Ontario Craft Brewers Conference

Whew! It was a busy busy week made even busier because Monday was Thanksgiving in Canada. I love long weekends — who doesn’t? — but it sure means the rest of the week feels crammed together, especially when you’ve got a couple of big events scheduled.

First up was the second annual Ontario Craft Brewers’ (OCB) Conference in Toronto, and this year everyone in the Brewmaster program was going — all 47 students from both years as well as the staff. Alas for the students, the first session started at 8 a.m., so they had to climb onto the bus at the early hour of 6:15 a.m. Since I live halfway to Toronto, I took a commuter train instead. (If you’re thinking that I got to sleep in, the train-schedule gnomes dictated that the only train going to where I needed to get to also departed at — yes, you guessed it — exactly 6:15 a.m.)

1. Welcome and Introductions (John Hay, OCB President)

The first speaker of the day was John Hay. Given all the new breweries opening in Ontario, and increases in both sales and volume of Ontario craft beer, John was understandably very pleased with the past year, and told us so.

2. State of the Industry Report for Ontario (Bob Rubenstein, Target Market Research)

Bob Rubenstein illustrated with numbers and graphs exactly what John Hay had just finished telling us. Lots of numbers and graphs. Soooo many numbers and graphs. Just a small sample of the numbers:

In the US, craft beer now owns a 6.6% of the market, an increase of about 1% per year since 2007. (Bob told us we could use that as a useful benchmark when we compared numbers in Canada.)

Even more telling was a look at the downfall of some major brands over the past three years:

  • Bud Light fell from 22% to 19% market share
  • Budweiser, once THE major player, was down to only 8% market share
  • Miller Lite, a huge brand back in the day, was down to only 7% market share

On the opposite side of the coin, some craft breweries showed astounding growth in annual sales over the same three-year period:

  • Sierra Nevada sales were up 29%
  • Boston Beer Co. sales were up 34%
  • New Belgium increased sales by 40%
  • Yeungling sales increased 49%
  • Dogfish Head sales were up 124%! (Wow!)

OK, what about Canada? Just looking at Ontario, the big breweries sold about the same amount of discount beer in 2012 compared to three years earlier, and actually sold slightly less mainstream beer. In contrast, imported beer sales were up 4%, premium beer sales were up 6%, and in 2012, craft brewers sold 19% more than they had in 2009. This represents a 3.2% share of the Ontario market.

Looking ahead two years to 2015, Bob predicted that craft beer’s share of the Ontario market will increase to 4.4%. In comparison, he foresaw mainstream beers losing almost 4% market share to drop to less than 44% market share in 2015.

(That’s all the numbers I’m going to share, but believe me when I tell you that there were lots more numbers. And graphs — lots and lots of graphs.)

With the expected increase in craft beer production in Ontario, this will mean more brewery jobs! Yay! (Great news for the current crop of Brewmaster students!)

But before you say, “Yay!” too loudly, Bob reminded us that although craft beer ales were up, overall sales of beer in North America were declining, in part because of the aging population, in addition to a general switch to wine, cider and spirits. Can craft beer continue to grow when the overall market is falling? Hmmm…

3. Avoiding the Pothole: Lessons from the Collapse of Craft Beer Growth in the late 1990s (Ray Daniels, Cicerone program)

Hey, it was my old buddy Ray Daniels, founder of the Certified Ciccerone program! Surely he would remember me from the Boston Beer Bloggers Conference only three months ago. Although we hadn’t actually spoken face-to-face in Boston, I was fairly certain he would recall me, since I was sitting in exactly the same place — directly in front of him, right at the back of the room. Alas, he didn’t wave.

Ray was here to remind us of the hard times that befell the craft beer industry in the late 1990s, and analyze why that had occurred so that we could avoid making the same mistakes.

Acknowledging Bob Rubenstein’s numbers and graphs, Ray agreed that growth is always great, and leads to more volume and more variety. But generally, the world is hard for new businesses. In the American restaurant business, 28% of new places close in their first year of operation, and 60% close in within three years. Thankfully, the brewing industry does not reflect that trend. In fact, in the U.S. brewing industry, less than 5% of new breweries close. It’s like we are exceptional.

Why the difference between a brewery and say, a restaurant? Well, in order to open a restaurant, you really only need a building, some kitchen equipment, some tables and chairs and someone who thinks they know how to cook. But in order to opena brewery, you need to buys eom fairly expensive equipment, do some fairly expensie renovations on the building, and find someone who knows how to make beer — a fairly rare talent. Just to open the doors, you need to know what you’re doing, which gives you an important advantage over a lot of other types of businesses.

Beer also has an additional advantage: you don’t have to teach people about your product — generally if you say, “I make beer”, most people know what you’re selling. And, there’s also a certain lack of competition amongst craft brewers — we’re still in the friendly, collegial stage. Finally, the increasing market share in the U.S. — a steady 10% growth over the past decade — helps the entire craft brewing community. As Ray said, “A rising tide raises all boats.”

The result is that we have seen an unprecedented number of new breweries open in the past five years. But Ray reminded us that there was a similar situation two decades ago — a sharp rise in the number of craft breweries, and everything seemed rosy. Then the tsunami hit — the craft beer industry suffered a sharp crash, a disaster that somehow did not affect mainstream and import brands.

So what caused the crash, and why only craft beer? Ray put it down to a number of factors:

  • The boom had started because consumers were excited by flavourful beer. In response to this, retailers were “churning” their product — never sticking with any one brand long enough for it to build a following, but restocking their shelves with a never-ending stream of new beers.
  • Brewers, cocky with their newfound powers, were shipping to distant markets all over the country with no knowledge of the new markets, no promotion of their beer and no direct customer interaction. The brewers believed that the beer distributors would take care of that stuff. (They didn’t.)
  • And unfortunately, some craft beers were bad — a lack of quality control, exacerbated by over-production, meant a lot of craft beer had a very short shelf life, emerging from the bottle oxidized, cloudy, sour, gushing — or a combination of all of these.

The result was that if you found a beer you liked, you probably couldn’t find it again; and even if you did find it, chances were that it tasted a little — or a lot — different the second time.

But once consumers had tasted good beer, they were hooked — they wanted to drink flavourful beer all the time. So they started looking around for brands that were consistently good and that they could find anytime. Enter the European imports: Guinness, Bass, Beck, etc. Many people who had started drinking craft beer switched to imports. The result for the craft beer industry was a rapid retrenchment: dozens and dozens of breweries closed across the country, or were forced to amalgamate. Entire lines of brands were rationalized out of existance.

In Chicago alone, six breweries closed, and Ray gave us a closer look into the causes of some of the closures.

The first was a brewpub, the Golden <something or other> — sorry, didn’t catch the complete name. The problem with brewpubs is that devoting a lot of space to the brewing equipment means that you only use that space two or three times a week; the rest of the time, the brewing equipment takes up valuable space that could be used to seat more diners (and drinkers.) Expansion is an option, but generally those went badly in the 1990s, since the building was rarely designed to hold a brewery; most expansion plans were poorly conceived by non-engineers; and often the infrastructure (steam, water, glycol and electricity) was not upgraded to match the new equipment. (In the case of this brewpub, the equipment took up too much space. After the place was redesigned, they discovered that there was no longer enough steam to bring the wort to a boil. They were pooched.)

Ray also reminded us of Baderbrau — a brewery with a good German name that unfortunately sounded like “Badder” to the citizens of Chicago. And Baderbrau only made one type of beer, so there was never anything new to celebrate. (Yes, Steam Whistle has made the “one beer” concept work, but generally, it’s a challenge.)

Then there was the Chicago Brewing Co., winner of a gold medal at the Great American Beer Festival (GABF). However, this brewery never managed to produce good-quality beer back in Chicago. That stemmed in part from a poor operational layout — due to placing the grain mill right beside the brewhouse, everything in the brewery was perpetually covered with grain dust. In addition, the brewhouse featured old European equipment — not only was it quirky to operate, but replacement parts could not be found. The number of people on staff, and therefore the payroll, was relatively high, meaning that there was no spare money for a proper upgrade and expansion. Despite good recipes, the result was low quality beer.

So how did the U.S. craft beer industry turn it around? (And by extension, how do we prevent a similar crash in our near future?) Ray believes that the craft breweries that survived did so by focussing on the details: they had a solid business plan based on conservative expectations for reasonable growth; and planned expansions and growth carefully. Craft breweries also learned to build solid business relationships with consumers in both their home markets,and in new markets. Andf they started taking consistency and shelf life seriously.

Ray did admit there is talk of a new bubble in the craft beer industry, but unlike 1994, he says we are better prepared this time around: we make better quality beer; real growth in the industry is coming from established brewers, not just the creation and output of new breweries; distributors and retail outlets in the U.S. have embraced craft beer; and perhaps most telling, big brewers now produce “crafty” brands in order to compete in the flavourful beer niche.

Wow, that was a lot of information, and it wasn’t even ten o’clock yet. I needed another coffee if I was going to keep up…

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2 Comments on “Ontario Craft Brewers Conference”

  1. I would love to know what the forecasted ontario numbers are based on.

    • Alan Brown Says:

      The causes of past trending and the likelihood of those causes continuing in the future, the possibilities of other trends factored in, and a lot of hand-wavium.

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