Robin LeBlanc and Jordan St. John return for their monthly banter regarding all things beer…
Jordan St.John: I tell you what, Robin, it’s getting hard out there for breweries in the current market.
Robin LeBlanc: It’s getting hard for everyone, Jordan, what with Twitter imploding, Trump running for President again, and that gang of Victorian children on the streets throwing rocks at me.
JSJ: Those are your neighbour Victoria’s children, and you gave them those rocks when they were trick or treating.
RL: To-may-to, to-mah-to. But anyways.
JSJ: Beau’s is now owned by Steam Whistle. Rally is now owned by Muskoka. Amsterdam is owned by a large Danish company, and I don’t mean they make pastries.
RL: And let’s not forget Side Launch is now owned by Equals.
JSJ: And Henderson Brewing is now in a partnership with Bench. It certainly seems like some chickens are coming home to roost. It’s a complicated time with a lot of pressures on just about every part of the brewery supply chain.
RL: It’s hard to think that the industry is doing fine with all of these mergers and acquisitions. I tell you, Jordan, I’m starting to think that starting a brewery is not the license to print money that the ads for bank loans make it out to be.
JSJ: I’ve always wondered about the public perception of craft beer for that reason. At some point, not all that long ago, a restaurant critic of some repute tweeted something like he didn’t see how it was possible they could be money losers; after all, there were so many of them!
RL: Which is odd, because there’s so many restaurants and that industry isn’t exactly flowers either.
But Jordan, tell me the truth, is the brewery bubble that we’ve been told is going to pop finally popping? It feels like we’ve outgrown our capacity for breweries years ago.
JS: As far as I understand it, there were basically two business models for breweries in Ontario.
The first was: Start with a lot of money, buy a lot of equipment, try to increase the brewed volume of beer on a nearly exponential basis until you get near 75,000 HL at which point the taxes become prohibitive and you’d need to go national to make it. This model requires you to have a lot of beer in the LCBO and the Beer Store and bars.
That model has not been doing so well because there weren’t any bars for two years. It’s very hard to recoup something like a third of your sales, so we’re seeing knock on effects for that. Hence, Beau’s, Side Launch, and Henderson all entering partnerships.
RL: That makes sense. I do think as well that with more variety of beers out there the more quality starts to matter. The drop-off in Side Launch’s beers, for instance, didn’t help them over the years. What’s the second model?
JSJ: The second model is: Start with the money you made in another industry and a couple of investors, buy whatever equipment you can afford, make more beer than is really sensible with that equipment while letting your knees and spine degenerate through over work, and slowly increase volume until you manage to find a break even point somewhere below 5,000 HL.
RL: That doesn’t sound… um. Well.
JSJ: Well, this is the thing. When you think about it, Craft Beer in Ontario really only existed between 2008 and now. The last massive economic downturn didn’t see any breweries shutter because there weren’t any. The entire industry has existed in a best case scenario where the provincial government changed the laws and excise structure to accommodate them. There was low interest and optimal supply chains. Until approximately March 15, 2020.
RL: And now that things are a tad overwhelming, with pretty much weekly brewery openings, the only way to get ahead is to grow further, and when you reach a certain point a merger or acquisition is the only real option?
JSJ: They do keep coming, but that’s not the main problem. The brewing industry is facing demographic upheaval, massive inflation, bad grain harvests, bad hop growing seasons, aluminum shortages, Carbon Dioxide shortages, shipping lag times, and labour that suddenly feels strongly about being able to eat and afford dentistry.
RL: So if I’m reading your subtle and nuanced point right, you’re saying it’s rather grim out there.
JSJ: I’ve taken the temperature of the room and it’s come back grim.
RL: So these mergers and acquisitions are less “Let’s grow more” and more “We don’t want to die”?
JSJ: That’s correct. The Canadian Beer Industry is down something like 4.8% in domestic sales so far this year. It’s unlikely to improve. In point of fact, Big Rock released their third quarter sales figures and the memo comprised a single word: “help.”
RL: Good lord, and that’s even with the Tragically Hip collab. I think I need a drink to get over those figures.
JSJ: What’ll you have, Robin?
RL: Something local. I’ll have a Faxe, I guess.