Day 504

Brands. That was our focus in Sales & Promotions today. A brand is not the same as a product–a product is something you produce, a brand is a particular image that is attached to the product. For instance, Starbucks makes coffee, but you probably think of the  green mermaid rather than coffee when I say Starbucks.

“Starbucks.”

See?

Branding is the way to sell more product, but remember, the brand will become the face of the company and vice versa. If the company garners bad publicity unrelated to the brand, the brand will still suffer (and sales will fall). If the brand garners bad publicity (a recall, for instance), your company image will be tarnished.

We also covered some marketing theory, but I have to say that although I am very interested in the creative process in marketing, I find the dry theory, the mnemonics and “marketing talk”–the 4 Ps, SIVA, TDPH, etc.–to be deadly dull.

On to Brewery Management. To warm up, we talked about “stealth breweries”–brands or products produced by the big companies but made to look like craft beers. For instance, Rickard’s Red first appeared in the Canadian marketplace 30 years ago, apparently brewed by the Capilano Brewing Company. Except there was no such company. It wasn’t until several years later that Molson owned up to being the brewer, having developed it at their Vancouver brewery (in the Capilano area) under the watchful eye of brewmaster Gord Rickard. Of course, with a falling market share, it make sense that large brewers are going to try to capture some of the burgeoning craft beer market by making “craft-like” products.

One way to do that is just to make it and pretend you didn’t make it. Hence Rickard’s Red.

Another way is to simply buy out a craft brewery and add their profits to your bottom line. So Molson bought Creemore Springs, and Sleeman bought Okanagan Springs (B.C.), Unibroue (Quebec) and Upper Canada (Ontario).

A third way is to build a small brewery, and hope people don’t notice it belongs to you. So you may not be aware that Molson owns Six Pints, Labatt owns Shock Top and Moosehead owns Hop City.

So are stealth craft breweries good or bad for the craft brewing industry? On the one hand, they are competition, and any one of the parent companies has far deeper wallets than all the craft breweries in Ontario combined. On the other hand, more choice can’t be as bad thing in terms of consumer education.

What do craft brewers think of The Beer Store, the retail beer store that is owned by the Big Three (Molson, Labatt and Sleeman)? On the good side, TBS has an extremely efficient low-cost distribution system. You will definitely get paid. And the focus is on beer and only beer–you don’t have customers coming into TBS undecided between beer or a vodka cooler. On the minus side, it costs a lot of money to get a single SKU of your beer into The Beer Store, then more money for another SKU, then even more money for another SKU. Bring lots and lots of money. Also, since the Big Three own the stores, they will naturally promote their own products. Yours–not so much. Their beers will be on the main aisle highlighted with bright signs and flashing arrows. Yours will be piled in a quiet corner, where it will lie forgotten and unsold. Then when the beer reaches its best before date, The Beer Store will tell you to come and pick up your stale beer–and ask for a refund for the unsold beer. Demographics are not friendly to craft brewers either. The Beer Store customers tend to be older, and generally have already decided what beer they are going to buy before they enter the store–usually the same beer they’ve been drinking for the past thirty years.

So, it’s back to the LCBO. Mike Arnold, who has been dealing with the LCBO for thirty years, led us through their pricing structure.

First, you decide on a retail price. (Take some time here–due to the law of equal prices, what you decide on will be the retail price for this product right across the province: in all LCBOs, Beer Stores, and even in your own brewery retail store.) So let’s say you’re selling a 500 mL bomber of IPA for $8.95. (This includes both a 13% Harmonized Sales Tax and a 10-cent deposit on the bottle.)

To calculate the wholesale price (the money you get to keep),the LCBO first has to

  • deduct the deposit. ($8.95 – 0.10 = $8.85)
  • calculate the HST, round it to the nearest cent and deduct it ($8.85 – 1.0182 1.02 = $7.83) This is the “basic price”– the price you would charge for the beer in your retail store before adding the HST and deposit.

However, you’re not selling the beer in your store, it’s the LCBO, and they have a few more deductions to make.

  • Basic fee of $0.2236/litre = (-$0.1118) for 500 mL
  • Volume levy of $0.176/litre = (-$0.088)
  • Environmental fee on containers that will not be re-used = $0 (Let’s assume you are using a reusable container, have  a bottle cleaner and intend to clean and reuse the bottles.)
  • In-store fee of $0.606/litre = (-$0.303)

The total fees are $0.5028 per bottle, meaning the wholesale price (basic price minus total fees) will be

$7.83 – 0.5028 = $7.3291 = $7.33

Therefore, for each bomber of IPA you sell at $8.95, you will receive $7.33–or a few cents less if you don’t intend to wash and reuse the bottle and therefore get dinged with the environmental fee.

This is pretty straightforward, except for one very strange rule. When the LCBO calculates the price for, say, 100 of these bombers, they don’t just take the basic price, multiply it by 100, add the HST and deposit, like any other transaction involving any other product in the province.  (That is, $7.83 per bottle x 100 bottles + 13% HST + $0.10 deposit per bottle = $894.79)

No, they use the rounded off HST total as calculated above on each separate bomber in the transaction:

(($7.83 + $1.02) x 100) +($0.10 deposit x 100) = $895.00.

In other words, they are taking in 21 cents more than expected on 100 bombers.

What’s more, you also have to do the same thing in your brewery store. If some dude walks in and buys 9 bombers of your IPA, you can’t just have your cash register add 13% HST and bottle deposit to the transaction. No, you have to adjust the cash register so that it calculates the HST on each separate bomber of IPA, rounds off the HST to the nearest cent, then adds the deposit and totals up the entire transaction. D’ohh! And you thought owning a brewery was easy…

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