Trouble Brewing for Ontario Craft Beer? | The Agenda

more than a decade ago a revolution of sorts occurred in Ontario specifically in the Beer World Craft breweries of all sizes and Specialties sprung up in virtually every part of this province and success has built many small Empires but as in other Industries the tough times of the pandemic and ensuing economic disruption put livelihoods and new labels in Jeopardy here for more let's welcome in Sault Ste Marie Ontario Graham Atkinson co-founder of outspoken brewing a small Craft brewery in the Sioux in Van Cleef Hill Ontario just east of Ottawa Steve buscein co-founder of Bose Brewery once one of the largest craft Brewers in Ontario it's recently been sold to Steam Whistle Brewing he's also founder of the league of independent Brewers and here in our studio Mandy Murphy co-founder of left field Brewery a mid-sized Craft brewery in Toronto and Jordan St John is back here head of the beer program at George Brown College and editor of The Growler Ontario's craft beer guide and I just learned first of all welcome to you two here and to our friends and points Beyond thank you for being on our program as well I just learned today what a growler is a growler is that big tub that you put the beer in right that's exactly right 1.89 liters of beer Steve so that's big that's well it's about four pints there you go let us talk to our director Sheldon Osmond here Shelly if you would could you please bring up this graphic that will set the table for the discussion to come here's craft brewing in the province of Ontario measured proportionately we're going to look at the decade from 2010 to 19. the craft brewing industry was the fastest growing segment of Ontario's manufacturing sector there are currently 342 craft breweries in this province there were fewer than 40 before the year 2010. they provide more than 4 000 jobs more than three quarters are outside the greater Toronto area and covid saw more than 400 workers laid off craft breweries account for about 11 percent of Ontario's beer volume but they say they provide 80 percent of all Brewing jobs in the province they feed 685 million dollars into the province's gross domestic product each year ninety percent of ontarians have a Craft brewery in their Community all right that's a little background let's get started here Jordan we'll go to you first here what's morale in the industry like right now well morale is a little bit difficult Steve during the pandemic there was a lot of turnover within the industry especially in lower tier roles sort of front of house tap rooms that kind of situation because people were laid off some of them have moved on to other Industries and for some of the people who are in lower positions within breweries across the province what you end up with is a situation where the remuneration for the job is probably not adequate now in some cases breweries pay a living wage but that's not standard on the Niagara College Facebook group for example where breweries post jobs they sometimes neglect to post the hourly rate for them which is what well uh variable highly but it's about the same you might make as an office intern 18 bucks an hour with 18 months worth of Brewing School experience okay Steve let's check out with you how's business well uh I'm not I'm not always uh as as in the know as I used to be um but the merger with steam whistle has gone very well and it's put a lot of life back into Bose sales we were uh we were really struggling before the merger and and this has allowed us to uh uh to kind of get get back up and running and actually into uh back into growth mode Mandy how about you how's business business is good demand is stronger than ever at our Brewery um we came to came through some of the challenges of coping just like everybody else not only the Brewing industry but other small businesses but businesses it's positive we're about to open a second location later this year and the morale of your troops fantastic okay one of these things is not like the other so what's going on uh I mean I I don't um I don't disagree with what my peers have said uh it is a the crafting industry is a challenging place to be right now especially coming out of covid that as I said it's not unique to our industry all small businesses face challenges like supply chain problems increasing input costs pressures on consumer spending as small Brewers we have the unique disadvantage of really lacking efficiencies of scale to handle some of those challenges but what is unique to Brewing is uh the closures of bars and restaurants wiped out half of our business overnight we had to close our tap rooms and that accounted especially in smaller breweries for a large portion of our business um we moved all of our product to cans and those are taxed more highly than draft products so there are certainly challenges coming out of covet but craft breweries continue to expand and grow craft beer overall is growing at a time when beer is declining let's go up to Sault Ste Marie Graham be outspoken how's things up here um I I mean to Echo what what Mandy said and uh the other folks on this call uh we were definitely on a growth trajectory uh prior to covid and had the the rug pulled out from Andres um So lately I mean we were one of the lucky ones to have made it through that two to three year period and we definitely see opportunity ahead for us but there's some apprehension about the direction we want to take things and really with the way the Market's unfolding and um our access to distribution let me again get children to put this graphic up here because we got an email from the former owner of a Toronto Craft brewery called The People's pint they closed their doors this year and Sheldon let's go I'm going to read this for those listening on podcast generally speaking he writes it's a tough business and if I had to do it all over again I wouldn't anyone thinking of starting a brewery now should give their head a shake and seriously reconsider that Folly I'm aware of several other breweries who are in financial trouble or are trying to sell it's not a great way to make money right now my advice to anyone is to stick to enjoying beer as a beverage and a hobby but stay away from opening a new Brewery this business killed my passion for it and that was no easy feat that's Doug appledorn former owner of the brewery the people's pint which closed its doors earlier this year Jordan This is a business we're told where a lot of people take their life savings and put just 110 percent of their passion into creating something that they're very excited about and here's Doug saying don't do it your reaction well there was a period there where the amount of hype surrounding craft brewing was such that you end up in a situation where people think they can have a little Adventure a lot of the people who get into craft brewing especially from a home brewing background they end up being people who maybe had a job that they didn't care for in marketing or some other you know field and they really enjoyed the idea of making something and if you do it right you can put together a small business and you can have a nice life for yourself but it's never going to make you a fortune the old adage is that if you want to make a million dollars in craft beer you start with two I think that was Ken woods from Black Oak whose Brewery was recently purchased by silversmith so start with two million if you want to make Jeff if you want to have 1 million left over would be the common wisdom would be the way to go Graham you um I I think you got into some financial difficulty a little while back and came what you have to shut down for a month or so yeah and that actually that's not uh that's not unusual for that period of time we usually take some time in the early part of the calendar year to to recalibrate um but there was a period uh shortly after kind of the the the effects of covid um where we were on the razor's Edge and and we had to put a call out to the community for support but I think that was really telling that especially in in our community in Northern Ontario Susie Marie um that there is still an interest and still a need for these types of um uh businesses and establishments within within the community there was a lot of Pride um uh that came out of it for us and the community rallying behind us really gave us the support that we needed to decide to continue and you have made that decision and you will be continuing for as far as the eye can see we are not going anywhere as far as we're concerned um and and that's the the path that we're trying to create for ourselves right now um is still under development but um you know we're open business as usual right now in production mode and um really looking forward to a busy summer gotcha Steve let's continue the story you started to tell earlier you eventually sold your company to steam whistle why'd you do that well there was a number of reasons um but uh it it really started uh we were not uh in a great financial position before the pandemic we'd had a few struggles uh before the pandemic and when the pandemic hit that was 50 of our business uh lost overnight plus a million dollars of inventory and kegs that we couldn't use and uh so that took a lot of wind out of our sales then uh at the end of 2020 our bank decided that kovid was over uh even though the closures continued so we started getting more and more pressure from uh from our financial partners and um I suffered some some personal family tragedy uh in in the middle of uh 2021 and I had to make a tough decision to be there for the brewery or be there for my family and uh I guess uh I I don't regret my decision but um uh you know the the reality that Bose was facing uh regardless of my personal uh personal issues was you know five years of toiling to to get out of the the mess that we were in or finding a way to to move the the business forward and while my ego uh would have loved to to remain the head of of Bose um it just didn't seem like it was the the right decision for either the the business or for for my family do you get a good price for it uh well uh a lot of it's on an earn out so keep buying bows and and yeah I'm still waiting to find out if I'm gonna retire in a yacht or a dinghy okay understood Mandy I want you if you would to give and direct Sheldon excuse me can we go to wide shot for a second here you got some of your product on the table here and I guess just for crtc purposes we should say we're not going to correct those open and drink them right now but anyway that's some of what you do can you give our viewers a sense of all of the different I mean yours is a complicated business in many respects right you are buying any number of different kinds of ingredients you've got physical plant you've got taxation policy you've got to worry about without going too deep down the rabbit hole give us a sense of your business uh my business in particular is not unlike other other craft breweries we are a very unique manufacturing operation that is not only a manufacturer but we most of us operate Hospitality as well we have tap rooms where you can come into our Brewery and enjoy a pint you can have a little tour of the brewery and see how the products made taste and smell the ingredients we also operate a retail store so you can buy beer to go we operate an online retail store and we wholesale our beer to the LCBO the beer store grocery stores and small bars and restaurants across the province and so it is quite complex in in that regard um well I got a bit of a list here you've got cans you got barley malt hops grain transport fuel cardboard packaging water there's taxation you're good what are the tax rates like the tax rates are um really without sounding like a complainer that they are unjustly burdensome for small Brewers um as you talked about there's been immense growth in craft beer over the last 10 years in that same 10-year period uh craft Brewers have received an increase of more than 100 percent um on the rate of tax that we pay for packaged beer meanwhile the large foreign owned multinationals have received a 30 increase in taxes so the taxes are challenging in craft beer Ontario is or in beer in general Ontario is one of the most highly taxed jurisdictions in North America on our beer and we we believe in in taxes and the the betterment of society from the sale of alcohol that's really important but if you look and compare our taxes to other jurisdictions even in Canada the rates are quite high and they've been increasing at a rate that's just not sustainable for small Brewers Jordan I I will confess here that in preparation for doing this discussion I went down to the foot of Jarvis Street a couple of weeks ago and uh I went to Great Lakes Brewing talk to Troy Burch just to get some background information on all of this and you know they've got quite an operation there where they're not just selling beer but it's again it's the same kind of situation I guess you've got where they've got I don't know what you call it is it a restaurant you call it a restaurant cap room Tap Room okay you got a tap room you come on in you can even I don't know if they do that but you bring your own food at your place too you can bring your own food if you want as well is that the future I mean is that the way to make money with this thing is you've got to not only just sell your wares but you got to give customers a place where they can come in and and gather and you know try all the different stuff well it's become an incredibly complex business in the sense that if you can't get your product into the LCBO on a massive scale I mean Great Lakes does a great job of that but in order to make it more engaging for the people who are purchasing the beer it probably makes sense to have a tap room where they can have a nice experience they can sit comfortably with their friends beer is largely about people so what you want to do is make sure that people are enjoying each other's company beer by itself in a vacuum doesn't matter but if you were to put did you just say that out loud absolutely here in a beer in itself doesn't matter and this is an expert talking I know this is why I'm asking ridiculous right but I mean if we were to sit down and have a nice beer that'd be fantastic and you know have a nice meal that's even better that's what Great Lakes is trying to do and that's what breweries across the province are facing they've got the ability to make beer but engaging with the community around you is really important getting people to visit your footprint at the bottom of Jarvis Street there is kind of difficult as the condos continue to grow up you know around them well on the other hand he's got a market that's gonna he doesn't have to go to the market the Market's coming to him there'll be thousands of new people living there in the next five years that's exactly right but for the two or three years they held that lease before they opened that was a little bit more difficult gotcha Mandy let me ask you this I I think there are 4 000 different craft brewing Brands out there three of them are on the table right now but there's four thousand all together is your Market oversaturated definitely not so Ontario is still very much underdeveloped when it comes to craft beer relative to other markets in the US and Canada our craft beer share in Ontario is about a third of that of BC and only half of that of Alberta and I think a lot of that comes down to the um the challenge that we have accessing the craft beer consumer as you said there's 4 000 Brands we at left field release between 20 and 30 new beers every year only a small fraction of those ever make it to LCBO shelves fewer make it to the beer store shelves the system is is kind of broken when it comes to servicing craft beer and the consumer really wants it the Craft Beer Drinker wants more choice and more convenience and uh there's a hard time getting it right now so I think there's a big opportunity there we're going to talk about this system more in a second but Steve let me go to you on this 4 000 Brands so too many no it's not too many but what I think happened was too many came in all at the same time there wasn't uh there wasn't a nice uh kind of straight line growth it was exponential for uh for an intense three to five year period and the the marketplace wasn't able to adapt to the amount of new entrants in a in a reasonable way so what that's what that's done is it's it's left a lot of Brewers fighting for shelf space and instead of what used to be the the crappier Mantra which was grow the pie in other words get gain market share from from the large uh multinationals uh what started happening was Brewers didn't know each other as well and they started fighting for their for their own sliver of pie that they already had so I think there's still lots of room for more craft beer in Ontario but the uh the way that we exploded so quickly was was problematic and the market wasn't wasn't able to to adjust to it fast enough Jordan what's your view on that well I think the number might be a little bit deflated I mean we have 320 on that graphic at the head of the show it's actually 420 Brewing locations I've been putting together a list over the last couple of months when you include contract breweries it's more like 470. so the number of individual Brands it's probably more like ten thousand ten thousand well if you assume that everybody's doing 10 to 15 beers a year 20 to 30 for left field what are the other 400 doing you know so it's uh I would say difficult to generate new brands all the time especially if you've got hazy ipas for example which are very popular if people just keep churning them out and they're just switching out hob varieties I mean it's very difficult to develop meaning in a relationship with the consumer aside from the brand that you're selling especially if that thing's not going to exist next week you know let me get Graham on that and then we're going to talk about the system of uh Brewing dispensing in this province Graham what do you think whether it's four thousand or ten thousand are there too many different labels out there ah I think it can be overwhelming in a bit of a system overload if you're you know browsing shelves and not knowing or maybe familiar with the different types of products and breweries that are available to you but um there's certainly room for growth and we're experiencing that in Northern Ontario um that we've kind of honed in on the products that work well in our market and we're happy to make those in in distribute those in larger volume and quantities but it's important to create space uh as a brewer to be creative and to kind of still push those boundaries a little bit all right let's talk and Sheldon I'm in the middle of page four here we're going to do the background now on the beer store because most people buy beer at the beer store what's the beer store well here we go the beer store is Ontario's biggest beer retailer it was founded almost 100 years ago 1927 at the end of the prohibition era by a Consortium of Ontario breweries that wanted to control distribution today it is privately owned by three big Brewers Molson Coors labat Brewing which is owned by Anheuser-Busch and sleman breweries which is owned by Sapporo all of these Brewers are owned by Foreign multinationals they may have Canadian style labels but they are owned by Foreign multinationals and it is not owned by the government like the way the LCBO is owned by the government these are owned by the beer companies themselves and they account for about 63 percent of all beer sales in Ontario and the deal between the beer store and the government Ontario that limits the amount of beer sold in retail outlets that agreement is set to expire in 2025 and the current government of Ontario wants beer sold Beyond a set number of grocery stores in big box stores for example convenience stores for example and the big Brewers let's just say they're not too sure about that all right let's Mandy start us off here since you were raising this a moment ago to what extent does the beer store offer a fair playing field for all Brewers in this province including the craft Brewers I think the uh the sales data speaks for itself to answer that question uh you spoke earlier about uh craft beer share in Ontario being around 11 it's inching closer to 12 when you look at the craft beer sales in The Beer Store it hovers around two percent at any given time so I think that that would indicate that the system is not overly favorable to craft Brewers why is it only two percent at the beer store well there are a number of reasons one that I usually like to point to is the shopping environment I mean if you're in a space where you like to explore new new things you're likely going to pick up the package and hold it and turn it around read the ingredients on the can understand where the brewery is from where they're located what kind of charitable initiatives might be tied to that can oftentimes in the beer store that's not the shopping experience that you're faced with um and then I think like there's a there's a listing fee so you're you're paying your competitors to list your product on their shelves um I can't I can't think of another segment where that's the truth where you where your competitor um has a monopoly of retail stores and the only way you can sell your product is by paying them a listing fee well it's a fair call is it fair to say they have a monopoly I mean they don't have a hundred percent of them not 100 Monopoly but if you look conversely at the LCBO they've been great Partners to craft Brewers over the years uh our share in their stores hovers around 12 so it's pretty in much in line with the market um there's a pace of innovation that the craft beers I spoke about earlier a pace of innovation that is flowing through the LCBO stores they have a very large mandate the LCBO which is to support all beverage alcohol sold in the province support local wine and cider et cetera so there's only so much they can do for craft Brewers they don't have space on their shelves for those four thousand or ten thousand brands that we talked about um so there certainly is an opportunity in Ontario to open the market up a little bit more to have a more conducive to craft beer and to not have the the profits um flow offshore Steve how difficult is it to get your products or when you are running your Brewery how difficult was it to get your products into the beer store well if you've got enough money in your bank account it's actually quite straightforward uh it's it's a pay-to-play system so you basically you have to pay for every brand in every store in every size that you'd want to be in so if you have one brand and you want to be in all the beer stores in a six pack of 12 pack and a two four you're gonna drop about 75 000 um I I personally find that when you reach a certain size of Brewery um getting your beer on the Shelf in the LCBO isn't necessarily any any better you you end up spending probably the same amount on your sales force because you have to keep going back and defending listings that are being removed seemingly without reason at times um but uh for small Brewers in particular that don't have you know hundreds of thousands of dollars to to spend on listing fees um that becomes problematic and even if you can't afford the listing uh The Beer Store reserves the right to uh basically remove any listing you you've already paid for if they deem that it's not selling up to their standards uh so you you might be spending you know an extra fifty thousand dollars every year just to replace listings that you've lost so it's an expensive system it's also really difficult to to um to add Innovation or variety because you can't just say well I've got this listing now I want a different beer in that in that position uh you have to lose all of the listings you've had for the beer that's discontinued and then repurchase new listings so it's incredibly expensive and it and it stifles uh innovation in a lot of ways Graham what's your experience trying to get your products into the beer store so it's not actually a framework or platform that we've fully executed yet but we have looked into it and um at least regionally so we're we're obviously a smaller market and our distribution is really focused on like previously we had just been Distributing out of our our local retail store only now exploring uh other auctions you know it's something that we are exploring um but we're not sure we want to pursue it just yet understood uh jsj just before I get you to respond we did invite some people who represent the three major breweries Who Run The Beer Store to be on our program tonight they declined our invitation which is their right but here's what a member of their board Bob Aziz had to say in the Toronto Star a while back and we'll replicate this here for our audience Sheldon top of page six please he said the beer store is quote not a monopoly because breweries set their prices he said their mission is to make the broadest possible selection of beers available to Consumers across Ontario at the lowest possible cost that the beer store service fees remain significantly lower than the fees charged to Brewers when they sell beer through the LCBO or grocery stores and finally he says the beer store is a leading environmental Steward it collects almost 2 billion beverage alcohol containers sold by it the LCBO and grocery stores annually in Ontario that's Bob Aziz quoted in the Toronto Star a couple years ago already uh okay jsj give me your take on how level the playing field is in terms of level uh you're not going to find somebody you know with a bubble that's going to sit in the middle it's uh if you're trying to use a tool for that it's not going to work the beer store is a great idea or at least it wasn't 1927 when it was a co-op it's structured as a co-op and this means that you know they don't have any Capital what it is is a great reducer of complexity and one of the problems that we're talking about here is the problem of Market complexity you've got all these Brands you want to get them to the consumer at the time when it was developed you didn't have this number of Brands you had I don't know 30 breweries across Ontario in 1930 and then by you know 1990 you've got three or something like that it's Molson lebat and sleman and it becomes really difficult um once you've got so many different varieties this trend towards Innovation that Mandy's talking about it becomes really difficult to represent that product across the province but for most middle of that who have a smaller number of brands The Beer Store is really effective because it allows them to share delivery costs they're not really operating and the Monopoly question is kind of out the window at this point they're operating together in order to deliver beer across the province that's what the beer store is and they own that distribution okay Mandy let me come back at you for sort of finish up this line of questioning here and that is there is this so-called Master agreement between the government of Ontario and The Beer Store the three companies that that run the beer store and that expires in two years if you were able to oversee the transition in a way that would where something would emerge that would be more friendly to your industry what would you like to see happen uh I and I think many other small Brewers would like to see uh the ability firstly for Brewers to open more of their own retail stores and so uh creating that experience where you come in and you you look in the tanks and you and you talk to someone who's knowledgeable about the beer and you can taste the thing that was just packaged this morning um that's really unique to craft beer you can't do that now no so craft Brewers are limited to two retail stores in the province each retail store is required to have an operating Brewery and of course the the investment in stainless steel tanks and all of the Machinery required to build the brewery packaging equipment that's really cost prohibitive for us to be building multiple breweries we're limited to two how many do you have I have one but hopefully by the end of the year I'll have two uh that's the goal and so you could have if you if you didn't have to have Brew making capacity at every location how many locations do you dream of having uh multiple I could see having them in in different areas of the city we'd also like to see the ability to cross-sell each other's beer so imagine a world where craft Brewers could start a Cooperative like the beer store we could sell each other's products um we're really passionate about craft beer we can promote breweries that have similar values to our own the opportunities would really be endless in a world where where craft Brewers were granted those same rights that the the foreign multinationals have today got it okay we're down to our last few minutes here and let's just uh let's finish up on this you know I guess it was about 10 20 years ago Jordan the the craft brewing industry was all the rage across the province right there are tons of people getting into it and it looked like there was lots of money being made and it was certainly the the shiny new thing on the Shelf does that okay that was then what's the level of hype around it today in your view I would say that the level of hype is diminished to some extent the difficulty being that people are a little bit overwhelmed you're also facing a demographic challenge in the sense that the boomer generation is aging they're the people who used to buy two fours of beer on the weekends 1977 is the high point for that by the way it's been steadily decreasing since then uh so you've got that issue but you've also got people who just spent three years after turning legal to drink not being able to go to pubs so there's a socialization element in there as well it becomes a little bit difficult to get people to buy in if you can imagine walking into the LCBO for your first time as a 19 year old and seeing this amount of variety well maybe it's a panoply of you know Wonderful choices and maybe it's just a little overwhelming there might be a reason why they're just going for the thing that's cranberry flavored in the Seltzer aisle uh being able to tell the story is really important and I think more locations for bottle shops for breweries would help with that okay Steve uh let me let me try from this angle here we've heard about the challenges you guys have in terms of how many locations you're allowed to have taxation policy is a problem you feel there's an uneven playing field as it relates to distribution how much is the industry itself though to blame for whatever problems it is having right now in your view it's hard to blame an industry right because it's not like we uh we we did this to ourselves um it happened I think you you put a lot of enthusiasm into any market and it's going to expand and there was so much enthusiasm for craft beer for so long that it expanded really fast uh but uh again those of us that have been in the industry long enough remember that this isn't the first time that craft beer had a downturn back in 95 uh you know everyone was was claiming crappier was dead and and it came back uh with a vengeance uh I I feel like it'll come back again we just have to kind of be okay with the fact that we're not the only thing in beverage alcohol that people are talking about today but but we're still an important part uh of the industry and I think craft beer uh has a has a bright future ahead of it still Graham if you could make one change to the way things work right now what would you do um I I really agreed with the the ability to cross-sell with other and collaborate with other small producers and small breweries across the province would be a big change and game changer for us particularly in the north because of uh existing distribution challenges we have now okay Mandy how about you one big change that you think would really improve things it's really tough for me to to make a pick between tax reform like I talked about some of those tax challenges earlier and uh giving craft beer fans access to more craft beer three or more craft beer purchase locations um if I had to choose one over the other I think really for this is the sustainability of the the industry we really need to see some major changes on the tax side for small Brewers and make sure that our pace of tax growth is not uh is not many multiples larger than that of the large Brewers jsj what's are you well for me I think that one of the things that's going to happen is if you open up more grocery stores after the MFA is renegotiated or possibly scrapped entirely this is the master frame agreement that's right they're currently at 450 grocery stores they topped out six years into the agreement you could expand that easily and in fact the LCBO has been expanding into more convenience Outlets about 130 over the last year nobody seems to mention that part we already are having convenience store sales it's just not the way you want it to be so motor shelf space will definitely help but if we had more independent retailers who were able to sell craft beer um without the decision making process that goes into a large chain like Loblaws or a sobies something like that you might end up with better results gotcha Mr director can I have a four shot please so I can thank our guests Graham Atkinson and Sue St Marie Steve beauchaine in Van Cleef Hill Ontario and here in the studio Mandy Murphy left field Brewery Jordan St John The Growler you can read his stuff there about Ontario's craft beer industry we thank the four of you for coming onto TVO tonight appreciate it thank you the agenda with Steve Pagan is made possible through generous philanthropic contributions from viewers like you thank you for supporting tvo's journalism

Channel: The Agenda | TVO Today

Views: 3,635

Keywords: The Agenda with Steve Paikin, current affairs, analysis, debate, politics, policy, craft breweries in Ontario, The Beer Store, beer in Ontario, alcohol sales in Ontario, The Agenda, Theagenda, OTT, Accedo, craft brewery, craft beer, beer brewing, craft beer drinkers, craft beer and brewing

Id: 9SkJGIxe3yM

Length: 32min 37sec (1957 seconds)

Published: Tue Jun 06 2023