Beer battles: Craft brews eating into market share for mainstream brewery brands

·National Affairs Contributor
Four Winds Brewing Co.'s Phaedra ale. (Image courtesy of Four Winds Brewing Co.)

The market for beer in Canada is, if you'll excuse the expression, in a ferment.

Canadian beer consumption has declined over the last decade, according to Statistics Canada data, in favour of wine. But the bright spot is the continuing surge of interest in so-called craft beers (aka micro brews) produced in small batches mostly by local independent breweries.

From being largely non-existent in the 1980s, craft beer now takes up an estimated six per cent of the Canadian market. Its growth has come at the cost of established domestic brands sold by the country's three beer giants, who account for close to 90 per cent of beer sales.

The phenomenon is most noticeable in British Columbia, Canada's craft-beer hotbed, where recent figures from the B.C. Liquor Distribution Branch show small-volume breweries (15,000 hectolitres or less) saw year-over-year sales increases of more than 37 per cent between June 2013 and June 2014 while the bigger domestic breweries were essentially flat.

A hectolitre, by the way, equals two kegs of draft beer or 24 12-packs of packaged brew.

Craft beer has seen its share of the B.C. market go from nine per cent in 2009 to about 22 per cent, says Ken Beattie, executive director of the B.C. Craft Brewers Guild. There are 71 craft breweries in the province, with another 14 planning to open within the next year, he told Yahoo Canada News.

“By this time next year we could be close to 100 in B.C.," said Beattie.

Ontario has about 50 craft breweries and Quebec around 60.

Beattie sees the potential to eat even further into Big Beer's market share.

“Right now it’s self-limiting in the fact that supply can’t keep up with demand, which is a good problem," said Beattie.

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The factors driving craft beer's growth are complex. While most people are happy to quaff a Molson Canadian, a Bud Light or Heineken, many have become bored with mainstream offerings they consider bland and flavourless.

Others are turned off by the relentless lifestyle advertising. With craft beer it's not about slim, smiling young people groovin' on a beach.

“It’s all about the beer; it’s the star of the show," said Beattie.

Imports offer an alternative, but most popular brands now are owned by a handful of international mega-brew conglomerates. Craft beers open the door to a range flavours and brewing styles from dozens of tiny breweries.

“The craft beer drinker is very experimental," said Beattie. "They don’t align themselves with one brand or one style.

"You may want to drink IPA [India pale ale] but you’re going to drink 20 breweries’ IPA, not one. There’s much more trial that goes on.”

The principles of the local food movement have also insinuated themselves into the beer business. People are looking for unadulterated brews whose ingredients they can learn from the brewer.

Craft beer drinkers can have a direct relationship with their local breweries, from sampling new brew at the tasting bar to filling your take-home growler.

“You get to meet the brewer, so you have an affinity to it," said Beattie. "It’s not some factory you drive by.”

The interest is not confined to hipster beer snobs, though there is an element of that. Many migrate freely back and forth between craft and big-name beer, said Bill Coleman, owner of Cameron Brewery in Oakville, Ont.

“From my own research there are very few people that I come across that are sheer mainstream beer drinkers, that are just drinking Bud or Canadian or Labatt Blue," he said.

But the draw to craft beer is its variety.

"People have come to realize along the lines of wine that beer’s a real complex beverage and you can do a lot of stuff with it," Beattie said.

The growing number of beer festivals in Canada, which look more like wine festivals all the time, provide more opportunities to sample and learn.

There's a push from the other side as well, as the growing market draws more people into the brewing business.

Brent Mills opened Four Winds Brewing Co. in a suburban Vancouver industrial park after a career in the restaurant business. He parlayed some skill at home-brew beer into a job with a local brewery, where he rose to head brewer before investing close to $700,000 in Four Winds, which he runs with his father, brothers and a couple of cousins.

The brewery's output was only about 4,000 hectolitres in its full first year of production this year but Four Winds allows him to indulge his passion for "all things flavour." It produces a variety of brews from Czech-style pilsners to a Belgium farmhouse style. Mills is also developing barrel-aged sour beers that sit in old wine barrels for between 12 months to two years.

Like most craft breweries, Four Winds doesn't advertise. It has a Facebook presence but no dedicated web site yet, relying on Twitter, Instagram and Facebook to spread the word.

"We don't spend any money on marketing," said Mills. "It's all just social media.

“There’s so many people that when they find something they like, they want everyone else to know about it.”

Mills took a brewing science course in Chicago but would-be craft brewers increasingly can get their training in Canada. Colleges in Niagara Falls, Ont., and Olds, Alta., offer courses, and all 35 spots for a new program starting this fall at Kwantlen Polytechnic University in Surrey, B.C., are spoken for, said Beattie.

The volume of craft beer sales does no more than wash around the ankles of the big brewers but it's unlikely they're pleased with the growth. The lion's share of beer in Canada is produced by breweries owned by just three companies: Belgium-Brazilian-owned AN-InBev, which owns Labatt; Sapporo of Japan, which owns Sleeman Breweries; and MolsonCoors. New Brunswick's family-owned Moosehead Brewery is the country's biggest independent.

[ Related: Beer marketshare declines in Canada ]

The big brewers in the past have reacted to the growth of independent competitors by buying them. MolsonCoors acquired Ontario's Creemore Springs 10 years ago and purchased Vancouver's Granville Island Brewing, which first opened in 1984, in 2010. Although craft brews are still made at its Granville Island plant, its main brands now come from Molson factories.

Beattie said he believes that strategy won't be used to try and sop up craft beer competition. The volumes for most just aren't big enough.

And the lack of a corporate connection is part of their authenticity. Their credibility is undermined if they lose their local ownership and independence. Mills said Seattle's Redhook Ale Brewery, one of the craft pioneers, lost both sales and respect when AB-InBev acquired a large stake in the operation a few years ago.

Roger Mittag, a respected industry analyst, said he doubts Big Beer will expand its portfolio of small brewers.

“I think they are very observant of the craft industry," said Mittag, a professor at Humber College's hospitality school who also operates a beer-education school, Thirst for Knowledge.

"They probably were a little bit more threatened five to 10 years ago. But I think they’ve come to understand that it’s beneficial for them. A healthy industry is good for everyone. What craft does is it draws people into the beer industry for one reason or another.”

No one from Beer Canada, the trade group that speaks for the big players and a handful of smaller ones, was available to comment.

Not everyone is sanguine. The multinational brewers have bought up a number of U.S. microbreweries, said Coleman. There's no reason they wouldn't pursue the same strategy in Canada.

Mittag also injected a note of caution into the rampant optimism for growth in the craft sector, especially if craft beer prices outpace domestic and import competition a lot.

“It depends on what the craft brewers are going to produce," he continued. "If they continue to produce extreme beers, then I don’t see it ever growing past 15 per cent.”

The stronger, more hoppy beers also are not as "seassionable," that is, easy to drink over long periods than familiar mainstream brews, he said.

“If you’re thinking somebody here is a Bud Light or Coors Light drinker, you can’t immediately get them into a pale ale because it’s such a shift in their consumption patterns," Mittag said. "And if they do have one, they’re going to drink one and then go back to the lighter-tasting beers.”

Coleman disagrees. He and other craft brewers have branched out from ales to lighter-drinking lagers. Customers have come into his brewery to fill growlers that they finish in one night, while others seem quite happy to spend an evening at the pub with several pints of his headier brews.

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