Canada's Last National Brewery Sold

Canada's Last National Brewery Sold

The planned acquisition of Sleeman Breweries Ltd. by the Japanese company Sapporo Breweries Ltd., announced on Aug. 11, was widely considered a soft landing for a company that had been ailing financially and in search of a buyer since last May. Sleeman burst onto the Canadian beer scene in the late 1980s and, helped along by its unique clear bottles, became a huge success and a national brand. But in recent years it struggled to find a place in the highly competitive beer industry. Now, in Sapporo, Sleeman may find an owner that wants to keep the brand around, perhaps using it as a stepping stone into the U.S. market rather than dismantling it. "This is a good news story," said company founder John Sleeman, following the announcement. "People working here should be able to go home with a lot fewer worries about their jobs."

In seeking refuge in a foreign buyer, Sleeman is following what's become a Canadian beer-makers' tradition: LABATT BREWING CO. LTD. sold to Belgium's InBev SA in 1995, and MOLSON INC., the makers of the brand "Canadian," merged with American company Adolph Coors Co. in early 2005. But if the impending sale was welcome for Sleeman employees, it was bad news for the already down-and-out Canadian BREWING INDUSTRY. There are no longer any national, Canadian-owned brewers left. "I don't think people have woken up to the fact that the Canadian brewing industry doesn't exist anymore," says Bob Scott, the president of Ascot Marketing Limited, a research and consulting company specializing in the beer industry. "One of the great industries of Canada virtually doesn't exist. It's absolutely tragic."

Over the past decade, the global brewing industry has consolidated into a handful of large multinational players. Along with InBev, there is U.S.-based Anheuser-Busch Cos Inc., Holland's Heineken NV, and SABMiller PLC in the U.K. What remain in Canada are regional and microbreweries, like Moosehead Breweries Ltd., Lakeport Brewing LP and Big Rock Brewery. While many have successfully carved out niches in the Canadian beer market, they remain minor players next to the global giants now ruling the beer industry in Canada and beyond.

The demise of the big Canadian-owned brewery seems to have come at a curious time. Beer sales have held steady for the past decade, Canadian brands have made inroads into the U.S. market, and Canadians drink, by far, more beer than any other alcoholic beverage. According to Statistics Canada, the industry accounts for 200,000 jobs and adds $2 billion a year to the country's GDP. Beer is big business. Indeed, not long ago both Labatt and Molson had the profitabilty and heft to challenge as global contenders, says Scott.

What brought about the end of Labatt and Molson as Canadian-owned companies was not some fatal flaw within the industry (even today, Labatt and Molson are the two dominant beer-makers here, holding about 40 per cent market share each), but well-documented management failures that left the companies susceptible to a foreign takeover. In 2002, Molson invested in a Brazilian brewer, Kaiser, which proved to be a massive money-loser, and crippled the company financially. When Labatt was bought in 1995, it was in debt, in the midst of a minor shareholder revolt over its management and a hostile takeover bid by Onex Corp. that left it searching for another buyer. Both had also embarked on ill-fated efforts to diversify outside of beer.

Sleeman was still a small player next to Molson and Labatt. But all three beer brands have shared some of the same marketing problems - intense competition from expensive premium imports on one hand, and discount beer-makers on the other. The success of Lakeport, the regional "buck a beer" brewer, was one of the main reasons for Sleeman's struggles. The Ontario company recently went public and has been eating up market share (some analysts expect discount beer-makers' share of the Ontario beer market could reach 45 per cent).

Ironically, Molson and Labatt brands like Canadian and Blue have continued to struggle under the efficiencies of foreign ownership, outsold by their sister U.S. brands (which are brewed in Canada), like Budweiser and Coors Light. "It is kind of disappointing to see the Canadian industry taken over by foreign companies. It starts to be a death warrant for the former large Canadian brands," says Steven Poirier, the president of Moosehead, now the largest remaining Canadian-owned brewer.

Poirier admits it's a "great opportunity" for Moosehead to find itself atop the list of Canadian brewers. There is, after all, still some patriotic appeal to being a wholly Canadian-owned brewery. Being a private company in good financial shape, Moosehead, based in New Brunswick, is also somewhat insulated from the kind of takeover that doomed other Canadian companies (it doesn't have to follow the short-term demands of its shareholders). Nevertheless, it has been approached a number of times by foreign buyers over the years, says Poirier. "Moosehead will always be a target for other brewers."

The immediate challenge of a foreign-controlled beer industry in Canada is in Ontario, the largest market, say the remaining Canadian brewers. The main distribution channel for all beer sold in the province, the Beer Store, is owned by Labatt, Molson and Sleeman, and will now be entirely foreign-controlled. The outlet is "designed to favour the owners at the expense of non-owners," says Poirier. Teresa Cascioli, CEO of Lakeport, concurs. "We really are subject to the processes and regulations that are imposed upon us by the larger brewers," she says.

To add to the slow decline of the Canadian brewing industry, Canadians have also developed a taste for imported beers in favour of standards like Molson, Labatt and Sleeman products. "The average consumer I don't think cares," says Michael Palmer, an analyst with Veritas Investment Research Corp., about the demise of the big Canadian-owned brewery. "That whole import segment continues to grow at the expense of Canadian brands." Canada's favourite imported beer? Mexican, followed by beer from the Netherlands. That may be the most telling evidence that the glory days of the big Canadian brewery are long past. Bob and Doug McKenzie, the SCTV parodies of the archetypal Canadian male, would surely roll over in their graves.

Maclean's September 4, 2006