National Post (National Edition)
Competition brewing between craft and traditional beers.
MoNTREAL• Beer giant Anheuser-Busch Inbev NV did something earlier this spring that most of Canada’s business press missed but craft brewers and bloggers watched with fascination.
Its Nova Scotia-based sub-unit Alexander Keith’s launched three new ales featuring hop. Hop is the flowering vine that provides beer with much of its taste and aroma, and each of these new beers has a distinct variety of the ingredient that generates a unique flavour.
Keith’s, whose flagship product is the popular India Pale Ale, calls the new ales “a labour of love” and is pledging to educate Canadians on different hops during a cross-country marketing tour now underway.
Independent brewer Peter McAuslan calls them a significant break with brewing strategy, a desperate experiment by a big producer scrambling to give consumers more choices as it tries to appeal to sophisticated drinkers while retaining its loyal customers of old.
“What you’re seeing is the big guys are chasing their tails,” Mr. McAuslan said in an interview last week after the sale of his 25 year-old brewery to closely held Montreal brewer Les Brasseurs RJ. “I mean guys whose whole business models are based on fewer products and extremely high levels of efficiencies and high profitability are now taking a relatively small brand like Keith’s IPA and they’re creating additional products just to woo the consumer. It’s momentous. It’s an incredible change in the marketplace.”
It’s also, to some extent, validation of the kind of beermaking Mr. McAuslan, 67, and his wife, brewmaster Ellen Bounsall, have been doing for two decades. As MolsonCoors’ Six Pints craft beer unit also shows (a special subsidiary that includes Ontario’s Creemore Springs and B.C.’s Granville Island breweries), big beer is trying to play the small beer game. And Mr. McAuslan is selling out as the competition quickens.
“I see the industry as being hectic and maybe risky at this point too,” the good-natured brewer said from his apple orchard in the Eastern Townships, noting that while major players step up their offerings, there are 1,250 new craft brewers hoping to start operating this year in the Unites States as well — not far off the 1,600 or so already in business.
“In the short term, I see lots of confusion and perhaps an overheated market. In the longer term I think the local or regional breweries, within Canada and the U.S., have a future that’s significant.”
Craft beers and specialty imports are gaining a greater share of the market from traditional breweries, catering to specific niche tastes and consumers’ growing desire for discovery, BMO Capital Markets economist Alex Koustas said in his latest report on the North American industry. Their production volumes have doubled since 2003.
Still, it’s not slam-dunk success for the smaller players. Although they have greater pricing power than the majors, their margins barely top 10% on average, leaving precious little room to manoeuvre at a time input costs remain high, the economist said.
“What once was a sure shot certainly isn’t the case anymore,” Mr. Koustas said in an interview. “It’s a lot more competitive.”
He pegged the continental market share of craft producers at 6%. Mr. McAuslan, ever the optimist, contends the local and regional craft players can grab as much as 30% of the market within 20 years.
“Most people would just say ‘ McAuslan has been drinking and smoking weed when he says that,’ “the brewer said. “But the reality is that a lot of things are changing. And we’re just touching the surface when we’re talking about consumer [preferences].”
When Mr. McAuslan launched his micro-brewery in Montreal’s working class St.Henri neighbourhood in 1988, the Quebec beer market was a much different place.
At the time, Molson was hatching its merger with Carling O’Keefe. Labatt was rolling out its first so-called “dry” beer with no aftertaste. Meanwhile, a handful of local entrepreneurs were making small batches of suds with various degrees of success but little
What you’re seeing is the big guys are chasing
their tails
commercial consistency.
“It was a wild time in lots of ways. Many startups, not much knowledge,” Mr. McAuslan recalls. “Lots of trial and error.”
Big producers at the time didn’t see the desire for products much beyond their flagship lagers. Neither did others. The three big producers were so dominant in Quebec that a marketing firm advised Mr. McAuslan to play it safe and brew a lager like Stella Artois, which was then made by O’Keefe.
He didn’t see the point of that and ignored the advice. And so the red-hued StAmbroise pale ale was born, building a small but loyal following. He put his house in Hudson in his wife’s name in case of bankruptcy, which he said was always a possibility in those early years.
The husband and wife team started with a modest goal: To win one quarter of 1% market share on Montreal Island. They believed if they achieved that, they could survive.
They thrived, growing to a staff of 53 people and output of roughly 100,000 hectolitres annually (the equivalent of 1.2 million cases of 24 bottles). Along the way, they launched several new kinds of beer, won numerous international awards, and drew takeover interest from Molson, Sleeman Breweries and others.
A few years ago, they began thinking about an exit strategy. They have two sons and although one works for the brewery handling sponsorships, they didn’t cherish the idea of simply handing him the keys to the business.
“[People love], I think, the concept of things and companies lasting from generation to generation,” Mr. McAuslan said. “There’s something really romantic and attractive about that. And I understand that. But from my observations of such family businesses, in the beer industry and others, they’re not quite as easy as one likes to think.”
He mentions no names. But it’s not difficult to surmise who he has in mind. A fight over succession at New Brunswick’s Moosehead Breweries left lasting damage between members of its controlling Oland family. Mr. McAuslan and his wife concluded their children should make their own lives.
Independence was also important in one other key way. The brewers wanted to sell their multi-milliondollar business to another independent brewery, not a big public company. RJ, the Belle Gueule beer maker controlled by the Jaar family, fit the bill. It bought an initial minority stake in McAuslan in 2008.
It was a kind of a bet on longe vity,” Mr. McAuslan said, adding that he wants the brands he built to last — something a major producer focused on quarterly results and prone to to frequent executive officer changes might not guarantee.
“A big brewery has got about as much attention [span] as a youngster who needs lots of ritalin,” said Mr. McAuslan. “The idea of being with a privatelyheld independent family in my view provides a longer-term reference point.”
So Montreal’s craft beer pioneers sold the business and they’re out. But are they done with beer making? Not quite. Mr. McAuslan just built a modest structure at his farm he says could house a little farm brewery. He’s also got a hop garden. Just don’t expect a business to re-emerge.
“Life has this incredible capacity to move quickly on you,” he said. “In the last several years, we’ve had a lot of fun. But when you’ve sort of achieved what you’ve set out to do, you really should move on.”