The Ontario Craft Beer Guide - Robin LeBlanc, Jordan St. John (2016)
Buying Beer in Ontario
As a result of a combination of factors, the Ontario beer market has changed relatively drastically in a very short time. The addition of 150 breweries over the last four years created a situation in which reform to the existing beer-retailing system was necessary in order to provide the provinces’ breweries a road to the market. The political will to make these changes was helped somewhat by the geographic allocation of breweries. There is now a small brewer in just about every riding in the province, which makes their survival an important issue for local government representatives.
In this section we will attempt to outline the players in the market. This comes with a caveat. Change to the retail portion of the Ontario beer market is going to come relatively slowly over the next decade. This is likely by design. Critics of the recent changes that have taken place assume that the laggard nature of change is designed to help the large brewers. More probably, the changes to the market are designed to be gradual and predictable in order to create dependable tax revenues for the Ontario government. In life, sometimes we get boring policy instead of exciting conspiracies.
The Beer Store
In principle, the Beer Store is a good idea. Founded in 1927, it was a post-Prohibition answer to beer retailing. The twelve-year experiment with prohibiting alcohol left a market in which there was no system for retailing beer. The Province of Ontario created the Liquor Control Board of Ontario (LCBO) in order to retail wine and liquor, but was stymied somewhat by one of the ever-present realities of brewers throughout history: beer takes up a lot of space. Beer is heavy and the roads are poor. In order to sell beer, it is necessary to warehouse it and deliver it. Consider the cost of starting the LCBO from scratch and then tack on additional warehousing.
Brewer’s Warehousing, as the Beer Store was called when it was first created, was an attempt to outsource the warehousing and delivery of beer. Originally, it delivered to mom-and-pop stores, which actually handled the retailing. The warehousing system was partially owned by each of the brewers in the province — a format that made it a co-operative. Some brewers were larger than others, but that is a persistent market reality. Eventually, Brewers Warehousing became Brewers Retail and the warehouses developed their own network of stores. The cost savings for brewers as a result of the vertical integration of the business was part of the appeal.
With the benefit of hindsight, it is easy to see that the consolidation of Ontario’s breweries was an inevitability following Prohibition. Many of them had been turned into vinegar factories or soft-drink bottling plants and were not really solvent. Prohibition had driven nearly all of Ontario’s brewers out of business, but the creation of Brewers Warehousing in 1927 was not the ideal answer for many of the new breweries that were opened following the relaxation of the province’s liquor laws; in fact, it compounded the pressure on some brewers. While the beer retailing co-op provided savings to the brewers who jointly owned it, the size of the operation and the fact that participating brewers were expected to be able to provide enough beer to stock stores across the province meant that many brewers could not afford to be part of it. As a result, larger, better-financed companies, such as E.P. Taylor’s Canadian Breweries, were able to lessen competition by buying up the smaller, failing brewing operations.
While companies like Canadian Breweries certainly got the ball rolling, consolidation was happening in markets all over the world. This practice continued over the next few decades until, by the 1980s, there were only a handful of giant brewers left in Canada. In Ontario, this extreme consolidation of the brewery business resulted in the Beer Store having just two majority owners by 1989: Molson and Labatt.
By 2014, additional mergers and acquisitions in the international market meant that Molson had become Molson Coors and was therefore partially American owned. Labatt had been purchased by InBev in 1995 and subsequently became part of the Belgian-based Anheuser-Busch InBev. A small percentage is owned by Japan’s Sapporo, which was able to make inroads into the market by purchasing Sleeman. As a consequence of corporate consolidations, the means of distribution and retailing of beer in the province of Ontario, originally intended to be a co-operative for the province’s brewers, was completely owned by three entities based outside the province. It was estimated by various analysts that the owners realized between $400 and $700 million worth of cost reductions annually as a result of this arrangement.
The 150 breweries that existed in Ontario at the end of 2014 had no ownership stake or decision-making ability in the system with which they were meant to do business. Criticisms included exorbitant listing fees and unequal representation on shelves and in displays, both of which were entirely justified. Additionally, the Beer Store represents a mid-twentieth-century model of retail designed for a small number of year-round brands to be sold in large packaging formats. The craft beer model, which includes numerous seasonal releases throughout the course of the year, was completely ignored.
The Beer Store’s failure to acknowledge the realities of the market have led to some mandated changes. Small brewers will be entitled to purchase nominal ownership. The board structure has been revamped to include independent members and representatives for non-majority owners. The creation of the position of beer ombudsman will hopefully shed light on any abuses customers witness. A reduction in the fee structure and a mandate dedicating 20 percent of products be from small brewers may make the stores more accessible, but the question remains as to whether small brewers will want to do business with an entity that did not consider their needs until forced to by the government.
In light of other developments, the Beer Store’s overall business will likely continue to wane. The LCBO diversified into beer two generations ago, and polling commissioned by the authors suggests that 50 percent of customers under the age of forty-five are unlikely to shop for beer at the Beer Store. Its unwillingness to cater to an emerging market rendered the Beer Store irrelevant to Ontario’s brewers as a retailer for years and did serious damage to it with beer drinkers. It remains to be seen whether brewers will do business with it and whether customers can be persuaded to shop there again.
The LCBO
As mentioned, the LCBO was not designed to handle beer. Its mandate was to sell the province wine and liquor. There was a time when it did so begrudgingly, forcing people to carry liquor-permit books with them until 1962. In the modern era, it supplies a glossy magazine that highlights the qualities of various types of alcohol and provides food-pairing possibilities. This suggests that change is possible as long as the government gets a cut of the profits.
The LCBO has done quite a good job with the beer segment, especially when you consider that it was not designed for that purpose. Its position as the largest purchaser of beverage alcohol in the world means that it has frequently achieved economies of scale in dealing with foreign producers. That means Ontarians have access to world-class Belgian and German beers at incredibly reasonable prices. In fact, the LCBO is the only retail organization in Ontario that actively imports beer from other countries. While the choices it makes in terms of which beers to import is certainly a bone of contention, it hits on winners about 50 percent of the time.
The real difficulty with the LCBO is the fact that it is limited in terms of retail space. Traditional beer-packaging formats are large and cumbersome. An agreement from the year 2000 arranged that the LCBO would limit itself to six packs as the maximum volume in the majority of its stores (agency stores excluded), allowing the Beer Store exclusivity on twelve- and twenty-four-bottle formats. While this caused public outcry upon revelation, it’s not an insensible policy. The Beer Store was designed to handle those volumes. The LCBO was not.
The LCBO has done quite well for Ontario’s small brewers, which have been one of the fastest-growing segments in the store for a number of years. In fact, the explosion of Ontario’s craft scene could not have happened without the LCBO as a partner. There are, however, a few intrinsic problems. For one thing, brewers are not guaranteed shelf space at the LCBO and frequently profess a desire for a more transparent product-selection process. For another, limitations in shelf space mean that the preferred formats for craft beer are cans and single bottles. A side effect of this limitation is that people experiment with different products more willingly — a real positive if you’re a small brewer.
The LCBO has recently launched the Craft Beer Zone, a specialty area in a small number of stores that will focus on showcasing Ontario’s brewers and giv them the attention that the exploding industry deserves. That being said, the LCBO is ill-equipped to deal with the approximately 200 breweries that currently exist, let alone the hundred that are in the planning.
Grocery Stores
The announcement in April of 2015 that grocery stores would be permitted to sell beer in Ontario was met with skepticism. It has been so long since there was any change to the structure of beer retailing in the province that a certain amount of wariness was understandable. According to the new framework, over the course of the next decade 450 grocery stores will be allowed licences to sell beer, creating approximately the same number of retailers as currently exist in the Beer Store chain. While the initial bidding process has allowed for sixty grocery stores to obtain licenses at time of writing, 150 stores will have the ability to sell beer by May 1, 2017. A reasonable effort has been made to ensure the distribution of licences is equitable and that they do not fall solely to larger chains of stores.
There are justifiable concerns about the manner in which beer is going to be sold. An upper limit of 7.1% alcohol on products to be sold at grocery stores seems somewhat arbitrary but should not represent a barrier to the vast majority of brands. Stores will apparently not be allowed to sell their own brand of products. A soft cap on volumes of beer being sold through each location means grocery stores will pay a 1-percent penalty beyond a certain amount of beer sold, with that penalty going to the brewer owners of the Beer Store. The authors suspect that this amount will in no way be large enough to compensate the Beer Store for its loss of business. The convenience of being able to purchase beer and food in a single trip should prove to be extremely attractive to beer drinkers.
A mandated 20-percent quota for small-brewer inventory and the massive increase in shelf space that grocery stores represent means that this development is likely to disproportionately benefit craft brewers in Ontario. If one views grocery store sales in the United States or other provinces as an example, it’s likely that while large international breweries will be represented, they will not be able to dominate. Grocery stores are prohibited from accepting money or inducements for shelf space. In point of fact, most grocers have indicated that they plan to exceed the quota significantly. This development represents a huge amount of potential growth for Ontario’s brewing industry and should be exciting to watch over the next few years.
Bars and Restaurants
One of the best places to enjoy craft beer is at a bar that specializes in serving it. To that end, we have created an appendix with a list of some of the better destinations in Ontario for your delectation. Because craft breweries tend to sell and deliver directly to bars and pubs, that’s where you’re likely to find their most interesting products. Seasonals and one-off beers are in high demand across the province for rotating taps, and offerings can change daily. Many better pubs post daily changes on Twitter or Instagram.
Some of the better bars will have dozens of choices. A word of caution: beyond a certain point you may notice diminishing returns on taplist size. A bar with over a hundred craft beers on tap is almost certainly not turning over kegs at the speed of a bar with a dozen. Although this is not a certainty, you may want to keep in mind that variety has drawbacks as well as advantages.
Bars that do not carry some manner of craft beer are becoming increasingly rare in urban parts of Ontario. That said, brewery incentivization remains a real problem in the province. Doubtless you will have walked into a bar in which all of the taps are from a single large brewing company. Perhaps you have witnessed the annual blossoming of the promotional patio umbrellas.
Theoretically, the practice of incentivizing bars to carry your product is illegal. In practice it remains very difficult to enforce. The Alcohol and Gaming Commission of Ontario does not currently have a realistic path to the enforcement of this policy. As a consumer, you do. We urge you to vote with your dollar. Choose to drink in a bar with more flavourful beer that’s made in Ontario by a small producer. Not only will you be helping the province’s economy, the food will probably be better and the people will almost certainly be more interesting.
Breweries
If you enjoy beer and you’d like to support Ontario’s craft breweries, the place that makes the most sense to buy beer is at the brewery. Whether it’s a brewpub that sells growlers out of its retail store or a full-size brewery with bottles, cans, and a selection of novelty glassware and bottle openers, the reality is this: The beer is going to be better coming out of the brewery. It will be fresher and tastier.
While buying through a retail channel may be more convenient, depending on where you live there may be issues with freshness when you’re buying a product from a store that stocks several hundred different items. In the case of craft beer, which is almost always unpasteurized and frequently unfiltered, the product is probably shelf stable for up to four months. That said, the difference between a fresh can and a four-month-old can is probably noticeable in a side-by-side tasting, even to the uninitiated.
Many small breweries have tasting bars that will allow you to try a small amount of a beer before you purchase it, just in case you want to be sure that you’ll like it. In some parts of Ontario you could put together a pretty good afternoon wandering from brewery to brewery and doing just that. The majority of these breweries will have knowledgeable employees behind the bar, willing to talk you through the finer points of their products. In some cases it may be the owner of the brewery manning the bar. It’s always good to know the person whose product you’re buying.
Also, because the beer at the brewery is not subject to retail markups, brewers will make a better margin on beer that they sell out their front door. This, in turn, will allow them to invest in their businesses and improve the beer that you’re buying from them. When you buy beer from the brewery retail store, you’re part of a delicious economic cycle.