Price hikes brewing for Canadian beer
`Inflation is a reality, and we need to adjust pricing,' Molson Coors CEO says
Beer lovers should brace for price increases over the coming months as costs such as shipping continue to climb, Molson Coors Canada's chief executive says.
“The only thing you need to do is to look at the external environment, and you know that we have no other option than to increase the prices of beer,” president Frederic Landtmeters said Wednesday in an interview at the company's new Longueuil brewery.
“Inflation is a reality, and we need to adjust our pricing to that reality. But I'm not going to comment on future plans. We're not prepared to announce that yet.”
Molson Coors said in August it expects “inflationary pressures” in areas such as input materials and transportation costs to weigh on profit margins in the second half of 2022. As a result, CEO Gavin Hattersley told analysts the company would boost U.S. prices by an average of three to five per cent in the fourth quarter, depending on the region. He did not discuss pricing plans for the Canadian market.
About 80 per cent of the company's revenue — and more than 90 per cent of pretax income — comes from the Americas.
Canada's annual inflation rate slowed to seven per cent in August thanks to lower gasoline prices and slowing shelter costs, Statistics Canada said Sept. 20. Prices for food purchased from stores nevertheless soared 10.8 per cent, more than triple the 3.5 per cent increase posted by alcoholic beverages, tobacco and recreational cannabis.
“Beer has been a category so far that has been relatively modest if you compare it to other food and beverage categories,” Landtmeters said. “It's fair to say that we have scenarios for various inflationary evolutions. We're looking at forecasts from the big banks. We need to be prepared for every possibility. We need to make sure that our prices are the right ones.”
Landtmeters spoke after participating in a media tour of the new Longueuil facility, which took over from the company's historic Notre-dame St. E. brewery after the 235-year-old production site closed its doors at the end of 2021.
Construction of the one-millionsquare-foot Longueuil plant took about three years and cost about $525 million. Molson Coors now occupies about 6 million square feet of real estate on the South Shore, across the street from St-hubert Airport.
With its 36 stainless-steel fermentation tanks, Longueuil has a maximum capacity of 2.3 million hectolitres, compared with the 3.8 million that the Notre-dame St. brewery could produce.
The smaller capacity “is better aligned with our market,” general manager Tim Crease said.
Legacy beers such as Molson Export, Molson Canadian and Coors Light are brewed onsite in bottles, cans and kegs, as are more recent additions such as Belgian Moon.
The Longueuil brewery uses about 40 per cent less water and energy than its predecessor, said Valerie Fraser, head of brewing at the new plant.
Including executives and production-floor employees, about 420 people work at the Longueuil site in activities such as production and distribution, Molson Coors says.
Output in Longueuil was disrupted by an 11-week strike of unionized employees that concluded in June with the ratification of a new five-year bargaining agreement.
Molson Coors doesn't expect reaching normal shipment levels from the brewery until the fourth quarter, Hattersley said in August.
“We're continuing to ramp up. It takes time to get to maximum capacity, effectiveness and efficiency,” Landtmeters said. “The strike was obviously something that we had not planned for. It's a page that I would really like to turn and look forward.”
And although the Teamsters Canada union says the new deal resulted in average wage increases of at least 17 per cent over five years, Landtmeters insists the additional labour costs won't undermine the site's competitiveness.
“Our goal was always to find a way to shake hands on a deal that was good for the workers at the brewery and that was viable for the company. I think it's fair to say that we have achieved that,” he said.
“We believe that we can be competitive going forward, based on the agreement that we have with the workers here.”