newton, a spokesman for the Beer Store, declined to
comment on the smaller brewers' proposals, calling the
discussions "a private matter." He did say, however, that any
Craft Beer Makers Object to Ontario Retail System - WSJ.com#printMode
brewer can get its products into the Beer Store by paying a listing
fee, and smaller brewers pay lower handling fees for their
products. He notes that the open system differs from traditional
retail environments in Quebec and the U.S., where smaller
brewers often struggle to get their products on store shelves.
"The system as it exists contributes significantly to enabling so
many of these guys to thrive," Mr. Newton said, referring to the
craft beer makers.
David Kesmodel of the Wall Street Journal
Small brewers say big-name beers, like Coors Light,
have a competitive advantage in Ontario, where 80%
of retail beer sales occur in a chain of stores jointly
owned by Canada's three largest brewers.
"They have complete, unfettered access to all our stores in a
market of 13 million people," Mr. Newton said. Sales from
Ontario's smaller brewers rose 8% by volume in the chain last
year, compared to flat performance for all beer, he said.
Greg Taylor, co-founder of Toronto's Steam Whistle Brewing, one of the province's leading craft brewers, said "it's
great" that all brewers can get into the Beer Store. "The problem is, there's an imbalance of opportunity to market
your products within those stores," he said. He would like more opportunities, for instance, to have Steam
Whistle's products showcased in displays in store lobbies.
At about 60% of the Beer Store outlets, consumers go to a counter to order beer from a menu, akin to ordering at
a fast-food restaurant. Mr. Hay of the craft beer trade group said that format favors bigger brewers with large
advertising budgets.
At the other 40% of Beer Store outlets, where consumers pick their beer from coolers or pallets, shelf space is
generally allocated based on market share. That means a customer is more likely to see a lot of Coors Light than a
Canadian craft brew.
Any retooling of the Beer Store could have wider repercussions for brewers and consumers in Ontario, which is
the largest province for beer sales in Canada, accounting for 36% of the country's sales by volume.
Ontario's retail system dates to the end of the province's own Prohibition era in 1927. The provincial government
controlled wine and liquor sales but left domestic beer to private operators. Over the years, consolidation in the
brewing industry whittled the number of brewers that owned the retail network to just Anheuser, Molson and
Sapporo.
In the U.S., post-Prohibition rules generally bar brewers from owning retail operations, a framework designed
partly to curb anticompetitive practices.
In Ontario, beer, wine and liquor aren't available in grocery, convenience and mass-merchandise stores.
Consumers wanting to buy liquor or wine to take home generally must shop at one of about 600 stores run by the
Liquor Control Board of Ontario. Those stores sell beer, too, but mostly in smaller package sizes.
Canada's beer market is valued at $16 billion, according to market-research firm Euromonitor International.
Molson Coors and Anheuser's Labatt unit each have about 42% market share, while Japan's Sapporo, which
bought Canada's Sleeman Breweries Ltd. in 2006, has about 4%.
Molson Coors and Labatt referred questions about the retail system to the Beer Store.
Write to David Kesmodel at david.kesmodel@wsj.com
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